S&P 500 Weekly Update; The Secular Bull 'Market Of Stocks' Rolls On

This article was originally published on this site

Every time one person buys, another sells, and both think they are astute.” – William Feather

July is in the books, and those that called for a correction after the second quarter gain in the S&P will have to wait a little longer. The S&P tacked on 5.5% in a month where the negativity was ramped up regarding “reopening” issues that were encountered during the virus scare. After a while, market participants will come to realize the stock market will march to its tune and could care less what the average pundit/investor thinks it is going to do.

Before trading began on Monday, the media declared the week as being a critical one for the stock market. A Fed meeting, key economic data (GDP, etc.), the busiest week of earnings, prospects of a fiscal cliff, and tentative Congressional hearings.

Early Monday morning before the trading week began, I reviewed the “scorecard” and determined it might not be so critical or disastrous as some pundits think. While we could always see a knee-jerk market reaction, none of these events by themselves would change my view of the stock market. This was just another example of how an investor can get themselves wrapped up in the “noise” around them.

Before the opening bell rang on Monday, I concluded with the Fed’s stance on fiscal policy in effect today, it (Fed) will continue to be a non-event. GDP is already known, with the economy locked down; it has to be a disaster in the second quarter. No surprise there. Markit PMI data have been positive lately, and we will be looking for any negative surprises. That is perhaps the key to this week. Yet not many will focus on that.

Earnings will be the stock market’s focus in the coming days. Results so far are ahead of analysts’ estimates, and my view that the forecasts were too low may prove to be correct. I’m not convinced we will see anything different this week on that front. Companies should continue to post decent results given the COVID economy. What we might see is some of the large-cap outperformers report earnings, then see investors sell on the news. Nothing new and alarming about that.

Given the Presidential election is coming up in less than 100 days, neither political party is about to stand in the way of providing stimulus for the recovery, so we will see a “package” announced. What we will also see is the typical posturing, rhetoric, and a last-minute or perhaps a “just past midnight” deal completed.

Congressional hearings involving large-cap tech companies are nothing more than the typical sideshow where each legislator gets their five minutes in the sun to show their constituents they know what’s going on. A nice day time drama that rivals some of the other “soaps” out there, but will offer little or no value to an investor unless they believe in the Easter Bunny.

So while the media will focus on what they have dubbed a critical week, I decide to use those thoughts and do what is most important, watch the daily price action.

A follow-up on all of these issues and more are offered in different segments of this article.

As we entered the final trading week in July, the S&P was down less than one half of one percent for the year. Despite the potential headline risk laid out by the media, stocks started the week on a positive note with the S&P gaining 0.74%. What looked like a total technology breakdown on Friday (July 24) turned into a nice rebound. The NASDAQ led all indices with a 1.6% gain on the day. Confirming my bifurcated market message, the Homebuilder index (XHB) recorded a new all-time high.

Turnaround Tuesday saw the gains on Monday disappear. The S&P has been meandering around what is the “breakeven level” for the year for the last couple of weeks. So the continued churn at these levels should come as no surprise. That issue was highlighted here on July 11th, and then reinforced with commentary on July 18th

“The S&P hit what is the break-even level for the year at 3,235 and reversed sharply. This is identified as a ‘psychological’ barrier that will force some investors to make decisions. It’s all about ‘technicals’ now as the market responds to support and struggles at resistance.”

While the analysts were looking for critical information from the Fed and the testimony from the Large Cap Tech giants on Wednesday, the S&P rose 1.2%, and the Dow 30 tacked on half of that, rising 0.60%. The Russell 2000 was the big winner rising 2.2%, Dow Transports rose 2.1%, and the Nasdaq bounced off support gaining 1.3% on the day. All in a show of very nice across-the-board breadth in a variety of sectors. That was confirmed with yet another all-time high for the cumulative Advance decline line recorded during the day.

