Stocks Are Bouncing Hard, But Is the Bottom In?
As I noted in yesterday’s article, the market was bouncing strongly. But we’re not out of the woods yet.
Stocks have broken through resistance, but we need to remember that we’re approaching the end of the month. Fund managers are desperate to push the markets higher so they can close the month with the best possible numbers to report to their clients.
The story is identical for high yield credit.
We’re poking up into the gap established back on March 17. But again, momentum is waning. And we really won’t know the real deal until April hits and end-of-the-month performance gaming is over.
The one bright spot is investment grade credit, which broke through resistance on the first try yesterday.
Still, given that this sector is being bought by the Fed for the first time ever… and that the Fed is buying it with “unlimited QE”… even this was not too outstanding.
It is however, one bright spot that suggests the system is aggressively moving into “risk on” mode.
Personally, I continue to believe stocks will retest the lows and possibly even break to new lows.
Be Patient on Stocks
The S&P 500 is in a bearish rising wedge formation. These typically break to the downside.
Put another way, now is not the time to rush in and start buying.
Stocks are moving up and people are feeling a lot better about the markets… but we have yet to see what the economic fallout from the shutdown will be.
Moreover, we don’t know just how manage damage the economic closure has done to the over indebted financial system.
It’s safer to watch and wait. Bear markets are nasty things and have a bad tendency to inflict the greatest pain on the greatest number of investors. That would mean stocks rolling over again shortly.
Editor, Money & Crisis