Last week the S&P 500 closed at a fresh new high while waiting for the stimulus package. The main street is suffering from the pandemic, yet the stock market doesn’t care. The stock market has made up its mind that it is a bull market no matter what!
It has been eight weeks since the March 23 low. The Dow and S&P 500 both are under its 200-day moving average. Nasdaq has been above the 200-day moving average since April 22nd. This divergence is reflecting the difference between the digital and real economy. The digital economy stocks continue to perform because
Last week Nasdaq had an outside reversal weekly bar, meaning it traded lower than the previous week’s low and then closed higher than the previous week’s high. When this happens, it is indicative of further momentum on the upside. The Dow and S&P 500 also closed on the strong side on the weekly bar. The short term momentum
The Fed is about to cut rates for the first time since 2008 as the trade war is weighing on economic growth. Are the rate cuts truly needed to support the economy or is the Fed under political pressure to appease the White House? Last time, the Fed cut rates in 1998 to prevent a slowdown caused by the Asian currency crisis. We all know what happened after the cuts.
This time is very similar to the 1998 rate cuts. The economy is not weak and the rate cuts can only create asset bubbles like easy money always does.
Short term, it is over bought with extreme low volatility. A summer selloff is still on the radar. This selloff will create the last opportunity to get in the market before a grand bull market unfolds.
Long term, this market still has room to run.
The relentless market has surprised a lot of people on the upside. The December selloff was painful, the rise out of the low has been equally painful. It has caught a lot of professional speculators such as the hedge funds unprepared. Normally the market bases for a period of time around the low, seldom it pivots so quickly that produces a V-shaped bottom.
Indeed we have a V-shaped low and it is racing to take out the October 2018 high. The October 2018 high is a 4-year cycle high, once this high is taken out, the previous 4-year cycle low is confirmed and the new 4-year cycle low to high rising phase will last at least until November 2020. As we blogged before, we are currently in the middle of a 17-year cycle that is similar to the period of 1982-2000. This December 2018 low is a 4-year cycle (February 2016-December 2018) low and a half cycle low of the 17-year cycle (2009-2026). We have steadfastly maintained a long term bullish outlook. We have been looking very hard for entry points to deploy fresh capital for investment opportunities. The indices continue to blow out resistance levels and now are marching for the old high.
It is 14 weeks into the current weekly cycle and it is very close to the old October 2018 high. We still maintain the stance that the market is not going to breakout from here and enter a point of no return zone. It will encounter resistance at the old high and enter a correction to reach below for the 200-day moving average. Back in October 1998, it made a 22.45% correction in 11 weeks to produce a 4-year cycle low, then it only took 7 weeks to take out the old July 1998 high, which was a 4-year cycle high then. The October 1998 4-year cycle low was confirmed in 7 weeks. It then entered a point of no return zone to create the dotcom bubble. This time it has spent 14 weeks already and it still hasn’t taken out the October 2018 high yet, and we are not foreseeing a dotcom bubble in the next two years, therefore this December 2018 low is very similar to the March 2009 and February 2016 lows. It will experience a correction to provide entry points.
We have identified a few growth oriented investing ideas that are still in the early investing cycle. We have conviction in these three companies that will be disruptive forces in the coming 4-year cycle.
