The market forecast for this week is the same as last week, “dire,” in fact, it’s probably worse than that if we don’t see immediate relief from all quarters where it must come from.
Regrettably, with the U.S. economy shutting down, none of this should be unexpected.
There are obvious and fundamental reasons we’re staring into a dark place; we’re facing an existential threat to mankind and the direct knock-on effect of that on markets.
The core sets of analytics that underline all other analytic layers we employ to produce the Capital Wave Forecast are all based on capital movement, on capital waves. And those waves have been building.
The way this week is setting up, like last week, and the week before, and before that, is all about investors throwing in their towels. The first wave of selling was profit-taking and hedging by the smartest investors who saw this as a building tsunami.
On the heels of profit-taking, then broad-based selling by, then increasing selling by passive investors, as successive support levels got taken out, investors started to sense fear, and they sold more.
Last week, we saw panic selling on Wednesday, and that was “maybe” the last stance for markets.
Wednesday was a day of reckoning. The Dow broke its last support at 19,000 and posted an intraday low with an 18 handle, meaning its intraday low was 18,917.46.
There’s support for the Dow at 18,000. The next support, and it is major support and the last line in the sand, is 15,000. That’s a long way down from here.
Wednesday saw the S&P 500 and Nasdaq Composite do the same as the Dow, break important support.
All three benchmarks traded down on volume that averaged, between the three, 38% above their average volume of the past few weeks. That literally spoke volumes.
The S&P 500, the hardest hit benchmark last week in terms of price and volume combined, blew through 2,300 support. Support is now down to 2,000.
The Nasdaq Composite crashed through 6,800, its strong psychological support on Wednesday, making an intraday low of 6,686.84. Next support there is 6,000.
That’s how bad Wednesday was.
Friday’s selloff into the close confirmed the worst, that investors were panicked into selling before the weekend.
All the benchmarks closed higher on Friday than their intraday lows on Wednesday. But, once made, those lows are now likely to be retested.
Unless support for millions of newly unemployed workers, for shuttered businesses, for the economy, comes hard and fast, we’re prone to breaking those Wednesday lows and possibly testing new support levels, maybe this week.
Rallies remain suspect and are probably exit points for stuck investors desperate to raise cash.
Volatility is going to be neck-snapping.
But There IS Good News
The only good news about the damage done last week is if this week we test new support levels, it will be a really good time, make that an excellent time, to start your first wave of buying.
So, get your buy lists in order. I’m buying into my new core positions if we breakdown this week.
Yes, we could still go lower from there, wherever ”there” is, but getting into core positions on panic-made lows, if we get there, is the first step in building a portfolio that will, over the next couple of years, yield phenomenal returns.
Be safe out there.