Special Bulletin: April 14, 2020 (9:00am update)

The Waiting Game

In Ecclesiastes we are told in select verses from chapter 3, “There is an appointed time for everything. And there is a time for every event under heaven- a time to tear down and a time to build up. A time to weep and a time to laugh; a time to mourn and a time to dance. A time to embrace and a time to shun embracing.“* How wonderfully appropriate for our world, and even the stock market, today.

Generally, people are not good at waiting. Patience isn’t most investors natural virtue, even-though it should be. People aren’t naturally good at social distancing either; we enjoy embracing and connecting with each other, even to our own detriment. But we are learning to wait for that embrace.

Now we are being asked to “wait until we find a cure”, and “wait until we reopen the economy.” Or maybe you’ve heard, “wait until you receive your relief check.” Unfortunately, due to newly exposed cracks in our financial system, many are now being asked to “wait for their unemployment checks.” Make no mistake, waiting is hard.

The stock market it seems, at least for the moment, is not waiting. In our April 4th post we upgraded our Current Market Outlook to a yellow light, as the math of the market suggested the conditions for a rally had improved. We also noted that good news had come from President Trump and his administration, the Fed, the Treasury Dept, and even Congress in the form of “colossal measures designed to stuff cash into our sinking economy and bring a quicker end to the looming recession.”

Well, those massive measures have continued and have actually grow in size to around $6-8 trillion (if our calculations are correct) in relief and liquidity of ALL sorts. In case you were wondering, a trillion looks like this…$1,000,000,000,000.

The shear size of the trillions being created and released into our economy is unprecidented! This newly minted capital is helping create a demand for inflationary assets, including the stock market, and has lead to a recovery of roughly half of the markets March losses already. To say we are in uncharted economic territory would be a gross understatement.

According to Investors Business Daily, the Nasdaq experienced a follow-through day on April 6th, the 11th day of its current rally attempt. That “F-T day” signaled that it may be “a time” for a new uptrend “to build up”. To this point in their confirmed rally, only one Distribution Day has occurred. So far, so good.

Based on the recent technical action in the stock market, our Current Market Outlook remains “Uptrend Under Pressure” with a “yellow” light. Two of our Core Four indicators are green, while 2 are yellow, creating a net yellow result that is on the verge of going green. 

The first quarter earnings season kicks off this week with many large banks reporting, most notably JPMorgan today. The banks Q2 outlooks (guidance, if any) and, more importantly, the markets reactions to that news will be a huge tell.

While many market participants are waiting for a retest of the March lows, the internals are healthier now than they were just a few weeks ago, and a return to those levels is becoming far less likely based on Washington’s actions. The more likely technical action would be for the major indexes to move up to their respective 50 day moving averages (dma) and then pullback and consolidate. A failure by the indexes to eventually overtake their 50 dma’s could usher in a move back down to test the 21 dma’s in the next few weeks, especially if news worsens, This would create an opportunity for what we call a “higher low.” If that sequence happens, a decisive move back up from there would be a strong positive.

What’s an investor to do now? Take your time. Be deliberate. Continue building your watch list of fundamentally & technically superior stocks and ETF’s now that an uptrend has emerged. Make smaller than normal buys and watch for immediate “DD” days.

Comfortingly, Isaiah reminds us, “Though youths grow weary and tired, and vigorous young men stumble badly, yet those who wait for the Lord will gain new strength; they will mount up with wings like eagles, they will run and not get tired, they will walk and not become weary.” Isa. 40:30-31*  With that promise, we should take “time to laugh and to dance.”

Have a Triumphant day! ® 

*New American Standard Bible (NASB) Copyright © 1960, 1962, 1963, 1968, 1971, 1972, 1973, 1975, 1977, 1995 by The Lockman Foundation