10 Facts Continuing To Point To Substantial Upside Ahead In Equities
It was only a few months ago when investors couldn't stop drooling all over themselves while dragging their knuckles on the ground to pounce on any type of risk they could find. A mere three months later, due to what is the equivalent of 9.0 earthquake to shake the globe, the prevailing view has become one of depressive gloom and doom unlike anything since the financial crisis. Let's look at some facts: The economy is on the verge of being rebooted in incremental fashion. Participation in equities is at the lows of this bull market, with cash positions at levels not seen since 2009. Bearish sentiment is borderline maniacal in nature, with numerous measures pointing to extreme fear remaining in the market despite one of the great rallies of all-time since the March lows. Interest rates are down near zero across the developed world, making for cheap borrowing. Commodity prices are at rock bottom levels, allowing for cheap building, production and transportation. Stimulus is not just at record levels, but is coming from every direction in what is a jaw dropping fashion. Consumers have been caged for many weeks now, while spending very little on much of anything except Netflix and Fruity Pebbles, creating savings all the meanwhile. A significant percentage of the unemployed are making more on unemployment and stimulus than they were on the job. Massive amounts of capital are moving towards technology, as it allows for distancing while maintaining or perhaps increasing efficiency. Government stimulus has momentum behind it for many months to come, meaning further rounds of stimulus, with increasing attention paid to making individual earners feel whole. The aforementioned points is what the market has reacted to over the past few weeks, with an eye on how these numerous influences will translate during the second half of the year. Thus far, the market sees these influences as translating in an overwhelmingly bullish fashion. This doesn't mean that the market rallies for years on end here against of backdrop of transformative economic bliss to come out of this boiling pot of virus induced misery. What it does mean is that coming out of this disastrous period, there are enough factors producing a very substantial tailwind that the markets can produce results that will be both unexpected and amplified in nature, due to the exact proper mix of overwhelming bearish sentiment and historic stimulus unlike anything experienced in modern times. The upside remains explosive. Invest accordingly. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a...
Here Is Where The S&P 500 Is Headed For The Rest of 2020
Over the past several weeks I've gone over in a myriad of notes why the buying opportunity here is on par, if not exponentially greater, than late 2018 when I was on hands and knees begging anyone who would listen to gain as much tech exposure as possible. This opportunity, however, has a number of key differences that makes it potentially more lucrative than anything 2019 could offer in terms of upside: QE has been a decade plus project for the Fed that they have fine tuned in whatever mad science lab they have in the basement of the NY Fed building since 2008. They are now unleashing all of the weapons they have been perfecting on the market in a rapid fire, sequentially relevant manner. The virus has accelerated everything: Monetary policy, fiscal policy, social change, geopolitical tensions, energy policy. Every single thing that was moving at 55 miles per hour coming into 2020 is now flying into the stratosphere at warp speed. This acceleration cycle also influences price behavior. Price action that would take years is being compressed into a matter of weeks and months. The level of bearishness with respect to the current market is unprecedented during this secular bull market. In fact, it was be unprecedented in modern times. It only took two months of virus related Armageddon to get everyone to believe that society is melting into a hot blob of its former self, causing all types of financial decisions to be made that will ultimately be highly regrettable. All of these factors when taken together create a synergy on the upside that hasn't been experienced during the entirety of this bull market. We have the prerequisite amount of bearish sentiment to allow for nearly uninterrupted upside; we have a force at work that has created an acceleration of price; and we have the Fed fanning the flames with high octane gasoline that they will be applying to the market for the entirety of 2020. Where does that leave the market? Ever expanding, mind numbing volatility is ahead. In the current phase that volatility will be predominately on the upside, with a continued expansion of the multi-year pattern forming in the S&P 500. Here is what that looks like on the chart: This translates to approximately 3600 on the S&P 500 by late Q3/early Q4. The possibility of an overshoot does exist to take the S&P 500 to 3700 in that time frame. The only thing more jarring to investors than this level of volatility will be the persistence with which it pursues it on the upside. Of course, the current pace of...