On Thursday, Mr. Market decided to send a message to investors that may have started to get a little giddy reminding them the S&P remains in that overhead resistance zone. A very weak start was then met with buying at support levels. The S&P closed at 3,246 down 0.34% in what simply can be described as a small give-back after yesterday’s large gains.

There was a myriad of “reasons” that were bandied about by pundits for the swift change in temperament; however, my view that this market is being driven by the “technicals” and is responding to support and resistance levels continue to be confirmed by the price action. An issue that was brought to the attention of readers in mid-July.

To illustrate how the Technical support and resistance levels are in control of the markets, one needs only to compare what we have seen in the S&P versus the Nasdaq lately. It was again evident on Thursday. With new highs being set all during 2020, other than being overbought at times, the Nasdaq has no overhead resistance and the day’s action confirmed that as it was the only major index to close in positive territory. All of the other major indices succumbed to their respective resistance levels.

Early downside probing fizzled and turned into a late afternoon rally on Friday. All major indices reversed pushing the S&P to a closing gain of 0.77%. The Dow 30 was up 0.44%, while the Nasdaq tacked on another 1.4% to close out a solid month with a 6.6% gain. The S&P is now just above (+1.2%) the flatline for 2020, and less than 4% from the all-time high.

The BEARS will now tell all to be careful in August. Of course, we are careful. Careful to watch all of the data to form a strategy. If that is done successfully, the portfolio will take care of itself.

Economy

Q2 GDP contracted at a historic -32.9% rate after dropping -5.0% in Q1. Growth was at a 2.4% clip in Q4 2019. Consumption plunged -34.6% versus -6.9% in Q1. Fixed investment plunged -27.0% from Q1’s -6.7%. Government spending rose 2.7% from 1.3%. Inventories subtracted -3.98% versus -1.34% previously. Exports dove -64.1% from -9.5%, with imports dropping -53.4% from -15.0%. Net exports added 0.68% versus 1.13% previously. The chain price index dropped -1.8% from 1.4%, and is the weakest since 1949, with the core rate sliding -1.1% from 1.6%.

Citi’s Economic Surprise Index is at the highest levels since August of 2010.

Durable goods orders rose 7.3% in June after a 15.1% bounce in May (second highest on record) following the -18.3% April plunge. Transportation orders remained supportive, climbing 20.0% after the 78.9% surge in May, correcting from the -48.9% April drop. Excluding transportation, orders were up 3.3% from 3.6%. Nondefense capital goods orders excluding aircraft increased 3.3% from the 1.6% May gain. Shipments jumped 14.9% from the prior 4.2% (was 4.4%) rise. Nondefense capital goods shipments excluding aircraft climbed 3.4% from 1.6% previously. Inventories edged up 0.1%. The inventory-shipment ratio dropped to 1.87 from 2.15. Overall a very solid report.

Richmond Fed manufacturing index jumped 10 points to 10 in July after bouncing 27 points to unchanged in June. The index collapsed -55 points to -54 (was -53) in April and started the year at 12. The employment index improved marginally to -3 from -6 previously (was -5) and -22 (was -21) in April. The new order volume edged up to 9 from 7. Prices paid slid to a 0.93% pace versus 1.87%, with prices received at 0.45% versus 1.16%. The six-month shipment index rose to 57 from 51 and has climbed from -18 in March and -10 in April. The future employment gauge was 28 from 23. Order volume inched up to 48 from 47. Capex was steady at 8 (June was 11). Prices paid slipped to 1.97% from 2.23% (was 2.36%), with prices received at 2.07% from 1.68%.

