According to my Total Market Index (a composite of the S&P 500, the Nasdaq, the Russell 2000 and the Dow), the Total Market Index (TMI) is 1.95% from reaching its highest high for the year back in the pre-COVID world in February.
Let's think about this...
Is the economy today or 6 months from now, as strong as the economy was in early February or estimated (at that time) to be in August of 2020? Ans: Only the most optimistic among us would say that the economy of today and looking out 6 months from now is anywhere close to the pre-COVID economy.
One standard deviation (EM) of the TMI in February of this year was about 4%... today, it is running at nearly 7%. So what, you may (and should) ask? Well, for one thing, when the market got to nearly 4 EMs above the 200DMA in February, we tightened stops which moved us to cash 4 days before the first big sell-off in the market. The TMI would have to move up over 13% from where it is today (meaning the Dow would have to climb to about 30,000 and the S&P 500 would have to climb to about 3,700) for the market to get close to being overbought with an EM of nearly 7%. Does a 30,000 Dow seem reasonable in this current economic climate to you?
The market is 'supposed' to be looking at the economy 6 months out, to determine how to value current investments (so they say, and you know who 'they' are...). Maybe Trump is right; that this will be a V-Shaped Recovery. But, what happens if Trump loses the election in November? How much of the economic recovery is tied to the current President? Some? A lot? None?
This market fell off a cliff in late February and dropped 30%. Now, only 4 months later, the market has all but completely recovered, yet... and I have to believe this is important... the economy is still, for all practical purposes, shut down. COVID is still rampaging and in some states, escalating. Uncle Sugar is getting ready to throw another $3 trillion of free money into the economy. People are being paid to not work and being paid more than if they were working... does that make economic sense? Has this country lost its economic bearings? How long can we continue to pay people more money than they normally earn from their jobs and expect them to go back to work and take a pay cut? I am all for helping folk who do not have a job to go back to as long as COVID has the economy shut down, but at some point, this economy has to get back on its own two feet. We cannot (despite what the socialists say) pay people to not work indefinitely. When that day of reckoning comes, what will this economy look like? That is the big question and the one that should have a LOT to do with whether this current market is on a sugar high or is looking at economic reality.
The bottom-line is this: No one should assume this wonderfully bullish market is not building risk of a substantive trend reversal. It is. Do I think we are on the precipice of a bear market? No, I don't think so... (Keep in mind that anytime you hear someone say, 'I think' or 'I expect' or 'It looks like' or anything like that, they are just guessing.) But, it would NOT surprise me to see some substantive whipsaw actions in this market at any time.
Here is what you and I both know and we know it with 100% certainty... "The current wildly bullish trend in the market will continue exactly until... (all together now)... It doesn't. My job is to watch the trends and determine as soon as mathematically possible, when this trend has ended. It certainly doesn't look like it ended today, but it could have. That's the wonder and the beauty of measuring when a trend "HAS ENDED". We have to wait to see when the top HAS occurred... and it can take weeks, in some cases, to know with some reasonable mathematical certainty that a top was reached some weeks ago.
Today was one of our best days in the the market this year. Our Turner Quant Advantage (TQA) model soared upwards by 3.9%. In comparison, the S&P 500 moved up 0.84%. Tactical Growth also had a very good day and solidly beat the market, as well. TQA, by the way is now up more than 24%, year-to-date, with the S&P 500 up about 0.65% year-to-date. TG is up a very respectable 6.89%, year-to-date... more than 10 times better than the S&P 500.