The first quarter of 2020 is now complete and will go down in the record books as one of the most significant in history. The loss during the quarter was one of the largest on the books, but what was even more remarkable was that the indexes had been at all-time highs, as well. Never in history has a market undergone such a transformation so quickly.
The quarter ended over the last week with a lively bounce that had a number of market players hoping that their old buddy "the 'V'-shaped bounce" is back once again. Given the level of stimulus that is being created, it is understandable that some people might feel the market will ride a wave of liquidity backup. The problem is that we are dealing with an enormous problem that is still tremendous uncertainty and not easy to quantify.
Now that the end of the quarter is finished and the allocation games are done, market players will start to look ahead to economic reports, coronavirus data, and first-quarter earnings. The first big news event will probably be later this week when unemployment claims are reported. This is going to be a massive number and will be a sobering reminder of how many people are suffering from this crisis.
My market thesis is that the recent strength is just a sizable counter-trend rally that will fizzle out. The economic news coupled with a lack of earnings visibility will keep buyers on the sidelines. Without the benefit of stock buybacks, it is going to be hard for stocks to respond favorably to earnings.
I see no reason to rush to buy longer-term positions right now and there is little in the way of individual stock picking. The best approach is to trade the indexes in very short term time frames and that is what I will be doing. A high level of cash is the key to flexibility so make sure you have plenty.
Have a good evening. I'll see you tomorrow.