Mid-term: S&P 500 is well below its 200-day moving average = Bearish. The longer it remains below its 200-day MA, the more bearish it is for the stock market. Until SPX rallies back, assume we are in a bear market.
One-month trend = Bearish. We are in a strong downtrend due to a pandemic, which has decimated our economy in the short-term.
RSI: (S&P 500) @ 31.57 = Extremely Oversold. Unfortunately, there is still room for the market to fall more before another dead-cat bounce.
MACD: MACD still in a free-fall. (MACD plunged below its Zero Line and plunged below its 9-day Signal Line) = Bearish
Daily Intraday Volatility (VIX): 60.54 (Extremely High) = Volatility has skyrocketed as fears increased. Expect volatile trading days until panic and fear subsides.
Comment: Futures are plunging again on Sunday night as investors watch their 401k profits disappear. Eventually, the selling stops and there’s a tradeable bottom. These are not easy times.
We are in uncharted territory as the virus takes a physical and financial toll on the world. Last week was particularly brutal, especially last Monday when the Dow fell by over 3,000 points. I’ve never seen numbers that large, which reflects the fear and panic many investors are feeling.
I can’t prove it but I believe a lot of the selling is due to forced liquidations and margin calls by hedge funds, at least five that blew up last week. From anecdotal evidence, it appears as if many buy and hold investors are sitting tight with their stocks and mutual funds, perhaps because they remember how quickly the market bounced back after 2008.
At this time, I do not know which model the market will follow. If it’s the 1987 bear market model, we will bounce back fairly quickly, within months. The 2008 bear market model was longer and more painful, but the market bounced back after a year or so. The worst case example is the 1929 crash and bear market. I truly hope we don’t follow that model, when the market not only crashed, but continued to fall for the next three years. No one can predict when the current market will “bounce back,” so until then, selling stocks on rallies is not a bad strategy (Lance Roberts has specific advice in the link below).
These are scary times but you must remain calm and clear-headed. Hopefully, you have a sizable amount in cash that will allow you to buy at the “bottom.” Do not be fooled into buying too early, however, as many have tried and failed. Trying to time the “dip” is nearly impossible, so be patient and wait to see how this plays out.
Unfortunately, we are in for rough times ahead in the coming days, weeks, and months. If you can afford it, it would not be wrong to sit this out and wait until the selling stops. Those who want to trade can find opportunities, but trade small.
Bottom line: No one can predict the future, especially during times like this. Your money can always be replaced, but not your lives. Take steps to protect you and your family. Once this virus is eradicated, and our economy is repaired, there should be excellent opportunities to buy stocks at low prices in the future.
Read the following pieces from two analysts who have been warning us of the dangers for months. They continue to give excellent advice:
Sven Henrich (Northman Trader) on stock market fears: https://bit.ly/3acjfiH
Lance Roberts, money manager at (realinvestmentadvice.com), on how the bear market will be with us for a while: https://bit.ly/2U9Fz6Y
For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA
For insightful analysis of the stock market, read Lance Roberts:www.realinvestmentadvice.com
For insightful analysis of economic conditions, read Wolf Richter:www.wolfstreet.com