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The major stock indexes are already 20-30% above their momentum lows from late March and I am already receiving numerous requests from people asking if we are in the midst of a V-shaped recovery and what should they be buying. The fear of missing out is in the air. If past bear markets are a good indicator, chasing 20-30% rallies after steep selloffs is not smart from a risk-to-potential reward perspective.
While it is true that we are starting to see more long setups – right now, mainly in gold, biotech, telecom-related and data centers REITs, we should not ignore the fact that SPY and QQQ are very close to major potential technical resistance. The wild-card in the whole equation is the Fed, which has now backstopped the entire credit market and is buying Treasuries, Munis, corporate bonds, including junk-rated bonds. Without a doubt, this is basically a bailout of the financial sector. So don’t get too bullish or too bearish. Remain nimble and active because this market continues to provide incredible trading opportunities. Moves that used to happen once a quarter in individual stocks (when they report earnings) are now occurring on a daily basis. It’s a great trading market.
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