Last week, I asked if you were buying this dip (but I would avoid it like the plague). But last week, many ignored my advice and jumped in with both feet to send the Dow up to the Fibonacci 50% retrace of the entire crash off the February ATH. Other stock indexes followed suit.
And just last night ahead of the Easter weekend, the Dow and S&P both hit my main targets on the nose – 24,000 in the Dow. Bingo! (For the record, I had penciled in that target since last month – see later.)
The public were egged on ferociously by the MSM who told everyone this is a once-in-a-lifetime opportunity to pick up some cheap shares. Just yesterday, Questor in the Telegraph had this headline: We’ve had panic selling – now its time to do some calm and careful buying.
And he is one of the most conservative out there! To me, it seems there has been panic buying, not calm and careful. Note that this advice came after a huge 32% rally off the 24 March lows at 18,200 (which we forecast). Did any strong buy articles emerge at the lows? Of course not, they were all advising a ‘hang in there’ stance. That was where we took major profits on our shorts. But has any private investor any funds left to pour into the market, since last year everyone was all-in -and had stayed in during the plunge?
Those that do hold cash had previously cashed out before the ATH. And there are not many of those, except of course my loyal readers who took my advice to do just that.
Of course, this sharp rebound is a product of the still-elevated mood where most people believe the virus thing will pass over and things can get back to ‘normal’ in a few weeks. That is their fervent hope. As I said last week, they believe people will resume their free-spending drunken sailor habits and take on even more massive debt to fuel it. But hope is not a reliable investment strategy.
I cannot see it. There are millions that are being scarred by this experience, financially if not medically. The trend is now towards conservation and risk-on will slowly turn towards risk-off. And stocks are inherently risky! Sovereign debt is surging to pay all the expanding relief programmes. Taxes will rise to be sure.
No, the old world order is gone. As have millions of jobs. And not to forget, despite the massive government loans, grants and bail-outs, many businesses will have gone for good. The great clean-out is in full swing. And robots are taking over just as unemployment surges. Universal Basic Income anyone?
Economists are falling over themselves trying to estimate the GDP hit economies will take this year. I have seen numbers ranging from a decline of global GDP of anywhere from 3% to 8%. Those may be conservative, especially if we get a second virus wave with further lock-downs. Already there are signs China may be in that position.
Tourism is a mammoth industry employing millions. One estimate of global unemployment I have seen puts it at 25 million, but that figure could be much higher. And who would want to travel to a country where fears of a lurking virus still dominate? No, the tendency will be to not risk it and to stay close to home. And will countries permit plane-loads of visitors to arrive if they fear just one may be contagious – and decimate their economy?
With un- and semi-employment figures rapidly growing, many families will be hauling in much lower incomes, especially in those nations with much less-developed social welfare systems than in the ‘wealthy’ Europe and North America. The army of the ‘working poor’ is set to explode.
Naturally, the authorities will be keen to massage all data in order not to frighten the horses (China is a leader in this field). But with social media eyes everywhere, propaganda efforts will be less effective than before.
Suddenly there is much debate over the economic cost in lost jobs, lost businesses of the various lockdowns to ‘save lives’. I see the willingness of most people around the world to lock themselves in ‘house arrest’ as a result of our anxiety already present in society. And all it took was a virus and its threat to bring stocks crashing in waves of pessimism. No longer are people looking positively to the future (except a few perma-bulls).
Out there is the real world, I see growing despair – that is not good for the stock markets.
Some thoughts on the recent stock rallies
I mentioned before that investors have been steadfastly bullish as stocks crashed last month. The main theme in the MSM (which always reflects the views of the average punter) was to hold your nerve and sit it out. To my mind there was no panic selling – it was quite orderly with few large gaps in the charts.
So who was doing the selling if retail investors weren’t? Of course it was the pros. And not only the money managers of hedge funds and the like. In recent years, US share buying have been dominated by the buy-backs of companies buying their own shares on the cheap money they borrowed.
Now these corporate officers are not dumb – and they should know more than anyone which way the wind is blowing in their companies. I believe they saw the writing on the wall at the start of this year and decided to unload after pumping up their share prices in a concerted ‘pump and dump’ operation. It is easy to imagine that many CFOs talk to a lot of their colleagues and could come to a joint position. That is normal herding. And it coincided with the virus outbreak.
But I am a trader and less concerned with the underlying ‘reasons’ behind market moves that I am the chart patterns. I successfully caught the top of the Dow in February and VIP Traders Club members rode that crash down to the 18,880 area on 24 March where I advised taking some profits.
But then the market started a rally and over the next few days, it was unclear if we would see a small bounce or a larger one. Getting the answer right on this dilemma was of course crucial. But by 30 March, I had a likely roadmap – and here is screenshot of the Trade Alert I sent out on 30 March when the Dow was trading at 21,700
I noted a possible textbook three up was in the works where my target was in the 24,000 region at the Fibonacci 50% retrace – another 2,300 pips up. That was a gutsy call considering many were extremely shell-shockced and bearish at the time.
Bingo! That target was hit on the nose yesterday. That is the kind of profitable insights I offer my members. Remember, we were taking part profits on the way down and retain a part short position going into this high.
I have accurately followed most of the twists and turns of the markets this year. We are racking up major profits already in both services. Don’t delay – take a two week Free Trial to my VIP TRADERS CLUB where we trade stock indexes, currencies, gold and much more. Or take a generous three week Free Trial to my PRO SHARES service where we trade individual UK and US shares .
One other factor in the recent rally has been massive short covering by the algo-driven pros. Perhaps they were late to the party on the downside and got whipsawed.