Looking for Stocks to Drop?
Stocks are pointed higher in premarket trading, making this the second straight day of gains for the stock market. We had earlier pegged 1800 as the peak for the S&P 500 in this mid-cycle recovery. This happens to be the point at which half the gains lost in the stock market in this downward trend have been recovered. This is a standard mid-cycle rally peak and could spell trouble for stocks in the near term. Generally, we would expect stocks to bounce lower after hitting this level and move down towards the bottom of their trading channel. In the rare event that stocks break above this critical level, it could mean a cycle reversal where stocks are heading higher longer term. Given the current economic position of the US, I don’t see that happening. I see lower stock prices being the more likely outcome.
Talk of additional stimulus is now being discussed by lawmakers, with another $1 trillion or more bill in the works. This would add additional cash payments to US workers as well as provide additional funds to help stimulate businesses and motivate owners to hold on to their employees through this difficult time. I continue to believe that all of this is just a fraction of what the US Treasury will need to spend to help keep the US economy from falling off the tracks. I hope I’m way off, but my initial projection was $10 trillion. Although a V shaped economic recovery would help dramatically reduce this number, I just don’t see people recovering as quickly as our leaders predict.
We will maintain a locking bias.