The Current Market All Comes Down To One Simple Question
In the midst of the countdown to Armageddon in March the Fed decided it was time to go nuclear on the markets. That singular event is going to drive market performance for the remainder of 2020. Almost daily in recent weeks, the Fed is announcing new unprecedented measures meant to get the wheels of the future economy greased to the maximum extent while mitigating the negative consequences faced in the current economy. This is a substantial development that it seems is being ignored by the disproportionately large contingent of skeptics out there. Let's be clear about exactly what the Fed has done here: In the span of the a few weeks they have injected the economy with enough liquidity to arrest the equity market decline. At the very same time, massive monetary stimulus with fiscal stimulus that will be felt down the road act as rocket fuel for the economy during Q3 & Q4 once the developed world returns to some semblance of its former self. Pillar by pillar the foundation supporting every bearish argument that preceded Fed actions has been vaporized through aggressive monetary policy. The remaining pillars of the bearish argument are based on current data, which, while being atrocious, has more than been factored in by a historic decline in equities during February and March. This is exactly why a retest of the current lows not only won't occur, but the mere suggestion of it is reason to perpetually ignore any analyst, trader or individual who makes that claim. It displays a complete misunderstanding of the current nature of the market. It says that record stimulus will have negative consequences. It says that the markets are backwards looking instead of discounting future developments. Popular wisdom says that calamities such as the one we are currently in the midst of create dynamics that are impossible to judge accurately due to all of the variables involved. While this may seem like a logical conclusion, the illogical nature of the markets, in fact, create an extraordinarily simple investment equation during seemingly impossible to judge events. What periods of severe distress accomplish is to remove nearly every variable that previously mattered to investors. For example, earnings, economic numbers, geopolitical events not related to the crisis. All of these variables that previously would have caused a logical reaction in the markets, no longer accomplish much of anything other than to confuse investors. Witness the scratching of the head by the masses to recent market action in light of the economic data to highlight the most recent example. This is due to the fact that the investment equation from this point forward...
The Great Acceleration Cycle
There are presently three distinct factors that have a high probability of being misunderstood by investors. This misunderstanding has created a slingshot effect in the market, where viewpoints have been pulled back to maximum tension, with the potential release in the opposite direction being unlike anything we have experienced in recent memory, creating one part of The Great Acceleration Cycle. The three misunderstood factors are as follows: 1. Virus 2. Economy 3. QE Virus: Over the past week, we have started to see a significant amount of evidence that the numbers used to justify what is basically a complete shutdown of the global economy were inflated substantially. It starts with the Imperial College study that was cited by global leaders as a plausible scenario, justifying the shutdown of numerous countries. In that study it was expected that 500,000 would die in the UK. The author of the study last week revised that number down to 20,000 people or fewer. Given that the Imperial College study was the preeminent research on the matter, this revision was jarring, despite the fact that it was under-reported by the mainstream press. In the United States, projections had NYC at 61000 hospitalized by April 4th. On April 4th NYC had 14000 hospitalized. Governor Cuomo today said that the number of deaths has been dropping for the first time. This is happening well before the most optimistic case peak 7 days from now. Other pieces of data from major cities, include Los Angeles, with one of the largest hospitals in Cedars Sinai having 115 Covid cases on March 31st, up from 50 cases on March 17th. A relatively insignificant increase versus projections. Internationally, both Italy and France are reporting significant drops in deaths today for the first time. The alarmist nature of the initial projections, few of which have come to fruition, is the first band pulled to maximum tension on the slingshot. Economy: The most important factor to realize with respect to current economic projections is that they have been modeled around virus projections. If the virus projections are off, then the economic projections are equally incorrect. While the job losses and economic ramifications of this shutdown are jarring to witness, projections fail to take into account the effectiveness of fiscal and monetary policy measures, along with the evolution of the job market once the economy reopens. Other factors include the ability of businesses in food and entertainment to bounce back. While this view can't be quantified, my sense is that once developed economies reopen there will be a united, patriotic stand that embraces small businesses that have suffered through this. Those who are...
QE4 Is A Gift That Investors Foolishly Refuse To Embrace
In September of 2012, the Fed embarked on QE3, with $40 billion per month in purchases of agency mortgage backed securities. Additionally, the Fed said that they would keep the Fed Funds rate near zero until, at least, 2015. QE3 ran for nearly two full years, inflating the Fed's balance sheet to $4.5 trillion before the Fed halted its purchases in October of 2014. As we are now at the very beginning of QE4, investors should take note of the fact that QE creates very specific behaviors in equities that doesn't deviate much other than in terms of intensity or velocity, if you will. Additionally, each subsequent version of QE becomes fine tuned to create dramatically greater results in the direction of the Fed's desire. In this particular time frame, the desire of the Fed is for inflation, as they have expressed countless times over the past many months. With that said, investors can expect that with QE4, markets will behave in a similar manner as QE3, except for two distinct differences: This is now a mature bull market, as opposed to 2012, when the bull market was just beginning. With maturity during secular bull markets comes greater velocity. Each successive leg of a secular bull market creates more significant upside as market participation increases. QE4 is significantly more expansive than QE3, both in terms of the amplification of the Fed balance sheet and the assets being purchased. It can be assumed with a great degree of accuracy then that QE4 will be an amplified version of QE3. In other words, the steady nature of ascent that was experienced with QE3 will remain, with the key difference being the velocity of the upside to come. Here is a look at the S&P 500 during QE3 from start to finish: Investors should expect the same results in the months ahead from the market in terms of the steady nature of gains to be captured. The only difference between QE3 and QE4 will be the degree to which the markets will increase in value, more than likely by orders of magnitude greater than anything we experienced from September 2012 to October 2014. Invest accordingly. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this...