Dallas Fed manufacturing index rose 3.1 points to -3.0 in July, after surging 43.1 points to -6.1 in June and a 24.8 point bounce to -49.2 in May. The index was crushed in March and April, falling -70.9 points to -70.1 in March and to the record low of -74.0 in April. The region was devastated by the pandemic and the plunge in the oil industry. The employment component improved to 3.1 from -1.5, with the workweek bouncing to 5.8 from -4.3. New orders increased to 6.9 from 2.9. Prices paid slipped to 9.7 from 12.3, with prices received rising to -1.5 from -4.7. The six-month general business activity index dropped to 10.6 from 19.7; it was at -43.0 in April. The future employment index fell to 11.1 from 18.6, with new orders at 38.6 from 33.9. Prices paid firmed to 22.3 from 19.4, with prices received at 10.9 from 7.7. Capex inched up to 11.6 from 10.4. The mix of data is a little disappointing with more modest than expected improvement in the current data, and some slippage in the future outlook.

Chicago manufacturing PMI surged 15.3 points to 51.9 in July, much stronger than expected, and follows June’s 4.3 point gain to 36.6. The index is continuing to recover from the three straight monthly declines starting in March and culminating in May with a 38-year low of 32.3. The July reading is the highest going back to May 2019 at 52.8. The three-month moving average climbed to 40.3 from 34.8

U.S. consumer confidence index dropped 5.7 points in July after climbing 12.4 points to 98.3 in June. The index has bounced from the April low of 85.7, which was the lowest since May 2014. The index was at 132.6 in February. All of the weakness was in the expectations gauge which fell to 91.5 from 106.1. The present situations index improved to 94.2 from June’s 86.7. The labor differential climbed to 1.3 from -2.8 and was at a low of -15.7 in April, the weakest since June 2014. It started the year at 35.3. The 12-month inflation reading slipped to 6.1% from 6.6%, where the latter was the strongest since March 2011.

The University of Michigan sentiment falls to a downwardly-revised 72.5 in July from 78.1 in June, but a similar 72.3 in May joins July pullbacks in most of the confidence measures with delayed reopenings. However, all the measures are well above the lows from the March-April plunge and remain firmly in expansion territory.

Initial jobless claims (seasonally adjusted) rose from 1.42 million to 1.43 million this week. That marks the first time since the second half of March that seasonally adjusted jobless claims have risen week over week in back-to-back weeks. On the bright side, this week’s reading of 1.43 million was better than forecasts for an increase to 1.44 million. Additionally, while claims continue to rise and print deep into the millions, this week’s increase of 12K was much more modest than the 114K increase last week.

Pending home sales climbed 16.6% to 116.1 in June. The index bounced 44.3% to 99.6 in May, correcting from the -21.8% plunge in April to the record low of 69.0, following the -20.8% slump in March to 88.2. The index was at 111.4 in February, which was the highest since February 2017. The 12-month pace popped to 12.7% y/y versus -10.4% in May and -34.6% in April. The data support my bullish outlook on the housing sector.

Lawrence Yun, NAR’s chief economist:

“It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago. Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy.”

In light of the apparent housing market turnaround, NAR has raised its forecast for the market. For all of 2020, existing-home sales are expected to decline by only 3%, with sales ramping up to 5.6 million by the fourth quarter. New home sales are projected to rise by 3%.

Mr. Yun expects that the expected positive GDP growth of 4% in 2021 will boost both existing and new home sales, which he forecasts to grow by 7% and 16%, respectively. Mortgage rates are anticipated to stay at or near 3% over the next 18 months. Home prices will likely appreciate 4% in 2020, before moderating to 3% in 2021 as more new supply reaches the market.

“As house hunters seek homes away from bigger cites – likely in an effort to avoid the coronavirus – properties that were once an afterthought for potential buyers are now growing in popularity.”

“While the outlook is promising, sharply rising lumber prices are concerning, “A reduction in tariffs, even if temporary, would help increase home building and thereby spur faster economic growth.”

Global Economy

Germany’s July IFO data showed that the German manufacturing economy continues to recover and has relatively positive expectations about the future. The survey’s Expectations series hit the highest level since September of 2018 at 90.5 as respondents feel increasingly optimistic that the economy will recover from its brutal 2020 first-half shock.

