Sunday Update: 12 April 2020

Even with the shortened trading week, we saw the largest stock market gains since 1974!  For the week the C fund was up 12.1%, S fund up 17.98%, I fund up 9.17%, and F fund up 1.97%!  While we usually talk about volatility when prices collapse, in reality, volatility works in both directions.  After 5 weeks of gut-wrenching price declines, the last couple of weeks have been a welcome reprieve.  In fact, the S&P500 (C Fund) has regained 50% of its losses since the top in February.  The question on everyone’s mind is, have we seen the bottom of this Bear Market???  

IF you find anyone willing to answer that question with certainty, I would think twice before taking their advice…  A quick Google search of “Bull or Bear Market 2020” will give you a LONG list of “Experts” willing and ready with an answer.  Investors and experts alike, we all have an opinion and we want to be right…  If we’re not careful, we will look for evidence to validate our opinion despite what the chart is telling us…  Try not to let your opinion, ego, or belief sway your reallocation decisions.

We’re only looking at one chart this weekend.  It’s got a TON of information so, let’s break it down…  

We talked about Breadth last week.  Breadth is important because, for prices to continue higher, we need more stocks making new highs vs new lows and more trading above their respective 200DMA than below it.  Breadth has improved significantly this week vs last week.  That’s a great indication that prices can move higher from here.  While Breadth is a positive, the price of the S&P500 (C fund) is entering an area of MAJOR resistance.  

Take a look at the 3 month daily chart of the C fund below.  Resistance began at the 50% retracement level (2797.15) and continues up to the 200DMA (3016.01).  Within that range we have the AB=CD pattern finishing at 2892, the 50DMA at 2909.82, and the 61.8% retracement level at 2940.  The more indicators that converge at a give price range, the more difficult it will be for the C fund to break through to the upside.  

IF the C fund is able to break through all of this resistance AND find support above the 50DMA, then I would consider putting more funds to work in the stock funds.  It is POSSIBLE that the C fund could push through but, given the economic circumstances and the history of Bear Markets, I’m not optimistic.  Having said that, we are watching the price action closely for indications of strength/price acceleration or weakness/roll over. 

Stay tuned.  Don’t let the Bear suck you in…  Have a great week!

Jerry