At the risk of sounding morose, I’m getting the sinking feeling that the teeny yellow sliver of time, lasting only about 39 trading days, is going to be “it” for the bears. After all, the entirety of the plunge was based on the trade wars, and now that we’re in only the very earliest stages of negotiations with trading partners all over the world – – and considering the mega-rally which has taken place based on solving merely one (relatively minor) country – – it gives me pause to think of what’s next.
One piece of evidence in this concern is Bitcoin, which has managed to clamor about 35% higher since just one month ago, crossing again into the six-figure realm. Yes, it’s still about $18,000 below its inauguration day peak, but the six-figure achievement is psychologically important for the “risk on” crowd.
I keep referring to what I’m calling the Zone of Uncertainty, and it’s more “uncertain” than ever. Let’s face it – – out of the past 13 trading days, 11 of them have been up on the S&P, and the two down ones were down only very modestly. If the /ES can finally conquer the area I’ve highlighted with the rectangle, the last “lower high” will be laid waste, and the market is going to get murkier than ever. That value on the cash index is 5786.95. Let’s call it 5800.
I would also like to point out that the Fibonacci level on the /ES (anchor points on the weekly: 10/13/2022 and 2/19/2025 was nailed almost to the penny at yesterday’s low, illustrating that we’re in “support” mode on the market now. In other words, the bears are seriously on the defensive.
Not to say there aren’t still intriguing setups. Costco, for example, has a very interesting gap at $1018, and the stock seems to have stalled out even in the midst of all this bullishness.
And, no doubt, the bullishness is abundant. The image below doesn’t even take into account today’s huge rally.
Thus, I’ll say once again that for me “conservative” is my portfolio’s disposition. The prospect of a meaningful bear market is not dead, but it’s certainly damaged. Push above the March 25th high, and it’s time to swipe the whiteboard clean and take an utterly fresh look.
I think the next big inflection point is going to be this weekend. It seems almost certain that the Chinese and U.S. representatives will put on a brave face when they (I assume) make any kind of “progress so far” type announcement, but the real question is what they are saying between the lines and how are worldwide markets reacting.
There is always uncertainty in the market, but normally that uncertainty has a fairly clear timeline and termination point, be it a Fed announcement, an earnings report, a jobs report, or an election outcome. The vexing thing about the trade wars is that it’s the one class of uncertainty which has an agonizingly long timeline (years, even) and represents an enormous challenge of separating the political congratulations with the economic reality.
My conclusion from all this? Let’s watch closely what transpires this weekend. I can’t imagine a scenario in which it’ll be anything but positive sounding, but again, it’s the reaction that’s worth noting after it’s concluded. Until then, I’m keeping my bets small.
