Market rally fails again…is it going lower?

The S&P 500 is barely holding above a technical correction and it has failed multiple times at the 50 day moving average.   The rotation rally looks like it has fizzled. 

Today was characterized by indiscriminate selling.  Everything was down- Tech, Value, Precious Metals, Bitcoin…everything.

I think the market is headed lower…but I’ve thought that all summer, and have been wrong.

You can hear my latest thoughts at today’s episode of the Wealthsteading Podcast, it’s a quick listen at less than five minutes:

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Markets have been selling off for four straight weeks.

Today the S&P 500 gapped down, but then recovered to close at an intraday high, showing that bargain hunters are still active.  So is the selloff over?  I don’t think so.  I’m anticipating more down days as a second wave of COVID crests ahead of the November presidential election drama.

The downturn will likely continue until a second round of stimulus is passed and progress on a vaccine is affirmed.  That could mean heavy volatility and selling extending into October.  Also, if this is a rotation out of overbought Tech stocks and into Value, then the NASDAQ still has further to decline.

For now, I’m remaining patient and not buying this dip. 

You can listen to my latest thoughts in a podcast episode posted this weekend:

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September swoon…how low can it go?

September is normally the most volatile month for the stock market.  Today’s decline is a confirmation of that notorious reputation.  This pullback should come as no surprise, the market has gotten overheated to near levels of irrational exuberance.  Amateur and professional investors alike have been recklessly buying into stocks with nonsensical valuations- Tesla, Zoom and Peloton to name only a few.

So how low can it go?  I have no idea.  Those that attempt to accurately pinpoint stock movements are either deluding themselves or lying to you.  At best we can only assess probabilities.

I haven’t purchased this dip, yet.  For now, I’m holding out to see if the retreat approaches a technical correction of near 10%, with the S&P500 around 3200. 

[ NOTE:  Before today’s drop, over half of S&P500 stocks have been in a technical correction.  The recovery has been extremely bifurcated.  Many stocks still qualify as a “value” play.  Listen to the latest podcast episode for more details-    ]

I don’t know if I’ll have the patience to wait for a 15% drop, roughly 3000.  At that level, the S&P500 would rest at “fair value” given estimated earnings for next year.  I would consider that an excellent long term entry point.  It’s also probable, given a VIX above 30 and election uncertainly. 

The panic of a flu season induced COVID 2nd wave could result in a 20% correction.   [ see chart ]

So…my advice is assess the probabilities, pick a value that you’re comfortable with, and if the drawdown materializes, buy the dip.  I remain optimistic that after the election, regardless of the winner, the markets will rally into 2021…driven by low interest rates, easy FED monetary policy, continued stimulus, and benign corporate profit targets.

HEY, if you missed my recent short format YouTube videos, please check them out:

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Simultaneous Fear & Greed

During my many decades as an investor, I’ve seen extremes of Fear or Greed, but I don’t recall a market that was characterized simultaneously by both.  That’s exactly where market conditions are now.

FEAR:  People are deeply mired in anxiety over health effects of COVID or side effects to the economy.

GREED:  People are exuberantly trying to ride the increasing wave of stock prices.

It’s been my experience that manias don’t end well, resulting in a market that changes trend due to exhaustion.  With Fear & Greed at simultaneous extremes, I suspect we’re headed for even more drastic market turbulence.

HOWEVER…markets always right themselves.  Note the chart of the Hang Seng index during the SARS outbreak that devastated the Hong Kong economy in 2003.  Travel bans scuttled the island’s travel, hospitality, and real estate sectors; yet within a year later, the market was consistently making new highs.

My advice is to not be fearful or greedy.  Moderate your emotions so that you’re investing based on reason, not fad or fantasy.  Easier said than done.


1992 Election Aftermath

The year was 1992, the incumbent president was favored to win.

The stock market had been rallying during the 4th quarter of the previous year, until it peaked on January 15.  Optimism started to fade.  The president’s popularity was declining and previous statements he’d made were now coming back to haunt him.  The Media promoted the challenging candidate’s claim that the country was experiencing the “worst economy in 50 years.”

Panic set in and the S&P 500 dropped to a low in mid-April.  It then quickly recovered, forming a “V” pattern and rallied into June.  Again, panic set in, the “V” pattern morphed into a “W” as the market dropped to nearly test the previous low.  But the panic was short lived, the market again rallied, this time setting a new high, although things remained choppy until the election. 

On November 3, the president lost, becoming only the 9th incumbent to lose reelection.  The market reacted negatively for a couple weeks. 

Over the course of the next 8 years, the market remained turbulent, sometimes impulsively volatile.  But as the economy adapted to the seismic megatrends and shifts in demographics, society, and technology…the stock market ultimately rallied to become one of the greatest bull markets in history.

Bookmark this page and re-read it over the coming months and years.