“Unprecedented methodology of analysis”

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.

1. https://loico.com/why-we-have-likely-seen-the-bottom-of-the-corona-crash-in-the-us-stock-market/[↩]