A guru's market wisdom

In the investment world, there are a few masters that I really adore such as Warren Buffett, Peter Lynch, Jim Rogers etc. One of them is probably not so much known but also one of the most followed investors on Wall Street. His memos to investors are widely read across the financial industry. It is Oaktree Capital's Howard Marks. He recently said something I think we should all be aware of... 

"The S&P 500 Is Taking the Economic Collapse a Little Too Well..."

While on CNBC recently, Marks discussed how he felt that there is a disconnect between stock market performance and the reality the world is facing amid the coronavirus outbreak.

We're only down 15% from the all-time high of February 19, but it seems to me the world is more than 15% screwed up.

It took seven years to get back to the 2000 highs in 2007... it took 5 1/2 years to get back to the 2007 highs in late 2012.

So is it really appropriate that, given all the bad news in the world today, we should get back to the highs in only three months? That seems inappropriately positive to me.

While I'm not convinced that this bear market will take years to overcome, I definitely don't believe that it is just a few weeks long. And I believe this week is likely marking the end of the this unbelievably strong bear market rally. Here is one of the reasons. The passing Thu was a special date for many traders, the end of Apr. For many traders, they use the 20 month MA as the trend line to differentiate a bull market from a bear. The Mar crash has pushed down the market to the bear within weeks, the fastest in history. And now the market has rebounded back over 60% of the loss and looking at the chart, you may notice that it is kissing its 20 month MA from below. You may recall I have talked about the "suicidal kiss" several times back in 2018 with quite accurate prediction for the market moves (here is one). Since we have entered into the bear market this time, it's worth comparing what had happened in the previous two bear markets, 2000/2001 and 2008/2009. As you can see below in the chart (the chart is a few days old but you should see the point), both had tried to bounce back to kiss its 20 MMA after the initial crash. The current 20 MMA on Apr was at about 2888ish and the market closed barely above the line yesterday on Apr 30. But it could not hold and declined below almost immediately and closed below it on Friday. If the history is any indicator, I think the market is done with this phase of rebound and is entering into the next phase of correction, potentially quite severe. I definitely won't be complacent with the seemingly strong recovery, which could just be a bull trap within this bear market. I could be wrong of course but I'm with Marks in questioning the validity of this rally so far. We should soon find out where the market is leading us to.