Delusional

I'm getting the sense that people are not fully appreciating the situation we are in. Although there is some fear and some capitulation, that's only natural given the situation we are in but I don't think we've seen true capitulation.  Last week's bounce brought out plenty of  FOMO buying and bottom calling from what I can tell. I was on webcast Wednesday where a fund manager was giving an update. On this webcast there was a dialog box where you could type in questions and see what other advisors were asking. There was more than one asking whether we had seen the bottom and if it was time to buy. Maybe these advisors are "savy" or maybe (and most likely) they are not giving this bear market enough respect. Funny that I say  that because all throughout the bull market I kept mentioning that it was never getting enough respect! I read a post of one trader type mentioning a "MACD buy signal". Are you for fucking real? You're going to put your faith in a stupid "MACD" technical indicator in a time like this when nobody is working (not literally nobody but you get my point) and earnings are going to collapse like an anvil through toilet paper? Folks, the market hasn't been going down because of a trade war spat, problems with PIIGS, the end of quantitative easing or some other relatively trivial matter that really didn't mean shit at the end of the day when it came to the economy/earnings.

At the end of the day stocks are all about earnings. If earnings are rising or at least stable, you got a bull market, when they are declining or in this case collapsing, you got a bear market. The earnings collapse we are going to see will be WORSE than what we saw in 2008 and we haven't even seen companies report the extent of this damage. Yet I'm to believe that the market has already "discounted all the bad news". Sorry I'm not buying it.

What we saw last week is very much likely a bear market rally. Can it still have legs? Yes. Can it already be over? Yes. It's always tough to know the extent and duration of such rallies but there's no fucking way I'm buying that the 3 day rally means the worst is over. The market dropped over 30% in a month and so it's entitled to a bounce regardless of fundamentals. If you're playing the short side you have to realize that after such a big decline, it's conceivable for the market to get quite a big bounce as well because you're going to have deal with FOMO buying and short covering from johnny come lately bears. Look at prior bear markets and you will see them littered with plenty of sharp rebounds lasting anywhere from 1 day to 6 months. Ultimately, fundamentals assert themselves and if fundamentals are deteriorating the market will be in a primary downtrend and hit new lows eventually. In the interim, it will destroy both bulls and bears alike which is why I said trading the market will be treacherous.

It would appear to me that we are going to be in lock down for another month. Do you think once things get back up and running that it will be like it was before? I don't. Yes, there will be an initial snap back in activity but I doubt things will go fully back to "normal" for some time. I think a lot of people will be licking wounds building  up their savings and/or reluctant to travel and go out as much which will result in slower than expected growth . We'll see. I admit that this is just a speculation. There's a long way to go before we can start talking about a recovery anyways, and that's really the point here....we're just at the beginning of what's going to be a really brutal economic period which is why any talk of a bottom is nonsense in my book. Yes, markets will bottom before the economy does but again, we have only just begun to see the horrific data come out, the first of which was initial claims for unemployment which was literally off the charts https://tradingeconomics.com/united-states/jobless-claims.

Some people will say that the market having dropped 35% from its peak at the recent low is already reflecting a lot of the bad news to come. Well, to that I would say a 35% drop is what you would expect to see in a run of the mill recession. Does this look like it's going to be a run of the mill recession given the unprecedented  shutdown of the global economy? I'm sorry but I can't make that assumption. Like I stated earlier, I'd love to end up being wrong and too pessimistic. Great. I'll be the sacrificial lamb to the trading gods. But I simply can't give the benefit of the doubt to the optimists here aside from a counter trend bounce. If I can intelligently play both sides of the market I'll do so but if in doubt I'm staying out.

In my next post I'm going to play the bull's advocate and given some arguments that would indeed suggest we may be close to or at bottom.