With a hint of rate cut, the market immediately pivoted to the upside. Last Tuesday, we sent out a member blog that detailed the reasons why we had a first valid rally attempt after last Tuesday’s close. Now the question is when will the May high be taken out?
Out of the March 2009 bottom, the S&P 500 rallied 43.41% in 67 trading days, then it corrected 9.09% in 18 trading days. It took only 9 days after the first correction to make a new all time high.
Out of the February 2016 bottom, the S&P 500 rallied 17.15% in 81 trading days, then it corrected 6.08% in 12 trading days. It took only 8 days after the first correction to make a new all time high.
Out of the December 2018 bottom, the S&P 500 rallied 25.89% in 86 trading days, then it corrected 7.63% in 21 trading days.
How long will it take to make a new all time high after this 7.63% correction? It will probably make a new all time high in the similar fashion. The FOMC announcement meeting is scheduled on June 18-19, which is the 12th day in the new daily cycle that started on June 4th. We are not predicting what the Fed might do, either cut rate in June or something else, however, we are confident that the market will interpret Fed’s action as favorable because the fundamental events will occur to move prices in the direction of the cycle. The direction of the cycle is up.
Immediately S&P 500 will encounter resistance at 2892-2900 level. After it works thru this level, it will proceed to take out old high at 2954. Despite the Mexican deal, the tariff against China still looms large. But at the moment the Fed is doing the lift. The G-20 meeting will be held on June 28-29. We doubt that the trade war will be resolved then. So the market will have two opposing forces between the Fed and trade war escalation to keep it sideways for the remainder of the year. It is our personal opinion that the White House doesn’t want a stock market rally this year. All the stunts with Mexican and Chinese tariff are used to force the Fed lowering interest rate.
Now with lowered interest rates, when the White House loses the grip of trade war tension by the end of the year, the stock market is prepped to rally in 202o, just in time for the re-election. Let’s hope that the trade war tariff gambit in 2019 doesn’t do real damage to the worldwide economy! What an interesting time to invest when the President is Twitter/trigger happy!