The Market has once again shown resilience and recovered half of last week’s losses. Whether it moves up or down is anyone’s guess. I’m not being facetious when I say that forecasting conditions are in a “flip a coin” mode. While the market has been displaying extreme resilience over the past few months, the price-action has been less than supportive. In recent weeks, selling volume on down days has been much higher than on up days.
So while the S&P 500 remains range bound (fluctuating between 3000-3200), I remain prudently cautious. Should investor sentiment degrade, market conditions could deteriorate rapidly.
Note the attached chart. When COVID fear solidified on March 4, it took only two weeks for the Market to drop over 28%. The S&P 500 is currently staggering back at those levels. If the 200 day moving average (dma) doesn’t provide support, then a ~10% drop is likely (2700-2800 range).
FYI- July 4th is the Wealthsteading Podcast’s sixth anniversary. Be sure to tune in for a review of the 10 Wealth Building Principles. Let me know if there are some additional topics that you’d like discussed during our anniversary celebration.
Just a quick update- it looks like the Market might finally be capitulating to the reality of the COVID Re-Opening Consequences. The Market has been extremely resilient to bad news over the past 8 weeks, but today’s action looks detrimental.
I don’t know if this pullback will hold but I’d like to see further deterioration so that I can put my cash reserves to work. [ Listen to a previous podcast where I discussed buying the dip to re-balance during a COVID recovery: https://www.wealthsteading.com/311 ]
Stay tuned…I plan to release more detailed analysis over the weekend.
The S&P 500 has recovered to the previous highs of November 2019. I’m concerned there might be a little too much re-opening exuberance right now.
So to lock in some profits, I sold the following positions:
BOTZ Global X Robotics & Artificial Intelligence ETF
HACK Cyber Security ETF
RYT S&P 500 Equal Weight Technology ETF
UNH United Health Group
XSD Semiconductor ETF
YUMC Yum China
I’m not worried about a catastrophic meltdown, but I am concerned the market has risen too fast and is ignoring some major uncertainties. Namely: Unemployment, China tensions, and the November Election. You can listen to a brief 10 minute podcast explanation here:
Has the seven week Relief Rally morphed into a Sucker’s Rally? I hope so. I’ve been waiting for another buying opportunity.
Today the S&P 500 was down 1.75%, not as bad as yesterday’s 2.05%; and unlike yesterday’s horrible close, today the index improved during the final minutes of trade.
But things don’t look good. Over the past three weeks the S&P 500 has been unable to retrace the April high, nor has it been able to get closer than 2% of its 200dma. Today it also broke below its 20dma.
If the S&P 500 doesn’t find support at its 50dma (~2700) then it’s likely to drop to at least 2600. At that point, it would even be probable that it could drop down to test the March 23 low (~2200).
For long term investors, a drop to or below the 50dma would present an excellent buying opportunity. As always, the exact bottom will be elusive and fruitless to try to pinpoint.