I figured it was about time for some good news. There’s a big stock rally coming. Whether or not this rally becomes the start of the next Bull Market is anybody’s guess. But we’re likely to quickly retrace and regain most of the losses of the last three weeks. Following are the four reasons to be optimistic for what the market holds in store for the rest of summer.

The Herd is Bearish and the Herd is always wrong

The Herd is bearish and the Herd is selling. The despondent mood of the market has been replaced by one of fear and panic. Both are misplaced feelings that will ultimately do great harm to investors acting upon them. Because unfortunately, the Herd is always wrong, especially at turning points. Go back to the first quarter of 2000. US Equity mutual funds were taking in record amounts of monthly inflows. Bond funds were being redeemed at an identical pace. The opposite is occurring now. Bad, bad logic, played out en masse, is always a bullish sign.

The Volatility Index is Screaming

If you don’t follow the Volatility Index (VIX), put out by the Chicago Board of Options Exchange (CBOE), you should. It measures the volatility of stock options and is a gauge of investor panic on the downside. Currently, it has a reading of 50—and it’s only been that high three times in ten years—October of 1997 (the Currency Crisis), October of 1998 (Long Term Capital), and September of 2001 (the Terrorist Attack). Each time, the market was up an average of 22% four months later.

It’s the Economy, Stupid

The market’s strongest relationship is to the economy. In normal times, the stock market moves six to nine months in advance of the earnings cycle. That makes sense, considering that stocks represent equity stakes in companies that are in business to maximize earnings and thus shareholder value. But occasionally, the market deviates from the economic path. It grossly overestimated the likely earnings prospects in early 2000. And it’s doing the same now, in the other direction. We’re not in recession, most companies are doing great, and eventually the market will reconcile with earnings, which, if it happens anytime soon, will boost stocks voraciously.

The Stealth Sector Rotation

One bullish signal, going almost unrecognized, is the change of interest from defensive stocks to more aggressive ones—in a falling market! As a daily observer of the market indicators at the close, I can tell you that the during this Bear Market, the Nasdaq closes lower than the S&P 500 on virtually all down-days, and vice versa. That was until two weeks ago. Remarkably, the Nasdaq’s been holding up better than the S&P on the downside, and the staid Dow Jones has been doing worse than both of them. The few stocks that hadn’t previously been hit, are leading the way down, including transports, utilities, REITs, and consumer staples. This is an indication of the end of the selloff. When a tech stock does better than a utility, during a bloodbath, it says that this unprecedented, unnecessary panic is on its last legs.

Ultimately, I only make these short-term market calls for trivial purposes, and entertainment value. The worse, most egregious error an investor can make is trying to time the market—going or coming. Asset allocation—the amount of your assets in stocks versus bonds, cash, and other—is mostly a function of your time horizon, as it relates to how much you have in stocks.

If you have more than five years before your stocks need be liquidated or converted to an income-producing vehicle, your trepidation about the market is misplaced. If you don’t have five years, you shouldn’t be in stocks to begin with. But one cannot "sit it out until things improve" because of the opportunity cost associated with quickly recovering stocks. As we’ll see in the impending rally.

At the time of publication, the author was neither long nor short any of the stocks mentioned in this article, either in client accounts or personal ones. Positions may change at any time.