Japan’s retail trade declined by 1.2 percent year on year in June 2020, after a revised 12.5 percent slump a month earlier and compared with market consensus of a 6.5 percent fall.

Earnings Observations

This week is the busiest week of the 2Q’20 earnings season, with ~200 S&P 500 companies representing nearly half of the index’s market capitalization set to report results.

The “beat” rate continues to easily outpace the companies that are “missing” estimates. My opinion that analysts had estimates far too low is being confirmed especially in the technology world. As of Friday morning, 83 companies have reported, 67 Beat, 16 Missed, and 30 raised guidance.

I have maintained since this earnings season began that if one looks closely, there is plenty of “visibility” out there.

It seems that worst fears failed to materialize or the “Covid Economy” is benefiting a lot of public companies. Perhaps the country isn’t in the condition that is being portrayed in the headlines. Maybe it is a little of each.

Source: Bespoke

While analysts were forecasting overall earnings to slump by 40+% this quarter, Technology earnings are down a modest 2%. That does not include earnings from large-cap tech reported after-hours on Thursday. So that result may be heading more to the flatline which would be a huge positive.

Also of note, most of the companies that are raising guidance are in the Tech sector, so they should continue to post strong results in the second half.

It’s simply imperative for investors to be able to identify then research these “winners”. Savvy investors receive DAILY updates that provide all of that information as earnings season progresses.

Since earnings season began on July 13th, nearly 80% of companies have posted stronger-than-expected EPS numbers. That’s a huge beat rate and suggests that analysts were too bearish on Q2 numbers heading into July. The revenue beat rate held up much better than EPS beats throughout the first half of 2020, but it too is on the upswing this season.

The Political Scene

The “other” political sideshow (large-cap antitrust hearings took place this week) is still ongoing as neither side can agree on the next round of stimulus for the economy. My opinion remains the same; it will be a last-minute deal or an “after the bell” saving deal that will make both sides look like heroes instead of fumbling bumbling incompetents.

The Fed

No surprises from the Fed. As anticipated this week’s meeting was a non-event and continue to believe given its stance, the Fed will now remain in the background for the time being.

Fed to keep rates near zero until the economy has “weathered recent events” The Federal Reserve said in this week’s statement:

“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

A trading range under 1% for the 10-year Treasury note has been in place for quite some time. After making a run to the top of that range in June, the 10-year is drifting back down as the COVID impact on the economy weighs on the market. The 10-year closed trading at 0.55%, falling 0.04% for the week.

The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.

Source: U.S. Dept. Of The Treasury

The 2-10 spread was 30 basis points at the start of 2020; it stands at 44 basis points today.

Sentiment

The percentage of US consumers expecting lower stock prices in the months ahead remains elevated which is incredibly uncommon when the S&P 500 is within 5% of an all-time high.

This week’s American Association of Individual Investors survey of how individual investors are feeling about the market showed another big print for the BEARS with few bulls to be found. Bullish sentiment has fallen to 20.2%. Meanwhile, Bearish sentiment rose to 48.4%

The spread between the share of respondents reporting bullish sentiment and those reporting bearish sentiment is below -20, a historically wide but not unprecedented margin. It’s also unusual to see more than twice as many bears as there are bulls.

While the “worries” have investors very nervous, history tells me market tops aren’t formed when sentiment is this Fearful.

However, if an investor wants to parrot the media and cite the Robinhood traders as a sign of a euphoric top, then use that data point to form a market strategy, please be my guest.

Crude Oil

Whereas crude oil inventories including strategic reserves were expected to rise this week by 0.45 million barrels, instead, crude oil inventories experienced a massive draw of 10.611 million barrels. That was the largest draw since the final week of 2019 and was in the bottom 1% of all readings in the history of the data going back to 1982.

