07.04.20 22:15 ET
The United States and much of the West is entering into the theoretical peak of the Chinese Virus based on modeling from various sources including the CDC. Much like the modeling used in today’s financial markets, it is probably inaccurate, but what the hell, let’s play along and assume the “experts”, like Hillary’s favorite, Doctor Fauci, would have us believe.
Considering that my ability to make sales calls and manage our company’s affairs throughout Florida has been impaired, it has provided me with the unfortunate opportunity to watch a lot of the various financial news infomercial networks. Needless to say, I was not impressed in 2007 and even less so now.
My somewhat subjective view observed that half of the programming today was spent telling dupes to buy now, hold now or take advantage of this new bull market. It was a time warp back to February 2008 where a certain bald headed bull throwing idiot told people that Bear Stearns was a buy, buy, buy.
Fast forward to this past month of wild action. Thus far our markets have entered into a new bear market, been declared to have bottomed and moved into a new bull market, and if you believe the talking heads, telling viewers to hold on to stocks of companies which have zero customers, little if any revenue, and no timeline for a return to operations is a great idea. Sound a little like 1999 perhaps?
The action thus far can best be described within this 1 year chart of the S&P 500:
Thus far we have witnessed a solid death cross, a short term first surge bottom and today a failed bear market rally to the 50 day moving average with a massive intraday high volume reversal on a 900 point decline. Other than that, yeah, that’s a bull market; right? The truth is we have seen this movie before and the people telling you this is over are either brilliant beyond belief or the usual snake oil salesman that crawl out from their pet rocks on their trading desks.
I vote the latter based on this oldie but goody displaying the S&P 500 from 2007 through April 2009:
And just like today, yesterday, and every bounce thus far this year, the same types said that every rally marked the end of the bear market in 2007 through 2009. It was not until the same types said that unless the Federal Reserve acts and buys stocks that we capitulated to 666 (ironic) and the market begin this legendary over-inflated run to this years bull market all time high. The panic and crying on television during that era was palpable and real as the realization that many of the member banks of the Federal Reserve faced the prospect of becoming zeroes also; which was the signal that a bottom was almost in place.
Wave 2 of the pandemic is usually the worst as the false sense of security hits society along with elation that it is over. Much like the charts above, after wave 1 of the bear market hits, a false euphoria creates a bear market trap, destroying the average and experienced investor who falls for it. Once the realization that a “cure” be it therapeutic or otherwise is not working, the despair will hit, accelerating the panic in financial markets along with depression and despair as even more citizens die on a much large global scale.
Based on the recent all time high price, my calculation is not based on emotion but a tad bit of technical analysis with my own formula. I do not see any more sustainable rallies unless the Federal Reserve openly states they will purchase Preferred and Common issues of equities without limitation.
Keeping that in mind, the low mark I am projecting for the S&P 500 and Dow Jones Industrial Average should the 50% retracement fail to hold (Fibonacci critical level 1 in my book), then the end should arrive around 1296 on the S&P 500 and 11294ish on the DJIA. This means I am projecting a strong possibility of a 61.8% Fibonacci retracement on all indices, some perhaps even worse for some stocks, before a bottom is put into place and the excesses of the last decade expelled.
Personally speaking, I doubt we breach 1400 on the S&P or 14,000 on the DJIA before the Trump administration shuts down the financial system including the declaration of a bank holiday before this is over, but that is just an outside the box opinion.
If the lows do finally complete the formation, then after the disease enters into Wave 3, a tremendous investing opportunity may present itself barring a major overseas conflict developing from this pandemic. Until then, I would keep one’s family safe, and advise only experienced traders to engage in this insanity. This is not a market for rookies or eTrade babies; bear markets of this ferocity will bankrupt thousands and destroy trillions of dollars in equity valuation.
Pray for a vaccine or the real worst case scenario may come to pass; and this stock market scenario does not even begin to describe what that might be like 18 months from now.