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Wasn't Yesterday's Strong S&P 500 Swing Climactic?

By Monica KingsleyStock MarketsSep 03, 2020 10:57AM ET
www.investing.com/analysis/wasnt-yesterdays-strong-sp-500-swing-climactic-200536305
Wasn't Yesterday's Strong S&P 500 Swing Climactic?
By Monica Kingsley   |  Sep 03, 2020 10:57AM ET
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Isn't Wednesday's accelerated upswing too good to be true? While I have no doubts about stocks being in a strong bull market, isn't it a bit more than stellar path ahead in the coming day(s)?

Yes. But October appears to me to be the prime candidate for a down month. Let's check whether the shallower gyrations I look to see in September, are drawing really near, or not yet.

The recovery looks a bit weaker than it was months and weeks ago, underscoring the need for stimulus. Yes, it'll arrive before the election, and it's not only the job market that needs it. Taking long profits off the table such as earlier today, makes sense from the risk-reward perspective. It isn't necessary to be always invested – especially not at moments that can usher in a short-term downswing after such a stellar run. A bird in the hand is worth two in the bush.

S&P 500 In The Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com):

SPX Large Cap Index.
SPX Large Cap Index.

The latest two sessions were really strong days in the S&P 500. Not a sign of reversal, but doesn't it feel like a buying climax in the short-term? Yes. The volume isn't there to declare it one, but it smacks of one still.

Do the credit markets point either way?

The Credit Markets’ Point of View

HYG High-Yield Corporate Bond ETF.
HYG High-Yield Corporate Bond ETF.

High-yield corporate bonds (HYG ETF (NYSE:HYG)) also rose yesterday, but the upswing is nothing to call home about – especially given the lower knot. Declining volume points to a breather before a larger move in the ETF. And given another strong day in investment grade corporate bonds (LQD ETF (NYSE:LQD)), it's likely going to be eventually higher.

Both leading credit market ratios – the investment-grade corporate bonds to longer-dated Treasuries (LQD:IEI) and high-yield corporate bonds to short-term Treasuries (HYG:SHY) – strengthened yesterday. It appears to be a question of time before LQD:IEI pulls HYG:SHY along. Stocks can chop for a while before venturing higher again – that's the message from these two ratios.

S&P 500 Market Breadth, Smallscaps and Emerging Markets

SPX.
SPX.

The advance-decline line rose, but could have been making a higher high. It isn't, which paints a short-term bearish divergence, a non-confirmation. A very short-term one, precisely – I expect it to be resolved with higher stock prices before long.

The Russell 2000 isn't exactly at its strongest, but isn't breaking down either. It's just sending a signal of short-term caution for the S&P 500.

The emerging markets don't mirror that amber light as closely though. The three views examined in this section thus paint a mixed short-short picture. The medium-term one is clear, though, and it's as bullish as yesterday:

Because TINA – there is no alternative in the hunt for yield than to move ever farther on the risk curve. This hated bull run will see more money deployed before making a top that I don't see happening this year, not at all.

From the Readers' Mailbag

One article was brought to my attention, and its subject serves as the question. Within the answer, I'll provide a few broad thoughts.

Q: The coming $37-trillion technology boom will catapult the market to remarkable news highs… minting millionaires along the way.

A: That sounds and is a stock-picking game that seeks to front-run the whole market. Not to mention that the offer has been mentioned now in 2020, and the (I won't give names, because the purpose of my answer is not to critique any individual undertaking, but to provide a broad view of mine as to similar offers) material appears to be a rerun of Halloween 2018 publication – according to Stock Gumshoe.

A decade ago, I was getting similar emails about riding the secret trend of smartphones doing away with computers. It's a bit like the internet boom – great promise, hype, dotcom bubble, crash followed by serious business efforts to make the industry broadly cash-flow positive. Such were the 2000s. Precisely the same story as railroads in 1830s to 1840s. It simply takes time to bring something radically new to market and make money in it at the same time. Rome simply wasn't built in a day.

Stock-picking can be extremely profitable but a dud too – far from all the picks are tenbaggers. You're still exposed to company risk (the quality of its management, etc). With surefire stuff such as the above bet on AI (happening for so many years already, by the way), going the sectoral route is more risk-proof to me. I would compare it to going with GDXJ (junior gold miners ETF) as opposed to trying to pick the company that might or might not have the touted ore quality at hand, in a friendly foreign jurisdiction or not, if you know what I mean…

Summary

Summing up, the S&P 500 market character hasn't changed, and it's still bullish. The case for a pause hasn't disappeared, but with still solid credit market performance, keeps being moved into the future. But the future might be arriving – in the very short run. As the put/call ratio keeps sliding and sliding, it's my opinion that the pause is approaching. Relatively shallow correction within a bull run, that is. Aren't we seeing one in today's premarket and early regular session?

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Wasn't Yesterday's Strong S&P 500 Swing Climactic?
 

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Wasn't Yesterday's Strong S&P 500 Swing Climactic?

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Comments (8)
Monica Kingsley
Monica Kingsley Sep 04, 2020 5:10AM ET
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Thank you for your comments. Yes, many of us identified in our own ways that there's something in the air, and the question now becomes about the nature of the pullback, or as some of you call, the full-fledged reversal perhaps not only this side of elections. Non-farm payrolls are coming, stay tuned and thanks again.
el karl
el karl Sep 04, 2020 5:10AM ET
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waiting your today's weather forecast, hahahahaha
el karl
el karl Sep 04, 2020 5:10AM ET
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that naughty nasdaq should down 1200 pts in near future, hahahahaha
Monica Kingsley
Monica Kingsley Sep 04, 2020 5:10AM ET
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el karl  I just sent it out this second
Aditya Lodha
Aditya Lodha Sep 03, 2020 4:15PM ET
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technical don't matter before sentimental. crashed today. see more of it after 9th September
Sean Livingstone
Sean Livingstone Sep 03, 2020 3:34PM ET
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Expected pullback today, liquidated. Some positions yesterday and this morning and bought some stocks that got hit big...
Dev DD
Dev DD Sep 03, 2020 3:14PM ET
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I love the Q&A. very informative.
graeme hughes
graeme hughes Sep 03, 2020 1:30PM ET
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AAPL market cap exceeded the Russell 2000 this week and also the FTSE100!! Tech titan madness has run its course, TSLA will prove to have been the canary..and as todays market action proves, the broadening of the rally will will shrink back again.. The FED is done, the baton has past to fiscal expansion, during which they will tolerate a higher rate of inflation.. I think we have seen the top this side of the election..
el karl
el karl Sep 03, 2020 12:16PM ET
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tomoro future gap down, hahahahahaha
el karl
el karl Sep 03, 2020 12:15PM ET
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i wish next day s&p500 future down minimum 150pts, hahahahaha that  sma 50 line should go back to the right place, hahahahaha
el karl
el karl Sep 03, 2020 11:41AM ET
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first support 3300, hahahahaha
Vishal Arya
Vishal Arya Sep 03, 2020 11:41AM ET
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Good call, I anticipated stock pullback here.
 
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