Here's something else I've learned. Everyone has a bias that feels natural to them. Most people are not aware of how deep their bias goes because it's so subtle and pervasive and built on assumptions that are so deep and natural to your thinking that you don't even recognize them as a point of view tainted by bias.
I agree with all the bearishness of how bad this pandemic is, but that's not how the stock market trades. Think of the people who want the market to go up: every politician on Earth (ok maybe not China), every central banker on Earth, every CEO on Earth, every money manager on Wall Street with career risk of missing out and losing clients trying to be short, every successful person on Earth who has money exposed to the market. Here's who thinks the market will go down: five guys who think sound money and value matter to the stock market.
The market went down due to long liquidation, not the short side winning. That is a big difference. I know this is annoying, but the actual fundamental data matters like 1% of the time. Markets move based entirely on positioning and who wins the battle at key inflection points. And I submit to you that it remains impossible for the short side to win a battle because the algos move too fast, so all it takes is one piece of good news to chase out all the recent shorts. This lesson has been taught over and over for not only the last 10 years, but look at the chart going back 100 years. You can title that chart: The Short Side Loses Again. The modern algos just make it worse.
The nasty 30% draw down priced in a recession and it pretty much bottomed on the first horrible jobless claims data. Since then every historic piece of bad data that's come out was in the price. Everyone already knows the economy changed, so what is the bad data that's going to come out to allow the short side to win an inflection point battle? Isn't it possible that as everything slowly reopens the data will get marginally better and better unless there is a true 2nd wave and why couldn't that take until fall? So how are the shorts going to win a battle against the entire world who wants the market to go up? I am open to a legitimate answer here.
I propose the only way the market will sustain downside again is long liquidation via a 2nd wave, and I'm thinking that won't happen until the fall when the weather gets cold and/or people start to get complacent about protection. If this whole pandemic started from one single person, then why shouldn't a 2nd wave be the base case? However, it's a mistake to latch onto an idea mentally and not think about the factor of time. The market has been sending the message that it doesn't care about the data. It already knows.
Here's a couple charts. ES Weekly. Note the yellow trend line. I'm thinking the ES will arrive there about the same time the Nasdaq hits its old highs, so it makes sense to pause and even retrace. Meaning, that's a profit taking zone for longs and where shorts can setup camp to lose another battle.
ES Daily. I prefer using the EMAs. Note the 200-day (red) was almost exactly the 61.8 retracement (not shown).
Gold is fairly extended, so we'll see how it acts if the stock market breaks out and holds the 200-days. It really shouldn't be surprising to see gold sell off during a stock rally back to the highs. But the fundamental reasons to hold gold are not going away anytime soon. I'm thinking gold in the mid $2,000's in a lock, so maintaining a core position and adding short term levered trades on specific setups continues to make sense to me.
Gold Weekly. Note the steepness of the moving averages. The ideal scenario would be a contained pullback that holds gains and works off overbought going sideways through time like bonds are doing.
Bonds Weekly. They are holding the gains above the old highs. It would be nice to see them sell off under the consolidation area and break back into range as stocks near the highs (IF they do).
Oil weekly. I think oil is the most dangerous trade out there and should be avoided because you don't know what it's responding to: is it stimulus like stocks or data like bonds or price war supply demand stuff...etc. But if it pulls back to the $26 area it could be the bottom of a right shoulder.
EUR/USD weekly. To me, this market showed it didn't care about Fed stimulus or the "global dollar short," which I think is more isolated to other crosses. You have to remember there is no dollar. The dollar index IS the EUR/USD, so I'm thinking this will move based on one of two things: Either a perceived Eurozone deepening via fiscal union with Eurobonds, or a perceived Eurozone fracturing via a banking crisis and rejection of Eurobonds. (Corona bonds don't count, but could be a start). It doesn't seem to be in a hurry to breakdown. I guess a historic pandemic is not enough of a catalyst at this point.
If I sell my TV show, I will put up a two word post that will be the end of this blog. Peace.
