Friday, June 5, 2020
Broader Market Review
The 2,500 point surge in the Dow over the past two weeks has played out as I described on May 25th in my weekly commentary:
Two weeks ago I wrote:
“Back to present day. Well, that was the bottom and it certainly was low risk/high reward and it did provide historic compelling levels that have produced massive returns upwards of 100% in less than 60 days. It is highly unlikely, in my humble opinion, we will be revisiting that March 23rd low any time soon.
It’s now two months later and it’s deja vu time; time for another fake out. A secondary collapse is still expected by most participants. After a surge off the bottom and stalling for the past few weeks at such strong resistance levels everyone is expecting another big dip soon. Note: I’ve been expecting it too but now I’m not so sure.
Maybe we should look at what would be the least obvious move to most and the one that would catch most investors off guard again; another surge higher.
That is probably the least expected next move that would inflict the most damage on the most people. Short sellers would get hammered and those on the sidelines waiting for the dip to get in or back in would miss out entirely.
Remember, the market is highly reflective, fractal and repetitious. It’s quite common to see a surge higher off a reversal bottom followed by a consolidation period followed by a similar surge higher finishing the entire process just as it began. This happens all the time on all time frames.”
The surge occurred exactly when and where I described (red arrow). Look at the before and after charts below.
Dow futures (YM)..chart from two weeks ago..(before)
Dow futures (YM)..current chart..(after)
Short sellers are getting crushed and most everyone else (retail and clueless professional) has been too frightened to buy anything. I can’t tell you how many people wrote to me in the weeks following the bottom with comments like “I’m not buying anything yet because I think we are going back to 18,000”. I tried to explain that the market doesn’t care what we think but unfortunately most people don’t understand the dynamics of market action. Not understanding the opponent (price action) just makes it more difficult to compete.
So, now what?
The Dow, S&P 500 and the Nasdaq have now all ripped up through major resistance. Nasdaq closed the week at an ALL TIME HIGH with the Dow and S&P 500 closing above serious selling levels signaling the surge will likely continue for a while longer.
I would, however, exercise caution at current levels. The broader market is vulnerable and will continue to be vulnerable until we get a reset through time (consolidation) or price (dip). Longer term, price action is positioned well and support zones should be treated as accumulation opportunities.
As a reminder, you can input any symbol in Search (on my website) and access all my commentary and charts. Also, there are nine years of archived commentary and forecasts that allow for an “after work review” of my forecasts. If you would like access to read and review just send me an email.
Peace,
Don