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SP500 'Where's The Strength Coming From?

SP500 'Where's The Strength Coming From?

The coronavirus has battered the global economy. Within a few short months, this pandemic has driven major economies to the verge of collapse with a recession which was already on the cards, imminent if not in progress. The disruptive list is endless. A sharp decline in real GDP, high dept-to-GDP ratio, a decline in consumer spending, widespread joblessness, large & small companies on the brink of bankruptcy, sharp decline in labour productivity, woes of a second wave of lockdown are just a few to mention. Other contributing factors such as the riots and curfew in the US aren’t helping matters.

So with all that in mind, it’s obvious the major indexes will decline, Right? Apparently not!

In fact, the major Indexes such as the ‘SP500’ are behaving perfectly normal during these times.

We mustn't forget that towards the end of March this year, more or less all stocks, in particular, the FAANG stocks were dirt cheap to buy, they were all at a bargain price. Hedge funds, smart money, they all knew it, even newbie couch traders with nothing else to do amid the lockdown knew it, and Bang! everyone piled in. All these companies listed on the exchanges were bound to rise and needless to say, so were the major indexes.

Medium to long term sentiment is bearish on the main exchanges amongst small speculators, which I’m sorry to say only adds weight as to why the broader market is holding up so well. And if that’s not enough, Smart Money Hedgers are extremely bullish on the main indexes, in particular the DOW… Who’s team would you rather be on?

Of course, there is no certainty that the markets will continue to rise relentlessly, the markets never go in a straight line, pullbacks, waves, phases, whatever you want to call them are part and parcel of the cycle. The question is, could this be the 1st leg of a new bull market??, OR is the 2nd leg of a bear market on the horizon??

TO help determine that, the above chart shows we are still within a steep bull channel (A) going back almost 2 decades. Fibonacci taken from the highs of 2007 (1) just before the 2008 crash, and the lows of 2009 (2) as it began to recover, put’s us up at the 261% fib extension level (3) since the decline of late. So what does that tell us? Not a great deal… just another technical hurdle, but above this resistance level is another box ticked to support this bullish theory.

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