Bull vs Bear case

It is amazing to see the constant fight between bull and bear, which from time to time could be fierce and volatile. I shared an analysis by Lance Robert last week about the view of "overly optimistic", which was consistent with what I had been saying for a while. It turned out to be quite spot on timing wise as the market got a mini crash over 5% early this week. Anyone who was shorting the market late last week should be quite happy for a very nice gain. Then the bull mounted a fierceful fight back. Clearly the battleground for bulls and bears is rather dynamic and unsettling with both cases that can be made. So let me share with you another piece of an analysis by Robert just about that.  I personally find his work is quite thoughtful and insightful. Hope you feel the same!

A quick word about my betting for next week. I think there is a high chance we may see another mini crash for S&P in the range of 50-100 points down. Will see if I'm right about it again!

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The Bull's Case

The bullish case for the market is pretty thin.

1. Hopes are high for a full reopening of the economy
2. A vaccine
3. A rapid return to economic normalcy.
4.  2022 earnings will be sufficiently high enough to justify "current" prices. (Let that sink in – that's two years of ZERO price growth.)
5. The Fed.

The Bear's Case

The bear's built their case on more solid fundamental views.

1. The potential for a second wave of the virus
2. A slower than expected economic recovery
3. A second wave of the virus erodes consumer confidence slowing employment
4. High unemployment weighs on personal consumption
5. Debt defaults and bankruptcies rise more sharply than expected.
6. All of which translates into the sharply reduced earnings and corporate profitability. 

Short-Term Bulls, Longer-Term Bears

From a purely technical perspective, the bulls remain in control for now. As shown below, the market was able to work off some of the short-term overbought condition without a confirmed break below the 200-dma.  Importantly, the correction also held the uptrend line that has been running since the initial gap-up off the March 23rd low.

However, the lower MACD and Price Momentum Oscillator are on clear "sell signals," which suggests risk to the bulls in the short-term. With resistance at Thursday's "gap down" open just slightly above Monday's close, the risk/reward for markets very short-term is poor.

If the market breaks the uptrend line, the 50-dma and the May consolidation range lows will be the next lines in the sand.

It is worth noting that both of the primary "sell signals" remain intact on a WEEKLY basis. Such suggests we may not be through the "bear market" phase just yet. While such doesn't necessarily mean the market will crash, historically returns have been lower with much higher volatility.

On Wednesday, we pointed out the similarities between this year's price action and the price action during the 1929 crash and the rally that followed. Whether or not we have just seen the top of the rally, I believe there will be a top soon and that it will look like this."