Due to that massive draw, inventories excluding strategic reserves are now at their lowest level since April 17th, but that is still 76.9 million barrels above the five-year average. As domestic production held firm at 11.1 mm bbl/day, that large draw was largely thanks to a shrinking crude oil trade deficit.

Imports have fallen to their lowest level since mid-April at 5.15 mm bbl/day while exports rose to 3.21 mm bbls/day, the highest in ten weeks. The opposite dynamic was seen in product imports and exports.

Demand has continued to improve for gasoline and other products as gasoline demand reached its highest level since March 20th and refinery throughput is at its highest since March 27th.

Traders kept WTI prices in a fairly narrow range. The price of crude oil closed at $40.17 on Friday, which represented a loss of $1.08 for the week.

The Technical Picture

The trading range continues and the action over the past week, if anything, still suggests the market is contemplating its next more major move. The U.S. averages took shots at breaking out to the upside early last week, but there was no follow-through and the moves remained in check this week as well.

However, the same can be said for any downside probing, no follow-through at all with Friday’s late-day action being another example of that. The index is marching to the beat of bouncing off support and resistance levels. The short-, intermediate-, and long-term uptrends are clearly identified on the DAILY chart posted above.

Meanwhile, the NASDAQ breaches short-term support only to have it rebound to retake that trend line, indicating there was no follow-through on the downside as well. Confusing is the only way to describe the market action lately.

Overall, there is a debate right now whether the recent trading range represents just rotation and rebuilding period before the next move higher or the exhaustion of a rally on its last legs that will ultimately succumb to a correction. There are arguments made on both sides and where one stands on the subject often just reflects the built-in biases that one has about the market.

When that occurs it is best to leave any bias out of the equation. Then step back and review the Longer-term MACRO picture (BULLISH) and try to follow the very short-term move without adding emotion. In doing so a market participant also has to be wary of overthinking and overemphasizing any ONE data point. Many are falling into that trap today.

Case in point, the example cited above, the NASDAQ breaks initial support and the conclusion is the index is automatically deemed to be “rolling over”. One day later the index recaptures that trendline and the short-, intermediate-, and long-term uptrends remain in place.

For myself, I’ll leave out my “feelings” and the propensity to jump to any conclusions and follow what has served me well in my career. That continues to post acceptable portfolio results without the need for “‘guessing”.

If certain principles are followed, there is no need to guess what may occur; instead, it will be important to concentrate on the short-term pivots that are meaningful. However, the Long-Term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my DAILY updates to subscribers.

Short-term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short-term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.

The chief executives of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Facebook (NASDAQ:FB) testified before Congress this week as the broad-based antitrust investigation of “big-tech” market power continues. Combined, the four companies account for ~$4.8 trillion, equivalent to ~17% of the S&P 500.

According to lawmakers, each company presents its unique issues (e.g., data privacy, treatment of facility workers, freedom of speech), but the overarching concerns are excessive market dominance and impermeable barriers to entry for potential competitors.

Technology has been a dominant sector due to the long-term growth catalysts (e.g., the anticipated rollout of 5G, and work from home networking).

Investors wonder if stronger regulatory rhetoric against tech-oriented companies in an election year could potentially serve as a near-term headwind for the sector.

However, investors have been down this road before and most realize that actual policy being implemented is a low probability. If it ever comes to fruition it will take years and the congressional militia that is in favor of a breakup may be doing investors a huge favor. The “SUM of the parts” in all of these companies is far greater than the individual entities are today.

Bottom line, anyone that held on to their tech shares when Facebook, Amazon, and Google executives were initially pistol-whipped by congress over two years ago is doing fine these days.

At the start of this week, Barrick Gold (GOLD) was up 53% for the year. I wonder why no one says Barrick is in a “bubble”.

One also has to wonder if this chart was the Nasdaq Composite, what the rhetoric and subsequent “warnings” might be.

