Is A Base Building Process Setting Up For The Stock Market Now? – Mike Swanson (03/04/2020)

On Monday the stock market soared with the DOW rising over 1100 points after last week’s trap door plunge, but yesterday the market dumped again.

Today it is up in pre-market action the DOW is trading up 500 points. So big intraday swings are here to stay for now. They are actually normal after a huge drop in the markets like we saw last week.

On Tuesday the Federal Reserve announced a surprise emergency 50 basis point interest rate cut. I did a video about why did they this and what it means yesterday you can find here:

http://wallstreetwindow.com/2020/03/federal-reserve-makes-emergency-50-point-rate-cut-what-does-it-mean-mike-swanson-03-03-2020/

Gold of course went up on this news and now it looks like last week’s drop in gold below $1600 served as a classic shakeout and a trap for those that try to bet against gold via the manic 3X ETF’s like DUST. Now imagine if you were in 3X S&P 500 ETF’s or semiconductor ETF’s. Please don’t buy these junk triple ETF’s!

It is actually normal for a market to swing madly after the type of drop we saw last week in the US stock market and even to get close to or retest its lows. That is what typically happens after you have a week like last week and a massive Monday up day. Sideways trading would set the stage for a sustainable rally, but we could actually see some more wild up and down action before that actually happens. Take a look at what happened in February 2018 to get an idea of what I’m thinking could be in the cards now.

In 2018 the S&P had a huge one day rally after the DOW fell instantly 10% off of its top. But after that rally the markets went back down to retest the lows. And all together the S&P 500 actually tested its 200-day moving average three times from February to May before rallying into October.

The point is in times of big market volatility V bottoms are rare and retests tend to happen.

I firmly believe that at this moment in a market with high volatility like we are seeing it is best to avoid triple ETF’s at all costs. In fact I don’t see how someone fully invested in triple ETF’s would even be able to get through this without blowing their entire account up.

Again this is still a shaky market. I’m hope full that we are in a bottoming process as we are not going through a 2008 style financial event right now. The only thing that really is certain now is that gold is going to continue to outperform the market in the months and years to come.

The Federal Reserve lowered rates by 50 points yesterday. More rate cuts are going to come.

I talked about yesterday’s Fed action in this video:

http://wallstreetwindow.com/2020/03/federal-reserve-makes-emergency-50-point-rate-cut-what-does-it-mean-mike-swanson-03-03-2020/

-Mike



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