I hope everyone is having a fun and safe weekend.
In this monthly chart of the $SPX (S&P 500), I show how the bottoming process usually occurs in the vicinity of the prior 4th wave, or "some" prior smaller-degree 4th wave. Since the 5-wave advance that began in 2009 finally came to an end in 2020 (as expected), using Fibonacci retracements of the entire advance and correlating them with key swing lows and support levels makes a lot of sense. Hence, should the 38.2% retracement fail at some point, the support area of the TDST level (Tom DeMark Support Trend) and the 50% retracement would immediately come to the fore.
On Thursday night, the $ES (S&P 500 futures) came within a percentage point of the late-December 2018 low (prior 4th wave at the 38.2% retracement) before embarking on a relief rally that culminated in a 90+% up-volume day. But this rally was clearly overdue on the back of a jaw-dropping six-pack of 90+% down-volume (non-consecutive) days. A buying opportunity for at least the foreseeable future.
As of now, my forecast is calling for more short-term relief to set the stage for AT LEAST a retest of the lows in April/May. The next two jobs reports will be key to determining whether a recession has already begun (hint: look for a 50 basis-point tick-up in unemployment off the 3.5% trough). Moreover, with the next earnings season slated to begin in 3-4 weeks, and forward estimates bound to be revised down, it troubles me greatly to hear pundits still pondering at what earnings multiple to put on the unrevised estimates.
On a final note, it's important to acknowledge the "backstop" effect of monetary stimulus on stocks, though I doubt it will have much of a short-term impact in light of the imminent earnings recession. Until such time when a vaccine becomes available, social distancing will continue to have a debilitating impact on the economy and stocks.
Peter Ghostine (@peterghostine)
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