Mid-term: S&P 500 is still 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. The strong rally continued last week as SPX attempts to reach the 200-day moving average.
One-month trend = Bearish. After a strong downtrend, SPX bounced back strongly. It could be a typical bear market rally, but let’s wait and see if the rally fails.
RSI: (S&P 500) @ 57.36 = Neutral. The market could go in either direction this week so be careful.
MACD: MACD is slightly below its Zero Line but rose above its 9-day Signal Line) = Neutral to Bullish
The market has rallied so quickly and strongly that it surprised almost everyone. A number of bullish investors have proclaimed that the bear market is already over. Hmmm.
There is a disconnect between the stock market and the economy. As I’ve often said, the market is the news, and that is true. With the Fed’s help, the market has recovered much of its losses, and is acting as if the economy is strong and all is well.
Unfortunately, reality is going to smack the market like a 2 x 4 in the face. I would be very very cautious about being long at these elevated levels. With the economy in shambles, with millions out of work, with the virus still ravaging the world, and with bad news as far as the eye can see, eventually reality will win.
I wish I had better news but in the short-term, we are going to be in a world of pain. Eventually many of our problems will be solved, but not quickly. Many people are too impatient. They want the bear market to end, for the economy to recover, and for everyone to return back to work. In reality, we are in for a longer term process that will take time a lot of time to play out.
My advice: Be very cautious and defensive in these dangerous times. I would not be surprised to see the indexes fall well below the March lows in the next few weeks or months. It might be hard to believe we could crash again but that is typical of a failed bear market rally.
Once again, here are two pieces that I recommend reading:
Sven Henrich @ Northman Trader on how you should look at one chart to see the truth about the current market: https://bit.ly/2VmnmnB
Lance Roberts, money manager @ realinvestmentadvice.com on how the market has moved into the resistance zone: https://bit.ly/2XMyM5p
Mid-term: S&P 500 is 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. Last week was the strongest rally in 45 years but it wasn’t enough to bring the indexes above the 200-day.
One-month trend = Bearish. After a strong downtrend, SPX bounced back strongly. It could be a typical bear market rally, but let’s wait and see.
RSI: (S&P 500) @ 54.62 = Neutral. The market could go in either direction this week so be careful.
MACD: MACD is below its Zero Line but rose above its 9-day Signal Line) = Bearish to Neutral
Comment: Last week was the strongest rally in 45 years. I wish we could celebrate but the odds are good it is a bear market rally, which typically doesn’t last for long. The futures are lower on Sunday night and so is oil.
The Fed has thrown huge sums of money at every asset class, including the stock market. Meanwhile, the real economy is in deep, deep trouble.
Until the indexes rise above their 200-day moving averages, I would treat every rally with deep suspicion. And until I see evidence of a strong uptrend, I will treat this is a bear market.
Wall Street and Main Street want the bear market to be over quickly, but it’s going to take time to repair the damage. Sadly, we are still suffering from the effects of the virus, and most businesses are still shuttered. Until that changes, I would not be in a rush to be going long right now.
I wish I had more positive news but bear markets are not fun for most people, and this is going to be a bad one. I don’t believe the cheerleaders on TV, or those who proclaim the bear market is over, or those who say we’re going to bounce back soon. I hope they’re right, but I doubt it.
Cash is not a bad place to be until we start solving our financial and health problems. It’s heartbreaking to see the thousands of people lining up to get food from the food banks. A lot of people are hurting.
I can’t remember where I read this but I’m paraphrasing: When things are going good, they go really good. And when things are going bad, they go really bad. Be prepared for some very tough times ahead.
The good news is that one day they will find a cure for the virus, the economy will recover, and the bear market will end. The key is surviving the tough times in the short term, which will be challenging for almost everyone.
I have an article coming out on Tuesday on MarketWatch on the bear market.
The following are much more detailed analysis of the current stock market:
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 above, assume we are in a bear market.
One-month trend = Bearish. After a strong downtrend, SPX recently bounced back, but only briefly.
RSI: (S&P 500) @ 42.92 = Slightly oversold. The market could go in either direction this week so be careful.
MACD: MACD is below its Zero Line but rose above its 9-day Signal Line) = Bearish to Neutral
Daily Intraday Volatility (VIX): 46.80 = High. Volatility has skyrocketed as fears increased, but fell last week. Expect volatile trading days until fear subsides.
Comment: It has been hard for many people to believe how quickly our lives, and the world, has changed. Those who can adjust to the changes even under adverse conditions will ultimately thrive. I am hoping that the millions of people whose lives have been upended will find a way to succeed. It will take time, but I am really hoping for the best.
Meanwhile, as long as the indexes are below their 200-day moving averages, I will treat this as a bear market. This is going to be very hard for many people to believe, especially on the days the market rallies.
