There was something different about Monday. Call it gut instinct or wishful thinking, but something was different in the way traders handled the market to start the week. When bad news isn’t that bad for stock prices, something is up.
We can see it now, heads cocked to the side, disbelieving eyes and a collective what the heck are you talking about, the market was down 582 points. Considering recent swings in the multi 1000s, six hundred points is small by comparison. That in the face of the Senate failing to pass a stimulus/aid package, twice. A week ago, that partisan mess might have resulted in losses well into the 1,000s.
In another break from the recent norm, selling didn’t accelerate once the day hit new lows. The market opened down, rallied some, and sold off to new lows. In the last few weeks, once stocks showed they could not hold gains, it was bombs away: straight selling on top of selling. Instead, stocks rallied once again with the NASDAQ and Russell having more traditional down days.
Monday’s final prices did set a new low for Dow and S&P 500. As we’ve said throughout the CoronaCrash, lower lows usually confirm the continuation of a downtrend. However, our momentum model’s shortest measuring stick is |–| close to turning positive. Overall, the mo’ model is a long, long way from delivering a buy signal, but at least it is a shining light amid darkness.
Our leadership model is actually in positive territory, although it could be a false positive as it stands alone in the green. Additionally, we don’t rely on a single signal. Instead, we use all our models to create a composite picture, which is bearish with some underlying improvements.
The odds favor lower prices in the near-term despite the encouraging short-term positive news. Goldman Sachs recently set 2,000 as their downside target for the S&P 500. While there is limit support at Goldman’s number, we see a firmer technical safety net at 1,800 and then at the 200-month moving-average of 1,688 (likely to be closer to 1,700 if/when the index gets there).
Whether it’s 2,000 or 1,700, that means most of the selling is over, provided either number is the backstop. The benchmark index is down 1,156.12 points from its recent high of 3,393.52. Two thousand is only 237.40 points away and 537.40 from 1,700.
In summary, we see a few emerging reasons to believe the worst is over.
- Bad News wasn’t entirely bad for Stock Prices
- Short-term momentum could turn positive
- Our Leadership Model is green
- Most of the selling might be over
- Insiders are buying their stocks at an impressive pace
Stay Healthy and may your trades be profitable.