05-21-2020: Limp-Along vs Hop-Along...

Another 2.4 million people filed for unemployment this past week. In a normal world, that would result in a huge sell-off in the market. But, in this new COVID-19 world, it was not much more than a yawn and resulted in a tiny move lower in the market... sort of just limping along.

As I have been saying for some time now, the market is trading in somewhat narrow trading range. I have called it a "W" chart pattern. Think of it this way:


The above W's are intended to represent a series of short up-and-down-and-back-up movements in the market. Today, we saw a small move down. Was today the start of the next massive move lower? I seriously doubt it. It will not surprise me to see the market rebound tomorrow, albeit, not much... at least not much unless some big news comes out that COVID-19 vaccine is closer than ever.

The market is likely to stay in this "W" formation, just hopping along. There may be down days and there may be up days, but the underlying components of this market are (likely) the following:

  1. The Fed/Congress/Treasury/Trump are bound and determined to keep this economy's head above water. This means, barring a major setback in the search for a vaccine or another major outbreak in infections, there is a hard floor beneath this market, the odds of which are low that it will fall through that floor, and

  2. The general trend of the "W" formation is likely to be more bullish than bearish as long as progress is being made in the reopening of the country and getting the economy back on its feet.

How long will this pattern last? No one knows. This is why we constantly monitor the trend of the total market and the trends of each of our holdings. I suspect all bets are off on which way the market will move once we get back into cold weather this fall and know a lot more about the potential for a vaccine... could be a very bumpy ride.

As far as today was concerned... I was particularly pleased with how well DOCU moved (up +3.19%) and SE (up +7.60%) in our Tactical Growth portfolio strategy. I also liked how well our Diversified Income portfolio strategy moved up nicely in today's mild sell-off in the broader market. Indeed, all 5 of our portfolio strategies outperformed the market today (granted... the Ultra's just barely outperformed)... always a good thing to see.

It is important to remember that hindsight is always 20/20, and someone is always going to guess right at the right time and then brag about hitting it out of the park. I will, occasionally (especially back in the days when we could go to financial trade-shows) meet someone who wants to brag about how great their trades have been. They like to point out how much smarter they are than the market. But, those same 'guessers' are nowhere to be found when they guess wrong... or they will say the market is wrong. The key to making more right than wrong investment decisions is to never lose sight of where the market "IS". While the market can change direction in a single day (or hour, for that matter), major changes in the overall trend of the market happen far less often than you might think. The "W" chart pattern of the market right now is not a trend. The current trend of the market (the 200-day moving average) is bear-trending for the "Total Market Index"; Bear-trending for the S&P 500; Bull-trending for the Nasdaq; Bear-trending for the DJIA; and, Bear-trending for the Russell 2000.

You will notice that only the Nasdaq has a 200-day moving average that is in a bull-trend. This is why I am long the QQQ or QLD in my index ETF 1x and 2x portfolio strategies, and NOT invested in any of the other 3 index ETFs... at this time.

Bottom-Line... Put money to work where the market IS, based on the market's long-term trend and assume the current trend will last until... it doesn't. And... always have a plan in place for when the "doesn't" occurs. Then, the Monday-morning quarter-backing will take care of itself.

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