For over 10 years, we were in a strong bull market, and now it’s over. Many are hoping the bear market will end quickly, and some actually think it already ended. The reality is that if this bear market follows a traditional path, the bear will last anywhere from 6 to 18 months. Judging by the economy and the impact of the virus, I believe it could last longer than most investors realize.
Therefore, if you want to face reality, then rallies should be viewed with suspicion. Although there will be amazing, mind-blowing rallies on occasion, as the bear market continues, the indexes will ultimately grind lower. Those who don’t want to believe or don’t see will keep buying on the dip as the indexes fall. Traders call it “trying to catch a falling knife.” Because the market will drop so slowly at first, bullish investors will feel like a frog being boiled in hot water.
Yes, some stocks will outperform, and if you continue to have a bullish mindset, you might find stocks that are going up. But if this is a traditional bear market, many stocks will continue to drop until the last ones, the Generals, remain. The Generals, the so-called FAANG stocks, will be the last to fall. This will not play out over weeks but over months if not a year or longer.
It’s possible that there will be a cure for the virus in a few months and the economy will come back strong. I hope that happens for the world’s sake. But as long as the indexes are below the 200-day moving average, then it is too risky to go long.
If you are unable to devote the time to trade in a bear market or are frozen in fear, you have several choices. For example, you can hold what stocks or indexes you own until the worst is over. If you own excellent stocks, they may come back in the future. That’s what happened in 2008.
You can also move some or a portion of your money to cash (hopefully on rallies). And finally, you can trade, but trading a bear market is difficult, so trade small if you choose this route. I do not recommend shorting individual stocks if you are a beginner.
Bottom line: It’s a tug of war between an awful economy and the Fed. As a result, each day is a new surprise. If I am right and this is a true bear market, selling into rallies is the strategy of choice. Warning: This is not easy to do! Most important, follow the market. Right now, Mr. Market is confused and injured, so anything is possible. Please be careful out there.
Note: Futures are screaming higher on Sunday night. Let’s see how long the rally lasts. Remember, this is a four-day trading week.
Finally, this is worth reading: Lance Roberts, money manager at (realinvestmentadvice.com), gives an excellent analysis on how the odds are good this is a bear market: https://bit.ly/3aLhZ6H
Mid-term: S&P 500 is still 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 above, assume we are in a bear market.
One-month trend = Bearish. After a strong downtrend, SPX and the other indexes bounced back last week the fastest since 1931. Consider it a bear market rally until SPX rises above its 200-day moving average.
RSI: (S&P 500) @ 43.58 = Slightly oversold. The market could go in either direction this week so be careful.
MACD: MACD is below its Zero Line but rose slightly above its 9-day Signal Line) = Bearish to Neutral
Daily Intraday Volatility (VIX): 65.54 (Extremely High) = Volatility has skyrocketed as fears increased. Expect volatile trading days until panic and fear subsides.
Comment: It’s going to be another volatile week as the Fed’s infusion of capital into the market competes with bad news about the virus and economy. Even with the rally, we are still oversold (the crash was the fastest and strongest in history).
In a typical bear market, the markets will have a severe plunge like we just experienced, then rally strongly, followed by a longer, more severe pullback that can last months if not years. No one can predict if we will follow this model, but it’s possible.
Unfortunately, many people are still in denial, and are hoping we will return to the old time highs (one financial publication even proclaimed that the bear market was over). Don’t be surprised if we rally strongly on some days but be suspicious.
If you are trading or investing, you must be brutally honest. You may have noticed that many traders are “selling the rally,” which is typical in a bear market. In a bull market, investors and traders will “buy the dip,” but do the opposite in a bear market. Again, the bear market rally could continue into this week (it’s possible although the futures are lower on Sunday night).
Bottom line: No one can predict what is going to happen so all you can do is sit back and be ready for any scenario. With the virus taking up all of the news coverage, which will soon be followed by dreadful employment news, it’s going to be a struggle in the near future. Expect rough times before we see a light at the end of the tunnel.
Bottom line: These are difficult times for everyone. It’s distressing how quickly the economy collapsed, and how so many jobs were lost. I truly hope that the Fed knows what it is doing.
Read the excellent analysis below for a more detailed take on the future.
Sven Henrich (Northman Trader) on the future of the stock market: https://bit.ly/3acjfiH . Be sure to watch the video at the end of the commentary.
Lance Roberts, money manager at (realinvestmentadvice.com), on how the bear market may play out: https://bit.ly/33UPTmE
Finally, although the following video is not related to the stock market, it is worth watching (57 minutes). It’s from a New York doctor who tells exactly how to protect you and your family from the virus by following some basic rules. It will actually reduce your fears as he tells the facts.
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: