A combination of the Fed's "unlimited" QE announced Monday, the recent lowering of benchmark interest rates to zero, and the imminent passing of a massive coronavirus bailout package has been like rocket fuel for equity markets. The DOW gained over 2000 points yesterday, and at the time of this writing (3:00 pm EDST) it's up another 1000 points. But is there enough bullish fuel here to propel the broad stock market back into orbit (i.e. can it recover its 38% loss from the last 4 weeks and start to make new all-time highs)? That's a good question. I think there's good reason to think this "fuel" could run out before those Feb. all-time highs can be exceeded, and we could see this rocket heading back towards earth sooner than most people would like.
We need to realize that the Fed has now thrown everything it has at this market - unlimited QE and interest rates that can't be lowered anymore (unless they go for negative rates). If the market starts to fall again, they really have nothing left in their arsenal to stop it. Also, the coronavirus bailout package is exciting the market now, but once it passes it may become yesterday's news (especially if people are disappointed with it). And remember, the coronavirus epidemic probably has not reached its peak yet. OK, I may be wrong about this. We could see a new wave of "Trumphoria" propel equity markets up into the election, but even that may not be enough for a full recovery and new market highs.
My main point is that this market's trend has already turned bearish, and there's a good chance we could see a "second wave" up that does not exceed those Feb. highs before it turns down again to make new lows. That said, a second wave up could be quite substantial (20% - 35% or possibly more) so it would be worth buying into such a rally. BUT...notice how volatile this market is right now - it is panic driven. Yes, it's possible a major market rebound has already started from Monday's lows, but we are still in the current reversal zone (March 20 - April 6) all through this week and next week so this crazy market roller coaster has plenty of time to head back down to new lows in this time frame. (Remember, we didn't get any bullish divergence signal with Monday's lows so that may not be the bottom). If we do get new lows next week with a bullish divergence signal, we will want to buy. In the meantime, this market's volatility in response to the coronavirus as well as the Fed and government stimulus is keeping me on the sidelines.
Gold and silver prices have rallied strongly this week, but they may be leveling off now as we move into the center of our reversal zone. We will watch for a top and some sort of correction which could happen this week or next week. We are still on the sidelines of both metals.
Crude oil prices have stabilized just above $20 (May contract chart) but might push lower into the current reversal zone this week or next. If they do, and they stay above $15 then we may look to buy as it might be the end of the current medium-term cycle and the start of a new one. Currently on the sidelines of crude.