Out of Gas

Happy Friday.  Real quick here this morning.  Stock futures are sharply lower to start the Month of May.  This comes after closing out the best month for the stock market since the 1970's.

When we were moving off support a few weeks ago I liked the landing spot around $292 on the $SPY.


and sure enough we ran into $292... ran through it for a bit before falling back under it.  A post market high of $296 came last on Wednesday.  This morning the $SPY touched $283 and change.

That area of resistance goes back to 2018.  It is strong and with the furious, epic rally we had up to it, we ran out of gas.  Yesterdays tepid reaction to Apple and Amazon helped push push prices lower.

The market ran out of gas precisely where it has before.  That's some nice market action.  Let's hope it keeps acting like it should.  Going forward I am deep in thought mode....

I remain torn.

One thing is certain.  Absent the massive support from the FED and Central Banks around the globe the market would be trading, in all likelihood right here today at multi-year lows.

$SPY  $180 would probably be an optimistic landing point.  Considering the damage this Virus has done... you could argue prices could finally fulfil those doomsday bearish market pundits who have been saying the market was going to crash 60% every year since 2009.

I look at this Virus as the perfect storm.  The bears could have never dreamt up a scenario so devastating to the global economy.

How many corporations had planned for the World to shut down for the better part of two months.  And even worse... many more moons of uncertainty lie ahead.

Some industries will never be the same again!  Some industries will return to normal at some point... but how many companies will go belly up before that day comes?

There are so many more questions than answers.   So much uncertainty.

I posted real quick yesterday.  I think the rally off the lows was a hope rally.   What lies ahead is more reality.  We have a tug of war going on.  A massive central bank response, on a scale far larger and swifter than anyone could have ever imagined vs. an economic scenario that is unprecedented in size and scope.  Who wins?

The Central Banks have been #Winning for over 10 years.  Fighting the FED has been futile.  And this most recent rally from the lows in March to the recent highs on Wednesday are just another case in point.

I think that rally was hope.  Hope that a fire hose filled with money will sanitize a virus we cant see, feel, or touch.

It took me the better part of a year in 2009 to realize that the actions of the FED were going to inflate asset prices.  Cheap money made it easy for corporations to embark on a share buyback scheme the likes the world has never seen before.

We entered 2020 with far fewer shares outstanding, but also with a record amount of corporate debt.  As I said a few weeks ago... and my concern long long ago was serviceability of this debt.

AS long as interest rates remained abnormally low.  Debt serviceability was not an issue.  But what happens when revenue stops coming in.

When you don't have the money coming in  it doesn't matter what interest rate your debt has!  You can't make the payment!

And when we do open back up... how are some of these places going to turn a profit at only 50% capacity?

There are so many questions coming out of this.  So many.  And I think I'll cover that this weekend.

For now.. and I said it back when the bull market was going strong... when its time to sell we will have time to prepare for it.  It's going to be a process now.  I'm still torn.  I'm on the fence.   I've been bullish the majority of this run from 2009.  The Central Banks and Share buybacks have helped fuel a historic bull market.

However I am coming to believe more each day that the recent rally off the lows was built on hope and what lies ahead will rely more on reality.  The new reality, absent a cure or vaccine, is not good for the stock market.

More on that this weekend!

Have a great Friday see you in the chat room.




Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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