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Lessons Learned

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In yesterday's "Phase 1, Complete" article, I noted that the first phase of this bear market is done, and that a countertrend rally (wave X) is now underway (chart 1).  I had high hopes for wave X, as high as 2888 on the $ES (S&P 500 futures).  But the Fed unexpectedly reduced rates to 0-0.25 well ahead of the scheduled March 28th meeting, spooking the markets and cutting wave X short.  There's NO WAY I can possibly offer you honest, short-term technical guidance here.  We'll have to let this thing play out and correlate the unfolding price action with the forecast (again, chart 1).  On the bright side, the $AAPL March 270/272.50 credit call spread will turn out to be a big winner today.

Chart 1. https://www.61point8.com/Portals/0/article%20images/2020/20200314/20200314SPX2.png

Aside from preserving cash, humor is the best medicine during trying times.  Having been a student of the market for the last 12 years, I've seen enough storms come and go, and I've learned valuable lessons along the way from every single one.  For example, in summer 2011, things were coming unglued, and so was I.  But when the clouds finally cleared, stocks found their rhythm and proceeded to move higher.  Eager for a teachable moment, I glanced at the monthly chart of the Nasdaq 100 ($NDX) several months later.  There it was! (Chart 2).       

Chart 2. https://www.61point8.com/Portals/0/article%20images/2020/20200316/20200316NDX1.png

In 2015, I learned another valuable lesson.  In fact, I forecasted it as early as March, well ahead of the summer 2015 correction (Chart 3).   

Chart 3. https://www.61point8.com/Portals/0/article%20images/2015/20150303/20150303COMPQ1.png

Enter 2020.  Everything seems to be coming unhinged again!  But stocks will invariably find their rhythm...  Again...  When the clouds finally clear!  Check out the Philly Semiconductor Index ($SOX) in chart 4 and simply apply the 2011 and 2015 lessons.  

Chart 4. https://www.61point8.com/Portals/0/article%20images/2020/20200316/20200316SOX1.png

The coronavirus isn't the first plague and won't be the last one.  It's just a bump in the road.  When this storm finally passes, we'll once again look forward to 5G, driverless cars, and trips to Mars.

In 1957, it was the Asian Flu;  It didn't spill over to the U.S. until August 1957.  The outbreaks were mild and a vaccine had just been produced.  The bear market that had been in force since 1956 finally ended in October 1957 (22% decline), and a new bull market emerged from that wreckage.  In 2012, SARS occurred at the end of the post-dotcom crash that had already taken a 50-80% toll on the indices.  But once again, a new bull market somehow managed to emerge from that wreckage.  And in 2009, H1N1 appeared on the scene on the back of the financial crisis as a new bull market was just emerging from that wreckage.  

Yes, the Coronavirus is different in that it coincided with cycle peak this time around.  Hence, a vaccine will likely coincide with a cycle low (like in 1957), setting the stage for a new bull market to emerge from yet another wreckage.

Bull and bear markets: https://www.61point8.com/Portals/0/article%20images/2020/20200316/bullbearmarkets.jpg     


Trade vigilantly,

Peter Ghostine (@peterghostine)


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