April 25, 2020
I just got back from filling up my car with gas and, believe it or not, they paid me 35 cents per gallon for unleaded to take it off their hands. I did feel a little weird wearing my Zorro mask, gloves, hat and sunglasses but at least I’ve got some extra money now to get some toilet paper.
It’s a pretty crazy world out there with negative oil and negative interest rates. Maybe we should all pool our money and go buy an oil tanker. I hear storage lease rates have skyrocketed to $150,000 a day. We might as well social distance at sea. We could swim, fish and sing pirate songs together.
I’ve been pretty darn negative on oil for a long time but I never thought it could go this low this fast. But, then again, I never thought the world would be in lockdown, together, for months, on end. We are still in the long cycle down in energy and I expect no real expansion for 8-10 years. I would avoid this sector completely.
The sector I wouldn’t avoid is technology. Just look at the tech heavy Nasdaq ETF (QQQ). It’s less than 10% from it’s all time high just weeks ago while the Dow is still 20% from it’s all time high. No brainer alert..lean into technology.
The most common questions I’m getting this week have been:
1. Do you think the worst is behind us?
2. When should I buy in?
3. What should I buy?
Let me start by saying we can’t predict thefuture. But, we can forecast the future based upon hundreds of years of historical evidence. We understand the patterns and cycles that occur over and over. We know how price historically reacts to different price levels and price action characteristics. We know what the structure of historical raw price data looks like. We know we can use this data to forecast what should happen in the future. Proof exists here.
I do think the worst is behind us. I think the Corona Crash Price Suck went a long way towards reducing overall risk in the market and I think we are entering an opportunistic time to begin accumulation for a long term holding period. I think the bottom is in. Large Cap tech inspired companies like Amazon (AMZN), Netflix (NFLX), Apple (AAPL), Facebook (FB) should continue to outperform the broader market for years to come.
Broader Market Review
The surge off the March 23rd low has begun to flatten at the midpoint and move right as if in a stall. There is a lot of overhead resistance up around 244.50 on DIA that is preventing price from moving higher and unless we can move up and through this area it looks like we might come back down into the 214 area which is a very strong support zone.
Actually, a secondary dip soon would be expected. We have run up to the midpoint of the collapse, where there is a convergence of other resistance. A retracement down to 214, where there is a great deal of support including midpoint support of the surge off the March 23rd bottom, would likely clear the decks for another ramp higher creating more separation from the March 23rd low.
So, if DIA does get down near 214 and begins to show strength I would consider that to be very positive and a time for risk on. The charts below of DIA, SPY and QQQ show my short, intermediate and longer term forecast. The takeaway should be that while I think the worst is behind us a secondary dip would be normal and expected at/near current levels. At worst, I think we can expect a tough slog into the election with a bias to the upside.
SPDR Dow Jones Industrial Average ETF (DIA) short term forecast
S&P 500 Trust Series ETF (SPY) forecast 2020
S&P 500 Trust Series ETF (SPY) forecast 2022
Invesco QQQTrust Ser1 (QQQ) long term
Invesco QQQTrust Ser1 (QQQ) 2015-2022
As we go forward we want to look for price to remain above the green line in the DIA and SPY charts. The further out we can go and remain above this ascending line the less risk there will be. This is the risk on/risk off line that needs to be focused on. This is the primary support level that originated in 2009. It’s important. Consider it the buy zone on the way up. As we ride it up risk will be reduced and momentum will pick up.
That answers the first two questions. I will be covering some more specific ideas as we move into the next dip.
I miss my family and friends,
Don