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Josh Brown, the Ritholtz Wealth Management CEO and social-media force behind the popular Reformed Broker blog, once described Joseph Fahmy as “one of the best traders I’ve ever met.”
Well, if this highly touted trader has it right, get ready for “a rare, generational opportunity” in stock markets at home and abroad.
“The market call I am making could be life-changing,” said Fahmy, managing director of New York-based investment firm Zor Capital. “The explosive bull market from 1995 to 2000 helped so many investors multiply their accounts many times over, and we could be heading into a similar period now.”
Fahmy bases his prediction on three factors: technicals, fundamentals and investor sentiment — all of which he says are pointing to a big rally.
“Ultimately, it will end with a ‘blow off’ move to the upside where everyone just throws in the towel,” he said. “I don’t know if this will happen three months or three years from now, but I am leaning toward the latter because it will take a long time for investors to change their mentality.”
First up, technicals. Fahmy points out that the “smart money” is accumulating stock. Essentially, the institutions are buying on the positive weeks and not really selling much on the down weeks. “This isn’t limited to the U.S. markets,” Fahmy wrote. “The global boom is being confirmed by new highs in many international markets.
He also posted this chart to show how the Nasdaq-100 NDX, +0.72% has finally broken out into uncharted territory after 17 years of going nowhere:
Next up, fundamentals. “Stop with this nonsense,” Fahmy says, referring to how bears argue the market is out of whack in terms of valuations.
“If you factor in the low interest rate environment, we’re trading at a reasonable valuation,” he explained. “If you take out energy, the market is actually cheap!”
Fahmy gave a shout-out to Team Trump, too.
“Within the next two years, economic stimulus from the new administration will help earnings grow and justify valuations,” he said. “In addition, many megacap companies have strong balance sheets with $20B to $300B in the bank. Not exactly a bubble.”
And then there’s sentiment. Needless to say, this is about as unloved a bull market as we’ve ever seen, and even the bulls are feeling skittish.
“This constant fear is helping to drive the market higher, as many people are underestimating the power of psychology in fueling market rallies,” Fahmy said. “Since everyone is already nervous, there’s a huge rush into put hedging, shorting stocks, and buying toxic VIX products, etc. The event turns out to NOT be the end of the world and the market grinds higher, forcing many to cover their short positions and/or put cash to work.”
Fahmy used this chart to draw comparisons to the 1995 market.
“Most people can’t even consider the possibility of the market going significantly higher from here because, according to the media, this 8 year recovery is ‘long in the tooth’ and about to end,” he said, adding that investors were also living in fear of the 1987 crash back in 1987.
Finally, there’s the bull market super cycle.
As you can see by the chart below, the market’s pattern over the past century has been about 15 to 20 years of economic boom followed by 10 to 15 years of downturn. The cycle that we’re currently in looks to have started with the highs reached in 2013, and Fahmy says he believes it could last for many more years.
“These cyclical uptrends are usually led by new inventions that revolutionize our lives, enhance productivity, and completely change the way we do things,” Fahmy said. “The new ingredient that could really add fuel to this rally is the global economy.”
He’s not a blind bull and says he’s ready to cut his losses if his call goes wrong. Capital preservation is always his priority.
But he doesn’t see it coming to that.
“Think of everything that’s been thrown at this market over the past few years: geopolitical concerns, dramatic elections, viruses, Brexit, terrorist attacks, etc. and guess what? The market has been INCREDIBLY resilient and literally brushes off any bad news,” Fahmy said. “Now, imagine if the news over the next year or two actually turns positive.”