Source: Bespoke

I doubt it would be favorable and more than likely be called “euphoric” and a “bubble”. I find it interesting that pundits are telling me to exchange what many are calling my bubble technology stocks that have fundamental attributes for Gold and Bitcoin that trade on emotion.

If an investor hasn’t figured it out for themselves, when it comes to reporting information and data on coronavirus, it comes down to what the media wants everyone to know. Mr. Market has already figured this out, and for the most part, discounted the news flow on the virus scare.

Individual Stocks and Sectors

I have been a long-standing BULL on the FAANG trade and have consistently advised investors to stay in these stocks for years. Each time they found themselves under attack, my position never wavered; they were all Strong Buys on any weakness.

My position did not change despite the overall market dropping into BEAR territory in the March selloff. My reasoning was simple. NONE of these companies ever saw their technical charts enter into a BEAR market configuration. There was also another reason for my bullish outlook that was very obvious to Savvy investors. NONE of these companies were ever in full lockdown mode, and they never had to completely close their operations. Hence they were not about to suffer any major disruption to their business. Not only was there no disruption, they didn’t just survive, but they are also thriving in the Covid economy.

That backdrop not only fits the FAANG names, but they also fit a large majority of the technology sector. On May 9th when I spoke about the opportunities that were present in this market:

Why keep looking at companies that can “survive”, look at those that can “thrive” in the new environment.

What a week. The media was all flustered over what they thought could be an earnings debacle in big tech that would put an end to this rally.

Alphabet, Amazon, Apple, and Facebook, all had a high bar set as they entered into this earnings season. Plenty of “‘skeptics” continued to say these companies were getting way ahead of themselves. Despite a quarter that saw GDP fall 33%, all of these tech giants posted what can only be called ULTRA impressive results.

For the last 2-3 months, the message has been this virus health scare formed new “macro” trends, and they will change the landscape for both the economy and the investment scene. This will further enhance the prospects of the “winners” that have already been identified.

Commentary from July 4th; one thing that will become apparent:

Any investor that refuses to follow this sea change and dismiss the companies that are now drivers in macro trends that are new and developing will be left behind. The wind has changed; it’s time to adjust your sails.”

The message for the last 2+ months stated that these new trends would NOT be a fad or a passing fancy. That seems to be the case.

Google just announced that it will keep employees home until at least July 2021. That announcement will affect nearly all of the roughly 200,000 full-time and contract employees across Google parent Alphabet. Alphabet CEO Sundar Pichai made the decision himself last week after debate among Google Leads, an internal group of top executives that he chairs.

To summarize: the four 1 trillion dollar market cap names in the U.S. equity market all reported calendar Q2 results that were extremely strong compared to estimates. As I have noted, these companies are all earning amounts of income at margins and growth rates that make them look justifiably priced. This quarter, if anything, added to that narrative. Let me remind investors that these results were accomplished when GDP fell 33% in the second quarter.

Before I am chastised for being a Perma Bull and criticized for making clients and members of my marketplace service remain invested in these stocks please allow me to share my thoughts on where we stand today regarding FAANG and any other stock that has outperformed by a wide margin in the last three months.

When ANY stock breaks out of a trading range to a new high, that is usually followed by a period of consolidation. Since the earnings catalyst is now gone, many market participants will look to book profits, adding selling pressure. There is really no need to chase here. There will be many opportunities to add or initiate positions in any of these names, and anyone looking to do so will need to exercise judgment or seek advice. Rest assured in most cases a “breakout” always bodes well for price appreciation in the future. Strength begets strength. Be patient.

Pundits keep telling us there are a handful of stocks that are propping up this stock market. As of the close of trading on Friday, only three sectors remain in a long-term BEARISH configuration, and the underlying strength of this market has been unrecognized and under-appreciated by the majority of analysts and pundits.

