Neutral. May is the first month of DJIA and S&P 500 “Worst Six Months. Our Seasonal MACD Sell signal has not triggered yet suggesting the rally could continue in the near-term. The history of “Worst Six Months” after a bad “Best Months” is not encouraging. This year’s negative January Barometer and breached December DJIA low, point to possible retest of lows and choppy, volatile trading could occur during the upcoming “Worst Months.”
Improving. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors are up to 46.6%. Correction advisors have edged lower and stand at 24.3% while Bearish advisors have slipped to 29.1%. The improvement is sentiment is likely tied to the rebound in the market along with looking beyond the next couple of quarters of data and into next year and beyond, where hopefully the pandemic will be over, and economies will be back to “normal.”
Ambiguous. Despite the market’s recovery rally, uncertainty remains elevated. Social distancing does appear to have slowed the spread of the coronavirus and the focus has shifted to crafting a plan for returning to “normal.” Economic data, from early in the shutdown is already horrendous while the nearest data point to giving a real-time read on the U.S. economy, unemployment claims are astronomically high with over 30 million people filing already. It seems increasingly likely that the path back to a fully functioning economy may take much longer than it will take to draft re-opening plans.
Overextended? Unprecedented times call for unprecedented action by the Fed and government at all levels which appears to be supporting an unprecedented market rally. NASDAQ held up best in February and March and is nearly back to breakeven for the year. DJIA and S&P 500 experienced deeper retreats but have also enjoyed a robust recovery rally so far. NASDAQ has rebounded back above its 50- and 200-day moving averages while DJIA and S&P 500 have reclaimed their respective 50-day moving averages. Technical indicators are getting stretched to the upside and at some point, a pause and/or pullback is likely.
0 – 0.25%. The Fed is “all in” and further confirmed its commitment to use “its full range of tools to support the U.S. economy” after its scheduled meeting last week. Trillions have been pledged and are being spent to support the economy. Will this be sufficient? Only time will tell, and history suggests the Fed is probably not done yet.