When the market was crashing back in March, I distinctly remember how palatable the fear within the market was at the time. Many were even talking about how the market itself was about to “break.”
Yet, once we broke down below the 2400SPX region, and began to approach our long-time target of 2200SPX for that correction, I wrote that I was now putting my cashback to work in the market. And, yes, many of them thought me to be crazy at the time, with those now telling how much they had wished they had listened to me and followed my lead.
In fact, when I told my wife to put the kids' 529 plans back into the market, she even looked at me and asked me: “Are you sure?”
Yes, it was truly a very difficult time to invest, especially when we were clearly at an extreme in fear. But, as Barron Rothschild was known to have said, “buy when there is blood in the streets... even if it is your own.”
Now, extremes are not only seen on the downside in the market. We see them on the upside too. And, I am still viewing the market at sitting at an extreme bullish point, even though it is trying to break out again.
Last week, I noted that as long as the market remained below 3623SPX, it had a “set-up” to drop and provide us with a standard-sized pullback to at least the 3330-3450SPX region. Yet, when we broke over that level, it invalidated the immediate downside set up and is attempting to provide us with another break out set up. However, I cannot say that I have confidence in that break out set up until the market proves it to me.
You see, when the market topped out just below the 3600SPX region, I correctly began to expect a pullback, with an ideal target for that pullback in the 3050SPX region. However, the market came up short during that pullback when it bottomed just over the 3200SPX region, and only provided us with 70% of the pullback we were expecting.
Yet, I was outlining that many individual stocks were hitting their appropriate retracement targets even though the SPX had not. And, it was those stocks which I was personally buying at the time, and was suggesting to do the same. Those stocks were being specifically highlighted by our analyst team in our StockWaves service.
Since that time, many of those stocks have rallied 10%+. However, many now look like they need a pullback as well.
The one thing I have learned about the market in all my years of providing analysis is that it does not owe us anything. Normally, the market provides us standard pullbacks of .382-.618 retracements of the prior rallies. But, in rare circumstances, it does not reach those retracement targets, such as the pullback seen in September and October. So, it is our job to ascertain when the market will make it abundantly clear that a reasonable pullback will not occur, and we have to give in to the dark side... er... I mean the bull market.
To this end, while a retracement as deep as the 3050SPX region has become much less likely, I would still like to see a higher degree retracement back to the 3330-3450SPX region in the coming weeks. But, I am also tracking the market’s potential to provide us with a more direct break out so we will know when to give up on any expectations of further retracements before we head to our next target in this bull market move off the March lows into the 4200/4300 region as we move into 2021.
So, in summary, I am still tracking a standard structure which can provide us with a pullback to the 3330-3450SPX region in the coming weeks before we rally to our next target in 2021 in the 4200/4300SPX region. But, if the market only provides us with a shallow pullback wherein it is unable to break back below 3515SPX in the coming weeks, and then rallies back over the high we create up here in the coming days, then we will have to give in to the dark side.
Remember, this is a bull market which likely has several more years to run. And, 2021 is setting up similarly to what we experienced in 2017. So, pullbacks are buying opportunities. The only question is just how much of a pullback will the market provide to us in the coming weeks before we begin the next rally to 4200/4300SPX. And, while I would like to see a standard retrace, the market has been quite stingy with pullbacks since the March low.