The market had a decent day today, with the S&P gaining about 1.23%. Since the market did pop up a bit today, a client of mine sent me an email with the following question:
"Are we at the mid-hump in the W, or on the precipice of another bear market correction?"
For those of you who may be wondering, 'What is a "mid-hump in the W?"'... I will review...
Until we see the market move appreciably higher (actually, it been headed in that direction for a while, now) or move appreciably lower, it is likely that we will see a series of short-term trends that move up-then-down-then-back-up over and over; the "WWWWWWWW" pattern.
I still suspect the Fed, the Congress, the White House and the Treasury have the ability to continue writing hot checks for as long as they want, which is (for now) keeping the market from moving from relatively benign W patterns to massive, rip-your-face-off swings in the market of 10% up and 10% back down. The government, one way or the other, has given the stock market a shot of Valium and a big bottle of 'chill' pills (whatever that is), so as to remove the on-again-off-again heart-attack swings in the market. Stability is a good thing, even though it is artificially contrived.
So... the market is left to ponder great thoughts about a vaccine that solves all ills and puts the world right again, instead of focusing on mundane things like massive unemployment, a completely shuttered economy, a cold war developing with China, earth-shatteringly bad earnings reports and the like. No, the market has its eyes set on the great vaccine-in-the-sky solution to all the economic woes of the world's economies. Who cares about the supply-chain... Who cares that small businesses cannot operate at 50% capacity... Who cares that no one knows how long it will take for the economy to get back on its feet? All that matters is another bio-tech or healthcare company has a 'promising' potential vaccine in some state of human trials. What do you think the market will do when the first of these trials, turns out to be a complete failure? Will there be another one 'in the pipeline' to assuage the emotionally-driven stock market and keep it from peeking out from under the blanket of hope? Probably... at least for a while.
In the meantime, let's play along, shall we? Here is how the game is played (for now)... Today was an up-day, but there was some rotation out of Tech and into Industrials. It won't surprise me to see the market sell off a bit tomorrow, unless we get another dose of "new hope for a vaccine" and the market will, once again, jump on the "vaccine cures all economic woes" bandwagon. Good grief... having just read all of this, I sound horribly cynical. I guess maybe I am.
I hope I am wrong, but I just do not see a vaccine doing anything other than pushing the market up another 10% before it crashes into reality that fundamentals matter; and the economic fundamentals of our country (and the world, for that matter) are in horrid shape.
Here is what I know for a fact: The current trend (bullish) in the market will last exactly... wait for it... until it doesn't. The market is bullish and I am investing from a bullish perspective. But, I constantly have an eye on the exit. One of our positions in our Tactical Growth model is up almost 20% in less than a week. That's great! I hope it continues to explode higher. However, since it is now approaching a quantitatively derived condition of being overbought, I have raised my stop on this holding to the point that the stop is now above the basis we have in the holding, virtually (operative word) guaranteeing a profit. If it moves up again tomorrow, I'll be raising the stop again and may tighten it further. The holding is a great company and nicely positioned in its niche, but it is just a piece of paper and I love making a profit in less than a week. I hope we can keep this position in the portfolio for weeks, months... shoot, even years; but, I will not hesitate to dump it if its trend reverses and now, if that trend reverses, we'll most likely put a profit in the bank for all my Tactical Growth clients.