General Stock Market Commentary - Saturday, March 28

The Short-Term Trend

A short-term uptrend began on March 24. However, if this is now a bear market, then the short-term uptrends will be disappointing; they won't last as long and they'll struggle. It looks like this one has already started to struggle under its 20 days..

Most people are expecting a retest of the recent lows. The 2400-level is the closing low of 2019. If the market retests and holds at this level, it would demonstrate a bit of strength.

Now that both monetary and fiscal policies are in place, we wait and watch for hopeful signs regarding the spread of the virus. Here is a quote from Investors Business Daily.

"... the key economic datapoint of the week has to be the number of new coronavirus cases. The course of the coronavirus pandemic will determine when the economy turns and how deep of a contraction the U.S. faces."

This PMO index hasn't started to tick up yet, but the circumstances surrounding this market are so unusual that I'm not too surprised.

We can't expect a very strong uptrend if this PMO index doesn't rise.

The NYSE Common Stock-Only Summation is ticking higher, confirming the uptrend, even if the PMO refuses to budge.

The Bullish Percents are all pointing upwards.

In my opinion, this is the most important chart to watch. If the number of new 52-week lows stays down at these levels, it's a good sign for stock prices.

For instance, Friday, March 27, was a very bad day for the major indexes, yet the number of new 52-week lows did not increase. Let's take it a day at a time, although I do think that was good news for the market.

In a bear market, Monday's are scary. So, on Monday, March 30, if the market holds above the lows of Thursday, then we have another tiny sign of market strength. (Also, we want to see the market continue to close above the five-day.)

That seems like a lot to watch. Unless you are a market addict like me, maybe it's better to just sit this one out and wait for more dust to settle.

The Longer-Term Outlook

The SPX broke down below the lows of 2019, but quickly reversed back above. Was that a shakeout low? Or was it wave one down, and we have more waves lower to come? I'm not sure.

Also, the bullish percent has recovered very quickly. Too quickly, I think. I prefer the behavior of the bullish percent near the lows in 2016 and 2019, where the recovery was more gradual.

The VIX is still very high. The crisis in the market will continue if the VIX is elevated. I've never been very good at using the VIX. All I really know is that in a bull market, I'm a buyer with an elevated VIX. But in a bear market, I think it means that we should stay in cash.

The Money Supply continues to show very strong growth. This is a positive for stocks.

The bottom fell out from under the ECRI index. It is clearly in recession territory along with stock prices. This is another signal to be in cash.

The only good news in this chart is that this is an extreme low. It's such a sharp and deep decline that my guess is that it will have a similar snap higher.

Here is one of the market's few bright spots. The Semiconductor index remains within its uptrend.

Sentiment clearly favors the bulls from a contrarian point-of-view.

My accounts are about 30% invested in equities. I consider half of that to be focused on the short-term, meaning that I will be selling the short-term portion of the accounts, given signs that the market is turning down again. My primary indicator is the level of new 52-week lows.

Outlook Summary

• Equities (30%), Cash (70%), as of March 26.
• The economy is assumed to be in recession, as of March 27.
• The short-term trend is up, as of March 24.
• Contrarian Sentiment favors higher prices, as of March 25.
• The medium-term trend for Treasury bonds is up, as of January 25 (prices higher, yields lower).

Strategy During a Bull Market

• Buy large-cap stocks and ETFs at the lows of the medium, or short-term market trends.
• Buy small-cap growth-stocks on breaks to new highs in the early stages of market trends.
• Reduce buying when the market trend is at the top of the range.
• Take partial profits when the market uptrend starts to struggle at the highs.