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2020-06-25 • Updated
The stock market is going through an interesting phase now. On the one hand, some of its areas – specifically, tech stocks - are booming which alerts observes about investors overconfidence. On the other hand, there is a definite dropdown in the overall performance caused by second-wave virus fears amid new outbreaks. Is the march upwards over then?
Definitely not.
The closer the S&P gets to the pre-virus levels, the more downward gravity it will experience.
Hence, the more horizontally-bent it’s trajectory will look like as it moves upwards to ful recovery.
For this reason, it would probably be unwise to expect the recovery keep the upward pace of March and fall into way too optimistic zone 2 – we are already out of that range.
More likely, zone 1 will be where the stock market will be going – it is the most balanced and moderate expectation.
Finally, zone 3 is also a possibility, at least as a bottom to the channel of zone 1 to which the S&P may drop from time to time.
The horizontal-gravity theory is confirmed indirectly by the fact that each sideways/downward retrace lasts longer: as you move from sector A to sector D (we are currently at the bottom of sector D), you have a longer protraction over time.
Therefore, there is no reason to panic. Yes, there are outbreaks but the fundamentals have not changed yet. Take zone 1 as a realistic expectation of where the S&P goes in the nearest midterm and prepare for zone 3 to provide support at 3,000 for a while ahead.
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