Friday, 7.3.2020 – Heck of a Comeback Quarter for the Stock Market! Where to from here?

by | Jul 3, 2020 | Uncategorized

The Real Perspective (based on quarter end):

Despite June being extremely volatile, I bet not many expected the one-month performance to look like this! Take emotions out of it and don’t overthink things. Headlines will continue to put stress on your emotions. Clearly, the NASDAQ continues to be the leader. After the fastest declines in 80 years, we had the best quarter since 1987. If you continue to believe the world is ending, you won’t be a good investor. Don’t allow your mind/emotions to go there!
The “QQQ”, NASDAQ 100, has been on a tear! In recent months, a 20-Day Moving Average (Gold line) tests continues to be bought. This is classic institutional support at key levels. Are we a bit overbought/overcrowded in these names? Probably a little. though it can go higher given the backdrop: accommodative Fed, levels of cash on the sidelines, and an overly bearish/negative street stance.

S&P 500 – Longer-term Perspective

The S&P 500 held the 200-DMA at $3022.84, which was encouraging (Red-line). In addition, we have been keeping an eye on Relative Strength (RSI), which currently stands at 56.37. A hold above 50 RSI is encouraging.

S&P 500 – 20 Day 5 minute Candle

The S&P 500 $3150 level is the line in the sand for us. If we break through resistance, there could be a bit more upside. We continue to have some positions on, but will consider adding if this level can hold. For now, we continue to struggle at $3150.

Put/Call Ratio

We consider a Put/Call ratio in the 40’s to be complacent, so I wouldn’t consider the overarching market consensus to be complacent while in the 50’s.

AAII Sentiment Survey

CREDIT: @AAIISentiment – From a contrarian perspective, seeing this high % of people bearish on the stock market, is a big reason not to get overly pessimistic on the market. Dips continue to get bought. AAII Sentiment Survey: Optimism falls, ties its 83rd lowest reading out of more than 1,700 weekly results. The thought being, “Do the opposite of the majority.” Given the high levels of cash on the sidelines, it is okay to be cautious, but I wouldn’t be overly bearish. The normal (5-10)% dips will happen. Take advantage.

Interesting NASDAQ Perspective: Not an immediate sell!

Credit: @MacroCharts – We are certainly aware of heightened levels in the NASDAQ. We will continue to monitor.

Current Positioning: As the S&P 500 approached $3150 and failed, we added a hedge by shorting the Russell 2000. While it didn’t lead to a great performance the past few days, we believe the protection is warranted given the increase case count. The purpose of this position is not necessarily that we believe the market is going lower, but rather allows us to hold onto our positions while protecting value should we go lower. In other words, if we break $3150 on the S&P 500, I will likely sell the Russell 2000 (Small Caps) hedge. $3150 is a big level. A level we continue to struggle at. I make no assumptions, as the market is holding-up well despite the poor case count.

Why the hedge on the Russell 2000? The basic thought is financials and small companies will struggle the most should case count increase and more government mandates take place. This is a short-term play for protection. I hope this position does poorly so I can keep the other positions going strong. I know this is a different mindset for many clients, though I believe it is a good risk-to-reward insurance play given the most recent week rally. End of quarter leads to several rebalances and new flows into the new quarter. After an impressive week performance, a (1-2)% dip wouldn’t be uncommon. If this occurs, I take my gain in the hedge and will likely add to a more bullish stance should price action suggest it.

Friday, 7.2.2020, we were net sellers once we saw $3150 didn’t hold. Could it be we pierce through this week? If case count improves, yes! Case count is the one thing holding us back. A forewarning that the next rally could come from the beaten down names, as many “stay-at-home” momentum names are overbought and need a breather. Should improvement come in case count, you’re going to likely see alpha in the “have nots”; banks, casinos, travel stocks, and small caps.

This next week will be interesting! As always, we will watch price action. Thus far, price action is holding-up well. S&P 500 $3150 is the line in the sand. I hope it goes higher, but we are simply adding a hedge in case it doesn’t pierce though. Global equities are recovering and showing impressive price action. For American equities to take the next leg, case count will be important.

Have a great weekend! We appreciate your support!

#investing #invest #stock #stocks #trade #trading #economy #wealth #indexing #indexes #finance #finances #charts #charting #money #monies #market #business #sectors #tariffs #gold #treasuries #wealthmanagment #financialplanning

Follow us for daily updates: Twitter: @jonathan_gurney OR @gurneyfinancial Linked-In: Jonathan M. Gurney Facebook: Jonathan Micah Gurney OR Gurney Financial LLC Instagram: Jonathan M. Gurney                                                                                                 

DISCLOSURE STATEMENT

This post is for informational use only. The views expressed are those of the author, Jonathan M. Gurney. This material is not intended to be relied upon as a forecast, research, or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed.