Given that the S&P 500 has rallied more than 42 % since its March 23 low that loico was the first to publicly identify as the likely market bottom,1 that the index has regained in a convincing manner its 200-day moving average and that the NASDAQ 100 has even touched its pre-COVID-19 high, we can now declare with a good conscience that loico’s first market call, something we said in our “Welcome” text we would make from time to time so as to showcase the predictive power of actual logic, was correct.
After being briefly out of the market because of a clearly overbought condition, we just re-entered the S&P 500 futures a fraction of a point below our exit level of 3120.25. The short-term balance of risks, in our view, judging by the market’s observable micro-behavior, continues to be tilted towards the upside, so we abandoned our plan, for now, to re-enter about two percent lower. We would not be entirely surprised if the S&P 500 were to rise another 200 points, to about 3325, fairly quickly from here. This kind of assessment by a trader is a prediction in the following sense: Either the market will quickly move in the hypothesized direction, or, if it does not and possibly even does the opposite, the entire constellation will still prove such that we will be able to exit the position taken without a loss, because the market will revisit the point at which we entered. Gain – or no loss, resulting, on average, in gains over time. Trading is that “simple” in the end. As always, loico does not give investment advice. What we write about financial markets serves two purposes only: to help our readers improve their logical thinking in general, and the way in which they cognitively approach financial markets in particular, and to demonstrate that logical thinking can bring about extraordinary success.
With regard to the current situation, we found the following view expressed by John Stoltzfus, chief investment strategist and managing director at Oppenheimer Asset Management, somewhat correspondent to our view that we have in part already expressed on March 24, and we share it here:
“When we look at this week, we’re reminded very much of the rally that started in March 2009 … .
What we’re seeing is the market is looking … ahead, 3 months, 6 months, 12 months out …
We’ve never seen a significant portion of the largest economy in the world shuttered as well as other economies around the world shuttered, and what that would look like coming out … I think it almost calls for an unprecedented methodology of analysis looking forward.”
Which latter suggests the general question:
Does science stop where the “unprecedented” and possibly non-reproducible starts? Or is science not called upon, in emergencies such as the one COVID-19 has appeared as for months, to derive action plans ad hoc directly from logic instead of waiting for studies to obtain “direct” evidence in addition to the indirect evidence that logic draws its conclusions from, when waiting risks or even outright accepts that the studies will be completed when the emergency is over and the damage done? The dead from COVID-19 we sought to prevent with our article on March 16 will not wake up again, and the biggest stock market gains from the recent bottom have now been made – or not, by those choosing “to wait for (direct) evidence” instead of relying on logical thinking.
Addendum June 5, 5:14pm CET
So now it appears we know what was “brewing” in the market’s micro-behavior we had observed: 2.5 million US jobs gained versus a consensus expectation of 8.3 million lost, the biggest upside surprise in history. It seems, thus, that in other than trivial matters, it rarely pays to listen to the “mainstream” – just as it does not pay to listen to the WHO in a health emergency, it likewise does not pay to listen to Wall Street analysts. We shall find out, over the coming months and years, whether it continues to pay to listen to loico._____