Stock market forecasting is not an “exact science” (as if something of the sort existed outside of the science of logic). That said, the intuition of the logician with 23 years of market experience screams: “This was the bottom!” Let’s see what may be behind this intuition.
First, as far as I can see, everyone is panicking. “Panic” contains “Pan”, the name of the ancient Greek god of the woods who instilled fear in people for no good reason. Or rather, for an entirely “general” (“pan-“), undefined and therefore non-reason (it is always a good idea to consider the etymology of a given term of interest, because often this etymology does convey exactly the logic you would expect it to convey, given its own etymo-log-y; the “etymo” part outright means “true sense” in ancient Greek). If everyone around you is panicking and no longer looking at things in a relaxed and rational way, this is the time to buy stocks (or to sell, for that matter, in the case of a buying panic). When logical thinking stops, illogic ensues, evaluation errs, and mispricing occurs, namely in the direction of the emotion that defines the respective panic. Logic dictates that in a panic it must be profitable to take a position in the opposite direction. – Why we ourselves could not be more relaxed with regard to COVID-19 as regards our personal health, we have explained in some detail in our article “The logic of surviving the Coronavirus pandemic”, in which we draw the logical conclusions from the most recent scientific evidence as to what everyone can do to effectively protect himself against the infection with fairly simple means (we strongly recommend you read it, including the updates at the bottom of the article regarding the studies from Hong Kong and China). There is more in the works here at loico with regard to how the COVID-19 emergency can be mastered more effectively from a medical point of view, so stay tuned.
Second, as panic can last longer than for just a short period of time, meaning you can be too early if you rely on its mere presence alone, consider that the S&P 500 just crashed into the 38,2 % Fibonacci retracement of its decade-long ascent that I predicted on February 4, 2009, a month ahead of the actual turning point in the market (Frankfurter Allgemeine Zeitung, search your Email archive, you did not publish my article to the effect that I offered you then, but maybe compliance rules bring it about that you still have it). So we have not just tepidly touched the retracement level, we are in the process of crash-testing it. We will delve into the logic of the Fibonacci number row another time, but it is essentially a quantitative form of qualitative logic. – Buying panic, just to mention it, had continued to lift the S&P 500 up, to exactly the price target of 3390 points that could be derived from technical analysis (it hit 3393), all the while the Coronavirus crisis was at least to be feared to be developing. The significant market correction after reaching a clearly longer-term price target, the fact that it occurred at all, had exactly nothing to do with COVID-19 whatsoever. The velocity of the correction, of course, does.
Third, evidence shows, and every experienced trader knows, that the market could not care less about economic data, or any data, for that matter, that is a function of something which “has been” or “is”. The market cares about one thing only: the future. Which is only logical: The market exists to price future cash flows; those cash flows depend on the actions taken by human beings; and those actions initiate in human minds. The market is all about what people think will happen and what they intend – and feel confident – to do in the future, not about what they have done or are currently doing.
Fourth: If this view seems at odds with market behavior seen during the last few weeks (where what is clear now was essentially equally clear then), it isn’t. For if we suppose that the market always runs, as it does, ahead of “real” world developments (in case it does indeed “run” instead of simply oscillating because unsure of “what to make of things”), then, being the “unconscious”, uncontrolled chaotic being that it is (a collective, subconscious mind), it can logically only do so if it to some extent exaggerates the real world developments it initially runs ahead of. This momentous nature allows the market to “mechanically” run ahead of what happens in the real world. It “initially” precedes, because financial markets are about future cash flows, cash flows that are at first only imagined, ideally with some sound logical ingredients to the imagination (we talk about this relationship in our “Welcome” text). The market then exaggerates, because imagination ever too often extrapolates current developments to illogical extremes, allowing the market to precede again by “bouncing back”, either from being “too high” or “too low”. Whoever wishes to be spared harm from this kind of mechanism, needs to rise, in accordance with loico’s motto, “beyond imagination”.
Fifth: Since we at loico estimate that effective saturation by COVID-19 in the worst-hit country, Italy, will occur sometime around the end of April; since new case as well as death numbers there have started to decline; since the United States’ president has now stated he intends to reopen the country in less than three months, and since experience shows that the market typically runs ahead by several, sometimes even by quite a number of months, this, right now, would appear as a perfect time for the market to “look ahead”.
Sixth: As I stated back in 2009, what we were about to see then was the start of the upswing phase of the fifth Kondratieff cycle (we will write about our general economic theory in depth at a later time). This underlying upswing phase, much corrupted by politics but not entirely under politics’ control, is about to run for about another six to seven years. So this, right now, COVID-19 or not, is just a bit too early in the cycle to attempt at a replay of the Great Depression.
Of course, there are many more things that run through the head of a trader who has seen a bit or two happening in financial markets. Such as the market’s utter failure, upon truly serious attempts, to decisively cross in any sustained way the lower, supporting line of the falling wedge the S&P 500 futures had formed over the last 10 trading days on an hourly basis, indicating that the bears have exhausted themselves, and so on. After all, as I said, this is an intuition. But a strong one, informed by the logic of the matter as I see it, prompting me to buy into the ES futures yesterday late in the trading session.
“Bottom”, to clarify, does not mean that the low the S&P 500 put in yesterday at 2192 points will not be retested. It could very well be. But the bottom that I assume we have seen should simply not fall out. In case I am wrong, blame it on me. In case I am right, the merit is logic’s alone.
