With the “inmates running the asylum” during a holiday-shortened trading week, the upward bias to the market is set to continue. However, as I addressed last week:

“As we progress through the last two months of the year, historical tendencies suggest a bias to the upside. This is particularly the case given the weakness this past summer which has left many mutual and hedge funds trailing their benchmarks. The need to play ‘catch-up’ will likely create a push into larger capitalization stocks as portfolios are ‘window dressed’ for year end reporting.

This traditional ‘Santa Claus’ rally, however, does not guarantee the resumption of the ongoing ‘bull market’ into 2016. The chart below lays out my expectation for the market through the end of the year.”

“With the markets currently oversold on a very short-term basis, the current probability is a rally into the ‘Thanksgiving’ holiday next week and potentially into the first week of December. As opposed to my rudimentary projections, the push higher will likely be a ‘choppy’ advance rather than a straight line.”

So far, the analysis over the last several weeks has continued to play out as expected. However, and this is crucially important, a near-term expectation of a bullish advance due to the recent correction and seasonal tendencies is not the same as long-term bullish outlook. 

As stated above, while seasonality likely holds the cards through the end of this year, projecting much beyond that window is foolishness. 

The Real Value Of Cash

This brings to mind a call I had on the radio show recently discussing his advisor’s reluctance to hold cash. 

The argument against holding cash goes this way:

“If you hold cash you lose value over time to inflation.” 

This is a true statement if you hold cash for an EXTREMELY long period. However, holding cash as a “hedge” against market volatility during periods of elevated uncertainty is a different matter entirely.