It’s Time For Investors To Go All In On Equities
In order to understand the current market framework, an investor must disavow a handful of consensus opinions that are being regarded as fact: 1. This is not a bear market 2. Poor economic performance over the next few months doesn't necessarily equate to poor stock market performance 3. Far from being irrelevant and out of ammunition, the Fed is more relevant than ever 4. There is no historical reference to this market. It is completely unique and unprecedented in scope. Future results will reflect this fact. As dynamic as the markets are, Wall Street remains stale in more ways than one. Given recent events, the most obvious example is the rigid definition of a bear market, claiming that a fixed percentage decline constitutes a bear market irrespective of the pace of that decline or the environment in which the decline occurred. While labels may not matter in many situations, when a market is labeled a “bear market” then investors are prone to make historical references to prior real bear markets. When you compare a real secular bear market of prolonged length to what has a high probability of simply being a steep correction within a secular bull market, then your results will be flawed right from the onset. Nearly every piece of analysis that is emerging from Wall Street currently assumes that this is the beginning of a prolonged bear market, waving goodbye to the days of prosperity that are now far in the rear view mirror. From this foundation, accurate future results cannot be attained. How do we know that this is not a bear market? Over the past nearly 100 years, there have three secular bull markets. We are currently in the third secular bull market of the post-Great Depression era. Within these secular bull markets, each and every one has had one or more false bear market signals that caused investors to regrettably give up on the secular bull market prematurely. In the prior two secular bull markets, year 8 and year 5 of the secular bull saw dramatic declines. In the first secular bull market of the post-Great Depression era in 1962, the Dow declined 30% over a six month period, before continuing its rise, with a gain of 100% over the next three years. The 30% decline occurred in year 8 of the secular bull market. In the second secular bull market, beginning in 1982, in the 5th year, we had the 1987 crash, with a 41% decline from peak to trough. In three years time, the market was again 100% higher. We are presently in the 7th year of this secular bull market,...
Welcome To The Miracle Paradise Market of 2020
The only thing that mattered in 2019 was that the markets were intent on crucifying anyone who didn't fall in line with any number of bullish themes that could have been adopted by many but were only embraced by a few. All of the seemingly sophisticated economic statistics, the geopolitical analysis, the earnings analysis that kept pointing to recession more times than we could count....all of it was a pile of deodorized garbage meant for mass consumption via the tried and true method of instilling fear through relatable concerns. Now that those concerns have been pummeled into oblivion we are left with a market that is steadily increasing in value via a QE induced frenzy that is forcing even the most rigid imbeciles among us to acknowledge the futility of fighting the underlying euphoric trend. With this shift in psychology comes an entirely new set of dynamics that investors must be prepared for in the months to come: With a warm, confident embrace of everything that is good in the markets comes the cutting away of the safety net should heartbreak ensue. Any negative surprises will be amplified moving forward. Confidence in the equities will be expressed via volatility suppression. What we are experiencing currently in the market with very little in the way of volatility while dips are calmly devoured will be the path forward in this bull market. When volatility begins to increase via daily and weekly range expansions in the major averages this will be a signal that long exposure should be trimmed, hedged and protected as best as possible. Over the next couple of quarters earnings will be a cake walk for companies that used a majority of 2019 as an exercise in dampening expectations. Those expectations are set to increase in Q1 and Q2, setting up the second half of 2020 to be a large hairball for the markets when paired with what will surely be an insane election period. There is zero nobility in attempting to get bearish on this market early. While bearish opinions about future expectations for this market past Q2 should be considered, acting on them early will be an exercise in compound return negation. Be patient bears, your time is coming. This isn't 2019 where the entire year will a torturous affair. 2020 is miles apart from 2019 for investors....it's just that nobody realizes just how different it is quite yet. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services....
