A Big Rally is Coming Soon. Are You Ready?
I'm sure we can all agree that investor's are panicking. The velocity of this sell off is of historic proportions which makes sense considering what we are going through.
I've noticed over the last few years that the selling happens a lot quicker then it has in the past. Even in situations where the cause for the selling could be considered not material. This could be blamed on algorithmic trading (computers) as well as the instantaneous access to information/news driving investor decision making.
The velocity of the selling in this current situation is truly remarkable. It has sent many sentiment indicators to extreme levels in a very short amount of time.
The VIX (Volatility Index) spiked higher than it did in 2008 but closed the week at 66 well below its high of 85.
Less than 3% of stocks in the S&P 500 are trading above their 200 day moving average which is very close to the extreme reading seen in 2008.
In the 2008/09 financial crisis it took months for these extreme readings to be reached. We have gotten to similar levels in a matter of weeks.
The snowball effect happens at break-neck speed in this current age of technology. This also plays into how the world is reacting to the COVID-19 outbreak.
Many will criticize that countries are not acting quick enough but I tend to disagree. The domino affect with regards to events and closures happened very swiftly in my opinion. These are extremely difficult decisions for leaders to make. Not only are the economic impacts massive but the effects on the daily lives of individuals are huge as well.
The important question to ask is how many months of total shut down to businesses and the economy has the market currently priced in? This is a very difficult question to answer but if you look at the above sentiment as well as the damage to individual stocks, it feels like the market is pricing in at least four to six months.
Even Donald Trump who rarely takes a cautious stance on anything, said this could extend well into the summer.
It seems to me that everyone has capitulated or come to terms that this situation will extend well into the summer or fall and possibly even longer.
What I haven't heard is anyone accepting the "possibility" that this situation passes quicker than most people think. For some reason the "surprisingly quick resolution" has been totally left out.
If I've learned anything in the last twenty years investing in bull and bear markets is to never forget that anything is possible. Just like how this sell off happened at record speed, it could also recover much quicker than most people think.
I think a big rally is just around the corner. This rally will more than likely not be the bottom in stocks but it will provide a much needed break from the constant selling.
For those that are prepared and have a plan, It will provide an opportunity to sell less favorable stocks in order to free up cash for the best opportunities moving forward.
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