COVID confirmed breakout above 50dma?

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.

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