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.
The S&P 500 has been faltering for the past three sessions and is back near mid-April levels. For now it’s range bound between the upper 200 day moving average and the lower 50dma. Flip a coin to determine if the market will breakout or breakdown from here.
Here’s my assessment of the current situation:
Second Wave of outbreaks as economies reopen
Declining corporate earnings
Depression level unemployment
Points blame at China and increases rhetoric about tariffs, reparations, and economic de-linking.
Investors develop amnesia about recent Stimulus intervention and demand more SPENDING.
What I find interesting is that today’s levels are similar to the peaks seen in Jan 2018, Sep 2018 & Jun 2019. Back then the FEAR was Trade War, Tariffs, Impeachment…ultimately none of that static mattered and the Market went on to set new record highs.
I remain cynically hopeful for another dip, to be used as a long term buying opportunity.
FYI- watch for the next episode of the Wealthsteading Podcast, #312 will be informative & FUN !!!
The Market looked like it might take a dip due to poor economic data. Then today it popped back up when Gilead announced positive results from their COVID-19 treatment trial.
Is this a head fake or a real breakout above the 50 day moving average? It looks solid and the S&P 500 is only 2% away from its 200 day moving average. I’ve been hoping for a secondary pullback so that I could take advantage of another dip. But that opportunity might be fading.
Either way, I think this is still a buyable market. The critical risks are:
2nd wave of infections as the economy
opens back up or during the Fall/Winter flu season.
Unemployment stays high.
Follow-on infections are a real threat, but just like a bad
Hollywood horror movie, the sequel is seldom as frightening as the original.
Elevated levels of unemployment would be detrimental to some sectors of the economy, but remember what’s bad for Main Street, isn’t necessarily harmful for Wall Street. As we saw after the Great Recession, laid off workers generally equate to higher profits for the Fat Cats.
S&P 500 corporate earnings will eventually surpass $170. Zero interest rates will support escalated price per earnings valuations, likely above 20. That puts the future value of the S&P 500 at or above 3400 (170 x 20). More than 15% higher than today’s price.
My math might be wrong, but I continue to see this “crisis” as
a buying opportunity.