The stock market is sometimes like a good detective mystery, because while the next chapter may provide additional clues, those clues do not necessarily solve the mystery. This past week analysts received more clues, but no definitive resolution to the important question of whether the bear market ended on March 23, or if investors are just being teased into a trap. This dilemma is being exacerbated by the looming arrival of the dog days of summer, and the attendant slow trading, as Well Street goes on vacation.
When markets are on the move up or down, they do so in what analysts call “impulsive”, or in the Lowry Research terminology “pulsating” fashion. Impulsive in this technical context means that the move has enough force behind it to keep the normal pullbacks in the movement from overlapping the top of the previous leg in bull trends, and bottoms in bear trends. Bull trends form a series of higher highs, and higher lows. And, on the contrary, bear trends form a series of lower lows, and lower highs. During corrections trends disappear and are replaced by overlapping movements, which tend to chew up copious amounts of time with relatively little progress up or down. The often frustrating and aggravating thing about corrections is just when it appears the primary trend, bull or bear, is about to re-emerge the market begins to paint out another series of overlapping movements. Unfortunately, corrections can take more than a dozen different forms, so they can be quick, violent and nasty; or drag out in overlapping ranges for what seems inordinate periods of time before resolution. As the heart of the vacation season has arrived, so has the market’s propensity to extend its recent time consuming, overlapping, and range bound behavior. Some analysts describe these kinds of times as the market awaiting some catalyst for its next move.
After multiple probes, and excursions into, the gap mentioned several times in these weekly updates, it appeared the stock market was on the cusp of declaring its true colors, bull or bear. However, this past week the market drifted from its high to its low, and back again without taking out either resistance at the recovery rally high at S&P-500 3233, or support surrounding the 3110 level, then the 3000 level, or the 2933-2945 level mentioned in last week’s update, which is included below. So, the stock market completed another week without definitively declaring what it is, bull or bear. And, it did so in true summer doldrums fashion. I suspect this drifting in a range may give way to a series of impulsive movements sooner rather than later, which may have a very jarring effect upon investors. The catalyst(s) for this is not likely the virus pandemic, which is already in the price, but rather something new and unexpected, which has not yet been discounted by market forces. Candidates are plentiful, no pun intended, as the calendar turns from the most unusual summer in years toward the uncertainties of the looming election; and other global issues, which have been crowed out of the news cycle, which is completely focused on the pandemic and politics.
THE BOTTOM LINE
The stock market, in its role of master of disguise, has frustrated investors for another week by hiding its true identity, bull or bear. Corrective formations can take more than a dozen different forms, so the market may be able to hide its identity for a while longer. However, the range of the resistance overhead, and important support below, is growing progressively tighter, which implies a return to impulsive movement sooner rather than later, especially with numerous uncertainties looming on the horizon. And, the stock market does not like uncertainty.
Please stay safe, as emerging scientific information suggests that even survivors of COVID-19 may experience lifelong challenges to their ongoing health. There is just too much we do not know about COVID-19 to not take careful, and constant, precautions to guard our health, which is the ultimate form of our wealth!