The Portfolio Moves To Make Going Forward Are The Ones That Require The Least Amount of Effort
As a method of analysis, the measurement of expectation versus actuality is rarely mentioned. It is, however, an extremely valuable tool for experienced investors to gauge relative strength or weakness in a market. The default stance of investors is that if they present a set of data that dictates the markets should behave in a particular manner, should the markets behave in a contradictory manner to what is expected, then the analysis was incorrect and should then be reevaluated. This default method of discounting one's own analysis in the face of contradictory circumstances as judged by the performance of the market is correct only if one's own analysis is faulty to begin with, based on sets of data that carry little statistical or historical relevance. If an investor presents a robust set of data that, taking our most recent assessment that the markets should have declined this past week as an example, and instead the markets do the exact opposite of what that data dictates, what can be gained from that action? Very simply, the S&P 500, Nasdaq and Dow should have declined this past week. Everything from technicals, to intra-month seasonal patterns, various forms of cyclical data, sentiment and news flow created the perfect environment for a decline of some substance. Instead, every single time the markets attempted to move down what SHOULD have been the path of least resistance, it only served to reveal that the REAL path of least resistance was on the upside. This is extremely valuable information for what is taking place in the markets currently. It tells of strength irrespective of obstacles, with the natural impetus being to move through those obstacles expeditiously and without hesitation. It also tells of substantial bids being beneath the market as the exact scenario discussed here for months of investors being under-exposed to equities is now playing out in real-time with investors scrambling to make their numbers in the face of a stock market and economy that is much stronger than anyone expected. As the door on 2019 slowly slams shut, pressure will continue to build, creating what will increasingly turn into a steady, low volatility grind into resistance a couple percentage points above where we are sitting currently on the major averages. The only question to ponder at this juncture of the bull market is whether this slow grind will turn into a fast blow-off that renders any and all resistance ahead a moot point as we move into 2020? Momentum carried over from bullish calendar years very often last into January-March. With that said, for the time being, there is not a single reason to...
A New Signal From The Market About Future Direction
In the midst of the endless volumes of erroneous data investors have been fed in 2019, there is but one piece of data that hasn't lied, deceived or bludgeoned investors with a rubber mallet: price. Not price in its various biased forms where investors take their opinion of the market and somehow sow it into the fabric of what they expect the markets to do. Price in its purest form. Without bias. Completely left on its own to interpret as it wants to be interpreted. And price is once again cultivating a statistically significant signal for investors in the midst of endless noise. When we last left off a discussion took place with respect to the difficulties the market faced leading into option expiration. With just a couple days left until opex, it is not unreasonable to claim that the markets have handled what should have been difficult period gracefully. That is a valuable signal in and of itself. By all means and measures, the S&P 500 should have, at the very least, tested 3060 this week. It had every reason to, at a minimum, to make an attempt. In fact, we have seen multiple attempts since last week at taking the market lower. Each and every time bidders came into the equation creating what is now an ideal consolidation where there should have been chaos. Another valuable signal. With that said, the consolidation for the S&P 500 above 3060 in such a defined, well thought out and graceful manner is a bullish signal going into next week. The next stop for the S&P 500 is 3150-3160. A level discussed as being the ultimate November target back in late October when the rest of the Wall Street was still trying to figure out if this was still a bull market. Stay mindless my friends. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction...
Suddenly Everyone Gets It
Everyone gets it. Simultaneously, miraculously and lacking any grace whatsoever, the investment community has embraced the bullish thesis in all its forms. Recession? Never was going to happen. Inverted yield curve? For the birds. U.S. and China? Bromance for life. All of these realizations have come to pass because of one thing and one thing only: PRICE. The market has gone up to new highs, narratives are being built around that price movement, reflexivity is creating reality. And this is exactly what a majority do not truly understand. There are perhaps 26 people on Earth that get this. The markets will keep building a narrative around price movement, further reinforcing new fundamental positives that 6-12 months down the road are headline news. This reflexive relationship will only stop when one of two things happen: Data points that are overwhelmingly negative appear seemingly out of the blue, creating gaps that interrupt the reflexive cycle. The consensus bullish sentiment becomes so substantial that it tips the markets into a negative price cycle, creating a reflexive cycle on the downside that creates a whole new set of negative narratives that further create a new set of negative fundamental realities. Neither of these two events are imminent or worthy of further discussion. They should simply be compartmentalized in your mental Rolodex for sake of future reference. While there will be bumps in the road as outlined most recently just a few days ago, we are now at a point in time in this bull market where all things that could be right for equities are simultaneously working together to reinforce the uptrend within the next leg of a secular bull market that will very simply create spinning heads on Wall Street that the kid from The Exorcist would be jealous of. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that...