Stocks Could Bounce But Better Buy At Lower Levels

As was the theme for last week, stocks closed lower on Friday and for the week. Some of the headwinds I wrote about have dissipated and the big, annual rebalance in the Russell indices was completed on Friday’s close. While I don’t think the bulls are ready to reassert themselves for a run to new highs, the market is certainly oversold in the short-term and could support a little bounce. 

Heading into the holiday-shortened week, one of my favorite weeks of the year, we have month-end, quarter-end, and the first half of the year all on Tuesday’s close. As usual, you can expect some portfolio shenanigans by clowns who think their clients are dumb enough to believe the holdings on any one particular mean actually mean something. They don’t. 

While stocks could bounce, I would still like to see the major indices, or at least some of them, exceed their June lows to create some negative sentiment for a more sustainable rally. You can see that on the chart of the Dow Industrials below.

The index is close to that blue horizontal line which is just below the June lows at 24,800. The brown line at 24,000 is a popular retracement of the rally from the March bottom to the June peak. A bottom in the 24,000s would be “logical”. 

(Click on image to enlarge)

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Comments

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Noah Pomerance 2 months ago Member's comment

Thank you for your advice. How would you align your portfolio in the short-term?

Linda Willis 2 months ago Member's comment

Move into safe haven assets like #gold. They always do well in times of uncertainty!

Paul Schatz 2 months ago Author's comment

I think that's too broad of a question for me to properly answer. Since we run 15 different strategies, each one has its own method to portfolio construction and management. My overall theme would be to buy the dips and sell the rips while making sure you like what you own.

Noah Pomerance 2 months ago Member's comment

Sorry for the ambiguity. How do you believe one should balance the overall market optimism vs focusing on exacting the intrinsic value of a company?

Paul Schatz 2 months ago Author's comment

I don't think "intrinsic" value matters in this environment as the Fed's VERY heavy hand is impacting markets to an EPIC degree. Market moves are very compressed as volatility is very elevated. Unless you are a very long-term investor, I think being nimble will pay off.

Ayelet Wolf 2 months ago Member's comment

What do you think will happen if Trump loses the election?

Paul Schatz 2 months ago Author's comment

I am working on a piece regarding that now, but in short, I think stocks will be in decline to the election if Trump was going to lose. After that, I think there would be a year-end rally and bigger decline in 2021.

Angry Old Lady 2 months ago Member's comment

If #Trump wins, the stock market will rally. Unfortunately, as a result, most of us will also then be infected or dead from #COVID19, and controlled by Putin/Russia which will replace America as the world's super power. It's a tough choice.