Mid-term: S&P 500 remains 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.
One-month trend = Bearish. We are in a strong downtrend and it’s about as ugly as I’ve seen since 2008.
RSI: (S&P 500) @ 35.62 = Oversold. Unfortunately, there is still room for the market to fall more before another dead-cat bounce.
MACD: MACD in a free-fall. (MACD plunged below its Zero Line and plunged below its 9-day Signal Line) = Bearish
Daily Intraday Volatility: 41.94 (High) = Volatility skyrocketed to as high as 54 before pulling back = Bearish. Although fear and volatility doesn’t last forever, the extreme volatility the markets are experiencing is similar to a car traveling at 100 miles an hour while falling apart. Sven Henrich explains it better than me (link at end of this piece).
Comment: The Sunday night futures are plunging to extreme levels at this writing. I don’t remember seeing the market plunge this often since 2008. As long as the SPX remains below the 200-day moving average, we are in a correction, and perhaps a bear market (we will have to see how low the markets go).
As I wrote a few weeks ago, although we still have a ways to go before we bottom, for many stockholders, it will feel like a crash. As you probably know, oil is crashing along with airlines and the travel industry. The Black Swan was the virus, and it is just getting started in the U.S.
If we do enter a bear market, remember that there are often strong one-day rallies like last week that can blow your socks off. If you’ve been following my advice for the last few months, you’ve built up a cash position and will be ready to buy when we hit bottom.
One thing for sure: Trading in a bear market is not easy. For many, it’s easier to diversify into cash and wait (it doesn’t mean to sell all in a panic). I interviewed Peter Lynch a few years ago and when I asked him how he handled bear markets, he said that although they are not fun, you grit your teeth and wait until it’s over. He said if you know what stocks you own, then you should be in good shape when the bear market ends.
We are going through rough times and there is no playbook right now. One day they will make a vaccine for the virus, and we will all celebrate. The market, unfortunately, may feel the effects of a popped bubble for many years. There will be a lot of blame to go around. The Fed gets a lot of the blame for cutting interest rates during the good times (after being pressured by President Trump). Now that we need emergency measures, the Fed has limited tools. In other words, it’s a perfect storm.
I hope a bottom is reached soon, but you cannot trade or invest based on hope. Keep your eye on the 200-day moving average. If we’re fortunate, and the central bankers devise a coordinated response, the markets will recover in the near future. Unfortunately, added to the economy’s woes are oil, which is crashing to $30 a barrel on Sunday night.
If this is truly a bear market, and it’s too early to proclaim it is, the old strategies won’t work. Buying on the dip will be difficult, and although there will be dead cat bounces, the market will keep falling until it hits bottom. The good news, as investors have repeatedly said, is that the “market always comes back.” That is true, but if you own the wrong stocks, your portfolio might not.
Note: I wish that everyone stays safe as this virus spreads across the world. We are in uncharted times right now so trying to predict what will happen in the future is useless. Stay calm and make plans for yourself, your family, and your portfolio.
Read the following excellent pieces from two analysts who have been warning us of the dangers for months:
Sven Henrich (Northman Trader) on the spiking VIX, which is telling us the worse is yet to come: https://bit.ly/3340Kdr
Lance Roberts, a money manager at (realinvestmentadvice.com), on navigating the unknown: https://bit.ly/333xTX2
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