In recent interviews for !
And remember, the point of this exercise is threefold:
Consider all four potential future paths for the index, think about what would cause each scenario to unfold in terms of the macro drivers, and review what signals/patterns/indicators would confirm the scenario.
Decide which scenario you feel is most likely, and why you think that’s the case. Don’t forget to drop me a comment and let me know your vote!
Think about how each of the four scenarios would impact your current portfolio. How would you manage risk in each case? How and when would you take action to adapt to this new reality?
Let’s start with the most optimistic scenario, with the QQQ achieving a new all-time high over the next six to eight weeks.
Option 1: The Very Bullish Scenario
For the most bullish scenario, I basically assumed that the uptrend we’ve observed since September continues at a very similar pace. That would mean the QQQ could reach up to around $560 or so by the end of January. For that to happen, we’d need charts like NVDA to resume their uptrends, charts like META to hold their recent breakout levels, and all the other sectors to resume a more bullish configuration!
Dave’s Vote: 10%
Option 2: The Mildly Bullish Scenario
What if the Magnificent 7 names slow down a bit, and even though other sectors like financials and industrials begin to outperform, it’s just not enough to push the benchmarks much higher? Scenario 2 would mean a slower pace to the recent advance, but the bullish phase would still keep the QQQ this week’s close around $530. Perhaps the Fed meeting next week suggests a more measured pace to rate cuts in early 2025, and investors grow a bit more skeptical that this market euphoria will continue.
Dave’s vote: 20%
Option 3: The Mildly Bearish Scenario
The bearish scenarios basically assume that this week’s high is about it, and that even though we may drift a bit higher into year end, January 2025 looks a lot like January 2022. The mildly bearish Scenario means we pull back a bit, but not enough to push the Nasdaq 100 below “big round number” support at $500.
There are a number of ways this could play out, but perhaps the first run of economic data in January, combined with a disappointing beginning to earnings season, makes us all realize that the euphoria of 2024 is now in the rearview mirror!
Dave’s vote: 60%
Option 4: The Super Bearish Scenario
You always need a super bearish scenario, if only to remember that it’s always a possibility regardless of whatever’s happened in recent months! Scenario 4 would mean about a 15% decline in January, which would actually be a fairly reasonable corrective move based on market history.
If economic data shows that inflation is not remaining in the 2-3% range, or if earnings season is punctuated by a series of high profile misses, or if the Magnificent 7 all begin breaking down, this super bearish scenario could become a reality in short order.
Dave’s vote: 10%
What probabilities would you assign to each of these four scenarios? Check out the video below, and then drop a comment with which scenario you select and why!
RR#6,
Dave
P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Research LLC
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.