Weekly Market Update

[Jeffreauxdawg]

We always hear the talking heads tell us that the market doesn't move in a straight line. And while this is true, markets do establish trendlines and move along the trend. With this in mind the market is always trending in one of three directions... Up, down, or sideways.

Since the trendline is going straight in one of the three directions, but we know the market itself doesn't move in a straight line, how can we identify what is really going on? Well it moves up and down daily along the trendline in what we call a range. These ranges can often be charted by drawing in a parallel channel.

So it currently looks like we are going to get some clarity on what trend the market is heading for the next little while. With are 3 options in mind, as of Friday we have technically broken the uptrend that started in early April. A single close outside of the trend is not enough to end a trend in my opinion, but several convincing daily closes and a weekly close will do it in my book.

Here's a look at the uptrend. To get back into the channel or range, the market needs to close above 3100 or so today... And each day that number goes up a little.

View attachment 16656

Now let's consider a sideways trend. Technically if we are starting a sideways trend it began with the big market sell offf a couple of weeks ago in the middle of June. It's established pretty strong support and resistance around 3000 and 3150 in the SP500. If we stay in this range for a while it's considered a consolidation period and will build the moment for the next trend up or down. Again, several decided daily or a weekly close above or below is how we can eliminate the trend.

View attachment 16657

Finally there's the downtrend possibility. If we are in a downtrend, the range was actually established back in early June when we gapped up on the night of June 1 and went to establish the top of the range. Now we have been working on a more downward trend since that high. Again this can be confirmed by closing below 3000 a few times daily or once weekly. There is a line in the sand of 2965. If we close below that number, it's a confirmed downtrend as it will be consecutive lower lows and lower highs.

View attachment 16658

So to sum it up... Closing above 3100 in the next few days could repair the uptrend. Closing below 3000 a few times will confirm the downtrend. Staying in between is likely leading to a sideways consolidation period.

This week is going to be a short week with what should lighter activity Wednesday and Thursday, so we may not get 100% confirmation until early next week...

Which way do you think we are going? Up and this has all been a headfake? Down, because eventually gravity takes over in this kind of economy? Sideways because nobody knows what the Hell is next?

 

[Seinfeld]

So I’ve spent the better part of my career collecting sales, operational, and supply chain data to attempt to project all sorts of things, and one thing I learned early on is that you can never project a machine’s output with any level of accuracy until you begin to limit the uncontrolled variables. I bring that up because we are living in a highly peculiar time where we have a possibly historic number of variables that could take a wild swing at any minute, and each swing can then result in another somewhat unpredictable domino effect with numerous possible sequences.

I say all that to say that I feel like the likelihood of another market “freak out” is unlikely, but as you laid out for us last week, a lot of stocks are most definitely overpriced compared to earnings, and I think we’re going to see a bumpy road between now and year end.

My vote is for flat, although I did do some rebalancing early last week to reduce exposure. Looking at the rest of the year, there are just too many potholes in the road to avoid all of them in my unprofessional opinion

 

[TheStateUofMS]

I think we go sideways and form a new range. Support being the top of the previous range. 2,942 lower end of the range with 3,233 being the top end of the range.

If we can stop the spike in covid cases in the next week or two maybe we can float around in the middle to upper part of the range.

Stick with high quality stocks with good balance sheets and who are navigating the crisis the best. I've posted lists of those stocks. I'd stick with them. That doesn't mean go buy hand over fist today, but I do think we're at a level where it's okay to nibble at those stocks.

 

[johnson86-1]

We always hear the talking heads tell us that the market doesn't move in a straight line. And while this is true, markets do establish trendlines and move along the trend. With this in mind the market is always trending in one of three directions... Up, down, or sideways.

Since the trendline is going straight in one of the three directions, but we know the market itself doesn't move in a straight line, how can we identify what is really going on? Well it moves up and down daily along the trendline in what we call a range. These ranges can often be charted by drawing in a parallel channel.

So it currently looks like we are going to get some clarity on what trend the market is heading for the next little while. With are 3 options in mind, as of Friday we have technically broken the uptrend that started in early April. A single close outside of the trend is not enough to end a trend in my opinion, but several convincing daily closes and a weekly close will do it in my book.

Here's a look at the uptrend. To get back into the channel or range, the market needs to close above 3100 or so today... And each day that number goes up a little.

View attachment 16656

Now let's consider a sideways trend. Technically if we are starting a sideways trend it began with the big market sell offf a couple of weeks ago in the middle of June. It's established pretty strong support and resistance around 3000 and 3150 in the SP500. If we stay in this range for a while it's considered a consolidation period and will build the moment for the next trend up or down. Again, several decided daily or a weekly close above or below is how we can eliminate the trend.

View attachment 16657

Finally there's the downtrend possibility. If we are in a downtrend, the range was actually established back in early June when we gapped up on the night of June 1 and went to establish the top of the range. Now we have been working on a more downward trend since that high. Again this can be confirmed by closing below 3000 a few times daily or once weekly. There is a line in the sand of 2965. If we close below that number, it's a confirmed downtrend as it will be consecutive lower lows and lower highs.

View attachment 16658

So to sum it up... Closing above 3100 in the next few days could repair the uptrend. Closing below 3000 a few times will confirm the downtrend. Staying in between is likely leading to a sideways consolidation period.

This week is going to be a short week with what should lighter activity Wednesday and Thursday, so we may not get 100% confirmation until early next week...

Which way do you think we are going? Up and this has all been a headfake? Down, because eventually gravity takes over in this kind of economy? Sideways because nobody knows what the Hell is next?

I'm guessing flat. I don't think we're out of the woods, I just think there is nowhere to go. Everything is expensive.

