Seasonal weakness has likely arrived as MACD makes bearish cross
Seasonal investors who follow the "Stock Trader's Almanac" approach to investing use June's first downward cross on the MACD indicator as their signal to exit the market until October. We got that all-important signal this week, which suggests that we have now entered the period of seasonal weakness. My experience is that there's money to be made by investing in July, August, and September, but it takes a different mindset, because the dips are a lot bigger than they are the rest of the year, so you have to wait a little longer before buying dips.
I think we'll see some mid-month doldrums here in June, as coronavirus case counts continue to rise. Arizona is facing a crisis because it's out of ventilators and ICU beds, and Twin Cities, MN and Dallas, TX are on the verge of a similar crisis. LA County expects to run out of beds in 2-4 weeks. The public pressure is all toward reopening, but I suspect that some of the big liberal cities will actually tighten distancing rules this month to slow the growth of new cases.
A bigger problem for the stock market is that we're probably headed toward some kind of reckoning for debt. Deferment periods have lulled us all into a false sense of security, but those deferments are now ending, and we're seeing rising numbers of defaults, layoffs, and bankruptcies. I wouldn't be surprised to see a housing market crash or a weakening of the jobs recovery in the coming months. Unfortunately I can't guess when it might hit.
In early July we will probably see a rally, as Congress considers another stimulus bill, movie theaters look to reopen, and the first vaccine human trials get started. We could see more volatility in August as the first trial results come in. There's probably about a 75% chance that one of the vaccine candidates passes in human trials, in which case the market could rally very strongly into the end of the year.
The next two years will then be a period of seasonal weakness, as the first couple years of a presidential term usually are. The market will also be reckoning with the lingering effects of high unemployment and a loss of consumer confidence and consumer demand.
I think we'll see some mid-month doldrums here in June, as coronavirus case counts continue to rise. Arizona is facing a crisis because it's out of ventilators and ICU beds, and Twin Cities, MN and Dallas, TX are on the verge of a similar crisis. LA County expects to run out of beds in 2-4 weeks. The public pressure is all toward reopening, but I suspect that some of the big liberal cities will actually tighten distancing rules this month to slow the growth of new cases.
A bigger problem for the stock market is that we're probably headed toward some kind of reckoning for debt. Deferment periods have lulled us all into a false sense of security, but those deferments are now ending, and we're seeing rising numbers of defaults, layoffs, and bankruptcies. I wouldn't be surprised to see a housing market crash or a weakening of the jobs recovery in the coming months. Unfortunately I can't guess when it might hit.
In early July we will probably see a rally, as Congress considers another stimulus bill, movie theaters look to reopen, and the first vaccine human trials get started. We could see more volatility in August as the first trial results come in. There's probably about a 75% chance that one of the vaccine candidates passes in human trials, in which case the market could rally very strongly into the end of the year.
The next two years will then be a period of seasonal weakness, as the first couple years of a presidential term usually are. The market will also be reckoning with the lingering effects of high unemployment and a loss of consumer confidence and consumer demand.
Commentaire:
Negative outlooks across the economy:
Moody's downgrade-to-upgrade ratio is near the highest ever. The credit-rating company "currently has no positive industry outlooks, the first time that has happened, and the outlook for North American business conditions remains broadly negative."
No breadth:
The S&P 500 just moved to within 5% of a 52-week high. More than 60% of stocks in the index are more than 10% below their own highs. This hasn't happened since September 2000.
Moody's downgrade-to-upgrade ratio is near the highest ever. The credit-rating company "currently has no positive industry outlooks, the first time that has happened, and the outlook for North American business conditions remains broadly negative."
No breadth:
The S&P 500 just moved to within 5% of a 52-week high. More than 60% of stocks in the index are more than 10% below their own highs. This hasn't happened since September 2000.
Near-term risks are as follows: 1) the spike in Covid-19 cases is going to delay reopening in a lot of cities and sectors, most notably cruise lines this week. 2) the jobs recovery slowed down a lot this week and may have hit a bearish inflection point.
In mid-July we'll get earnings season. I think earnings in a lot of the "rotation" sectors like travel and banks will be a sobering wake-up call, and these sectors will take a hit as speculators bail. Information technology and communication services sectors will continue to outperform as investors rotate back into these safe havens.