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Is This “The Bottom”? April 5, 2020

Posted by Tom in Thoughts.
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April 3, 2020 – A familiar phrase: “Are we there yet?”. Well if anybody tells you that we definitely are or aren’t, you’re either listening to a gambler or a fool. IMHO. Because . . nobody really knows for sure. In that light let me give you a few possible scenarios.

1) Highly unlikely that we will see a “V” bottom. i.e. “that was the low”, and we only go up from here. Why? Because there was so much damage and unwinding of positions that was done during the last drop. It will take time with some “backing and filling” before true “real” progress can be made.

2) We go back and forth between the last significant high and low. This is show on the NASDAQ Composite chart (below) as 7878 and 6631 and labeled as #2; the dashed green line. This trading range would likely last for a few months at least, probably into the Fall. The action will build a “Cause” for the next move. So, the worst is over, but there is no hurry to re-enter.

3) We “test” the lower support of 6631 and perhaps bounce, but eventually (with bad news) break that level and continue lower. The purpose is a final wash out of the last holders and a final climatic sell off. One scenario via point & figure charting suggests a retest of 7878 in May, then a major break lower in mid June / July (forming a “spring”), before a major rally in the September / October time frame. This is shown as the dashed red line, labeled #1. Note that I didn’t have room in the time / date scale, so that is not representative.

My gut feel is that scenario 3 above is the most likely, but we should always be prepared for any possibility. Note how the volume on the last swing rally was low, i.e. No Demand. This market just doesn’t appear to be at the stage to go higher very soon. Buyers are not stepping in. Besides, we have yet to see the hard numbers of how badly this shut down is hurting corporate revenue.

I’m posting the (short term) Sector Strength table below, but honestly, I’d be very careful with any purchase and keep my time frame goals short term to say the least.

Even the strongest sectors are “less weak” since their weekly strength is not very good at all.

Time to be patient and continue caution. This is a weak, news driven market and picking a bottom is not going to be easy. Typically a major drop like this requires time and then a period of low volitility. I just don’t think all of the bad news has come out yet. I’m staying with a significant Cash position and trying to “hedge out” the rest.

Have a good week and stay as healthy as you can. Take Care. ….. Tom …..

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