Big time bounce in stocks this week
After the fastest 30% down move from highs in the history of the stock market's existence, it's only right we got that massive retracement move as stocks inevitably bounced back. From Monday's close to Thursday's close, we saw the S&P rip over 17% and the Dow Jones actually rose over 20% in that span. These are still consistent characteristics of bear market trading.
I want you guys to take note of sentiment during these times and the people making grandiose statements. When we were continuing the sell off Monday, and hit marks that officially put us at the fastest 30% draw down from highs in market history (including the Great Depression), the fear and doom/gloom guys were pounding their chests. S&P going to drop 75% soon. What happened? That was the best buy signal in history as it lead to the greatest 3 day up-move in market history. Not embellishing in the slightest when I say in history as in all time, these are facts.
Bear market moves are fast, sharp, and things can greatly change in a day. As soon as we made that 3 day run, the bulls came out, pounding their chests as to be expected, only to walk into a 3% gap down Friday. When I say stay flexible in these environments, these are the type of notions I am pointing to. Don't start pounding your chest in either direction because you'll feel dumb if you're wrong. No one knows where stocks will be tomorrow let alone in a month or a year, especially as we get new virus developments seemingly hourly. FURTHER, we got potential end of quarter window dressing last week as Q2 begins Wednesday. Fund managers will undoubtedly have some disgusting Q1 numbers to show clients, so bidding up stocks into end of quarter is expected. I think April is going to be a mess.
From a personal standpoint, I don't believe the bottom is in simply because there is still too great a disconnect between Wall St & Main St. While the Wall St pundits will talk about the stimulus package for days, I know many small business owners (restaurants/bars/retail/services barber shops/etc) who are simply getting killed in this environment, forcing them to take losses and fire employees. They depend on the weekly and monthly business to pay their rent and employee salaries, so this shut down is crushing those who are keeping it too financially tight. The government stimulus will not likely be enough for their businesses to get back to where they were in most cases, and even survive in other cases. Cheesecake Factory said they are refusing to pay their April 1st rent in their nearly 300 locations for example, they're not the only ones. Personally believe there is some collateral damage under the hood of all this, but again I'm not making any huge claims either way, just taking it one day at a time and remaining flexible in my thought process.
IN A PERFECT WORLD - the market sells off and undercuts that low from last Monday and we reverse higher and this is the low. Every single big money trader I've talked to is hoping for this scenario (which tells me the unlikelihood of it happening). In the history of bear markets, the 2018 Christmas Massacre that didn't retest the initial low that it made, was the only 'V Bottom' in bear market history. Every single other bear market --- all 25 since 1928 -- have retested that low at some point before creating a bottom.