Hang on – well not literally, because there is something simple you should do. I’ll explain that in a second, but first the stock market rallied last week and then yesterday that rally fell apart as the S&P 500, DOW, and even gold dumped into the close following a Trump tweet that he is pulling all negotiations for a government stimulus package until after the election.
The headlines that came in response were brutal and mean, but personally I am worried about his health. He had trouble breathing when he got back to the White House Monday.
— Donald Grump (@TrumpCrisis) October 5, 2020
A lot of wild things are being said about Trump’s health, because of so many conflicting stories so you can’t know what is really happening with him right now. I don’t think he is going to die, but I won’t believe he is in full health until he can do a video more than 60 seconds long without breathing problems and without video edits.
As far as the stock market goes I don’t think it’s going to crash, but the upward momentum that came into Labor Day STALLED OUT weeks ago. And so we are in what is still a sideways to down market. Take a look at the chart of the S&P 500, the RSI reached nosebleed overbought territory right before Labor Day.
The ROC indiciator on the bottom of this chart is the Rate of Change indicator over 90 days. The S&P 500 fell over 30% in March and then rallied from there over 65%. No one can find any time in history in which the S&P 500 rallied 65% from a low and then just continued up another 65% without first correcting or going sideways for months on end.
That means the upside risks when it comes to the stock market averages are minimal. And with the election coming and just the disconnect between the stock market and the real economy I think caution is in order here as there is just isn’t much upside potential to miss out on. That doesn’t mean sell everything and go to 100% cash, but it does only buy something if it is an exceptional stock.
That is what I told Jim Goddard of www.howestret.com yesterday in an interview I did for him an hour before the stock market dumped.
I think having a nice cash position going into the election makes a lot of sense. I don’t care if the market goes up for a few days into earnings or what the averages do. I went into this year with 50% of my money in cash. I bought more in the summer, but paired back down to 50% over the past few weeks. I’m only going to do a buy if it is a stock that is truly exceptional.
Trying to trade the S&P 500 now to me is waste of time – and getting lured into the SPY ETF or a popular stock like AAPL or TLSA just because the stock market is up on a given day I think is bad move for now. We are just in a doldrums time for now. Again that doesn’t mean it’s going to crash, but the S&P 500 can still easily hit its 200-day moving average before this year is over. If you saw your account go red yesterday just remember at least you aren’t in desperation needing a stimulus check just to pay rent or eat.
Gold, silver, and mining stocks have great potential and should firm up and breakout to new highs way before the S&P 500 does, because of what is going on with bonds. Once the golden triangle pattern completes you’re going to see a rip-roaring rally in mining stocks. The Russell 2000 is doing better than the S&P 500 to tell us that the stock market is not going to crash and the thing to do is to focus on the most exceptional individual stocks now – but be careful, because we are going to see stock market volatility increase this Fall. The easiest solution to that is to have a cash position.
-Mike
