May the Fourth Be With You

If bear markets are the Empire, this week the Empire may strike back. Based on weekend futures markets stocks are poised to drop Monday, with a strong indication of follow-through for the week.

Last week we hit a significant technical level as the S&P 500 pushed above 2950 intra-day last Wednesday. This, by most measures, fulfilled the 61.8% Fibonacci retracement many technicians were looking for.

While this is no guarantee, you may begin to see the tune change for some analysts as more people jump on the band wagon that this price move from the March 23 lows is a bear market rally. This may also be a shift in discussion from “V-shaped” recovery to some other alphabet (L, W, U… zig-zag, whatever).

The reality is that the economic impact of this thing is starting to set in. Some companies will survive but others will hurt. And when enough companies hurt, economic activity slows. That hurts the winners too in most cases. So even a big company like Amazon — a company that seemingly has the perfect business model and opportunity during this crisis — can still get punished by increased costs and fickle investors.

Looking ahead the crystal ball is murky. The technical outlook is not encouraging if the typical trend emerges. If we really are in a bear market, a resumption of the downtrend should resume, and we’ll decline for a season. The real question is whether or not we re-test the March 23 lows.

No one really knows the answer yet. If the virus turns out to be less deadly than hoped, we start to re-open the economy and things start spinning again. If it’s more deadly than hoped, we sit on our hands longer. The states that have opted to re-open will be case studies closely watched for a bit. Spike in cases and hospitalizations? Market probably gets nervous. No spike, market drifts sideways for a bit and finds its footing.

For this week, the primary support level looks to be 2683/2650. Given the pattern of fairly aggressive volatility, it would not be out of line to see a pull-back to this level. That’s about a 5-to-6.5% decline. Historically that seems like a big move for a week (and perhaps it will take a couple weeks to unfold), but that’s not out-of-line for the way this market has been moving recently.

Up-side resistance would be at the 2950/3000 levels again. That’s basically both the 100 and 200 day moving averages.

Other noteworthy stats we’re watching: all three of the BigFoot Macros are negative… so that’s a pretty ugly thing. The database climbed from about 21% long to 23% long — so, green shoot — but still, not enough to move the needle much. It’s still a very bearish percent-long at this point.

The other side-show we should keep watching is Washington. Are they going to come out with some sort of direct-to-consumer money dump? Some form of universal basic income (though they won’t call it that)? If so, that could be lighter fluid for this market. So… we’ll have to wait and see.

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