 

[GTAdawg]

I'm hoping for flat, and a volatility index that drops consistently below 25. That would mean there isn't more bad news than there is good news. By that time, maybe we will have some time get this 1.5 wave calmed down and a clearer picture on a vaccine timeline.

 

[randystewart]

When do Q2 earnings get reported? I'm looking at loading up on SRTY right around that time because I believe the small cap stuff is going to be catastrophic level.

 

[Jeffreauxdawg]

When do Q2 earnings get reported? I'm looking at loading up on SRTY right around that time because I believe the small cap stuff is going to be catastrophic level.

It will get going in a few weeks. But end of July is when it will really start coming in... Honestly, I have begun to think that earnings is going to get a completely free pass and most companies are going to "beat" expectations... Mainly because there are none. Guidance may be more critical if it's actually given.

Remember... All of the talking heads will tell you the markets are forward looking. Which I agree with, but the thought must be completed in that they are only looking forward for good news.

View attachment 16665

 

[Shamoan]

given the last week, i tuned out after the bloodbath because ive got zero cash to drop. gonna ride this out.

 

[randystewart]

Dow posted its best quarter since 1987. Unreal, this is just silly at this point.

 

[57stratdawg]

I expect guidance to be in short supply.

 

[TheStateUofMS]

You really need to focus on the context. We had the fastest bear market in history which happened right at the end of the first quarter. Then we had a massive rally off the lows. Feb and March were -20% combined. The month of June was actually flat. We opened on 6/1 at 3038. We closed today at 3,100.

Rallies off the lows are usually fierce. That's why if you're trying to time the market, it's a losers game most of the time. Check out this graphic. Over 20 years. You have to be incredibly arrogant to think you're going to be in and out of the market and hit the top 10-40 days each year.

View attachment 16676

 

[Jeffreauxdawg]

You really need to focus on the context. We had the fastest bear market in history which happened right at the end of the first quarter. Then we had a massive rally off the lows. Feb and March were -20% combined. The month of June was actually flat. We opened on 6/1 at 3038. We closed today at 3,100.

Rallies off the lows are usually fierce. That's why if you're trying to time the market, it's a losers game most of the time. Check out this graphic. Over 20 years. You have to be incredibly arrogant to think you're going to be in and out of the market and hit the top 10-40 days each year.

View attachment 16676

I see what you are saying.... but you are only focused on half the story. What happens if you miss the worst 40 days?

"From 1979 to mid-April of 2020, the S&P 500 Total Return Index gained 11.23% per annum. Sure, if you missed the best 40 days, returns shrunk to 5.21%. How about if you missed the worst 40 days? Nobody ever talks about that, because you’d be accused of market timing. Guess what? Your returns would soar to 18.83% annually. And importantly, if you missed both the best and the worst 40 days, you actually beat the market at 12.39%."

Realistically you will miss some of the best and some of the worst days. As of right now we are bordering on the most overvalued equities in history. I am betting that the chances are a whole lot greater for the worst days than the best.

Market timing has only made sense 3 times in my life.... This is one of them.

https://www.barrons.com/articles/timing-the-market-pays-off-buy-and-hold-51588186928

 

[Dawg1976]

Realistically you will miss some of the best and some of the worst days. As of right now we are bordering on the most overvalued equities in history. I am betting that the chances are a whole lot greater for the worst days than the best.

Market timing has only made sense 3 times in my life.... This is one of them.

https://www.barrons.com/articles/timing-the-market-pays-off-buy-and-hold-51588186928

My thinking exactly. I'm not willing to ride this one out due to my age.

 

[TheStateUofMS]

Timing both sides of it...haha yeah that'll work well. I see the point the though.

 

[TheStateUofMS]

Even the most conservative portfolios need to have allocations to stocks even if it's 15-20%.

 

[Jeffreauxdawg]

We all time the market. You just call it adding and trimming. Do you add when a stock is extended? Do you trim on pullbacks?

I guess you can put me in the following boat... I understand that there may be some upside if I am wrong about what the next 6-18 months are going to look like. I'm willing to live with it if I miss out. In fact, if I do, I'm fairly confident that the better deals will be in the real economy. I'm sure there will be some distressed opportunities out there to invest in after this fall and winter... Hell sounds like condos in Starkville may be ripe pickings.

I know I have posted a lot of charts, this one that best explains why I am comfortable in my position on the sidelines for a while...

View attachment 16689

 

[TheStateUofMS]

To me when folks are talking about timing the market that says moving completely in and out of the market. That is a mistake. Of course you re-balance and trim, but unless there's a systemic issue with no resolution in sight, you stay in the market and your exposure is allocated according to your risk tolerance.

If there was no stimulus, we'd be in survival of the fittest mode right now. We were in a legit depression as defined by the data. However the fed and congress aren't going to let this economy go in the tank beyond recovery and not pay folks while the economy is repaired as long as it's short term in a nature (A year or so).

This is also an election year. You think the Republicans are going to hold firm on not increased deficit spending at the expense of people going hungry at night??? Trump already saying the next round of helicopter money given to the people is going to be larger than the first round.

It's gone from "Too big to fail," to "nobody is going to fail" (for the next year at least).

ETA: Most folks aren't able to invest in the private markets, but you're probably right on deals to be made there. For most people, that's not a realistic investment option for them though.

 

[TheStateUofMS]

I mean that was a complete shock to the system covid hitting just like the stimulus in the US and around the world was a shock to the system. That's why it's recovered so fast. Market banking on the fed's bandage healing the wound will in fact make that wound 100% whole in the next 12 months and also the fact interest rates are back at 0% indefinitely.

 

[Dawg1976]

I normally have that range but not now.