A point that has been made in earlier missives, the relative strength of the semiconductor index has been one of the best-leading indicators of the broader market I have come across over the last several years, and it indicates an extremely robust economy in all things digital. They are the “transports” of this new era. To that end, the index’s relative strength versus the S&P 500 hit another record high this week.

Other sectors are not just in a BULLISH configuration now they are making new highs. Earlier in the article, I noted that the Homebuilders (NYSEARCA:XHB) set a new all-time high this week. Materials (XLB) posted a new high on Monday. Healthcare (XLY) and Retail (XRT) made new highs on Wednesday. Consumer Discretionary (XLY), Communication Services (XLC) and select Technology (XLK) joined that new high group on Friday.

That doesn’t look like four or five stocks to me.

There are times when every market participant should step back and review what direction they have taken. Whether their perceptions of the situation have been right or wrong, so the proper adjustments can be taken. With everything going on around us, it is easy for an investor to get wrapped up and lose track of where they have been and where they are going

Since the rally of the March lows and the rebound rally that re-established the long-term BULLISH trend, the message here has keyed on the continuing Secular Bull Market theme. Some have taken the commentary and labeled it the ramblings of a Perma Bull. Be that as it may, I find it difficult if not disingenuous and financially irresponsible to agree then preach what might seem like the logical approach to the masses, just to “fit in”.

Back In April, I wasn’t about to tell everyone that the lows were going to be retested and the BEAR market would evolve into another massive debacle for investors when the data was telling a different story. The rally off the lows confirms my view, and if my approach happens to be BULLISH during a 1,000+ point 45+% rally, then I have served my clients and members of my service well.

What may transpire from today forth is another challenge. Navigating the market successfully is always filled with challenges. We are witnessing a slow reopening of the economy. A reopening that is having trouble getting off the ground, a rebound that starts in some states then hits a speedbump. Then there is a Presidential election looming.

So the emphasis switches to paying close attention to the price action, which is being ruled by the technical patterns now, and it will be incumbent on investors to remain vigilant and stay focused. The issue will be whether we see continued improvement in the global economic situation to keep the rally going or is there a pause in the recovery that will translate into weakness in the equity market.

If investors didn’t get the message earlier please allow me to reiterate that for any new followers. Resistance is always strong around an old high. The same can be said for what would be the break-even level for the year in the S&P. This past week the index vacillated just below to just above that break-even point for 2020. It would not be surprising to see more downside probing in the days ahead, nor would be surprising to see what could be a continuing pause at these formidable resistance zones.

The “market” as measured by the S&P hasn’t gone anywhere in the last two months. That prompts some to quickly make an assumption it’s a warning sign based on a feeling or an emotion. However, that in itself isn’t such a huge cause of concern IF one looks at how far the index ran from the lows.

Consolidation of any rally is quite normal and in fact quite healthy when we analyze any market. There should be no doubt now that select stocks that have been winners in this “new COVID economy” have crushed the major indices. Let me also remind the naysayers that this isn’t just four or five stocks. Looking closely under the hood of this “Market of Stocks” reveals a lot of surprises if an investor just opens their mind.

This unprecedented year rolls on. More speedbumps, more uncertainty for sure. More up and more downs, more push, more pull as investors wrestle with the issues. No one has all of the answers. I rely on a strategy that has worked very well over the years. I don’t guess or speculate when the stock market could be ready to change direction, especially when we see indices at or near highs. After all, anyone that lightened up at all of the other “tops” is looking up at those that didn’t.

The strategy of being ultra-selective recognizing the trends in place since the rally started in March has been a satisfying journey. I remain resolute in my strategy and open to change as the trend changes.

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week, I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore, it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore, I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

to all of the readers that contribute to this forum to make these articles a better experience for everyone.

Best of Luck to Everyone!

Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.

This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.

IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.

Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel calmer, putting them in control.
The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.

Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time. The goal of this article is to help you with your thought process based on the lessons I have learned over the last 35+ years. Although it would be nice, we can’t expect to capture each and every short-term move.