The S&P 500 closed the week 12.09% higher, at 2,790, after the Federal Reserve announced further plans to support markets and the United States economy.
Let’s enjoy the rally while we can. I would love to see it continue to move higher.
But it pays to remain cautious here. Yes, there’s better news out there on COVID-19, of course. There’s even hope that the economy may begin to reopen soon.
However, it’s not uncommon for the major indexes to rally into major holidays.
We’re also about to enter earnings season, when companies announce their results for the first quarter.
Most companies have already told Wall Street analysts that they have withdrawn their pre-outbreak earnings forecasts. Basically, it means they’re just not sure how their results are going to come in until they total up all the numbers and see it for themselves.
Here’s my concern…
We’ve already seen a sizable 25% bounce higher for the S&P 500 in recent days. But as companies report their first-quarter numbers, Wall Street analysts may need to further lower their earnings forecasts, for the second quarter and for all of 2020.
If that happens, the stock prices for a great many companies may look too high, relative to the amount of reduced profit — or increased losses — on the horizon for the rest of the year.
That could be just the excuse for another sell-off, or even a resumption of the bear market.
If you are looking to put money to work right now, be careful. Please recognize that we could see another sharp decline before all this is through, and plan accordingly.
I continue to believe that further downside is ahead,
The first support level we look to test, as soon as this week, is the 2711 March 13th high.
A break below 2711 leads to a quick gap down to uptrend support, at 2660, and ultimately the 2640 double top from late March.
These technical levels serve as a mild barrier against downside, however if they are broken we expect to see 2450 quickly.