nobody could have foreseen the global pandemic. The stock market crash, however, was predictable. We warned you in advance on twitter:
(1/4) Thread: few reasons (among many others) why we're bearish on #stocks in the short term. First of all, the divergence between the Asian and US stocks continues. The longer it runs, the heavier the consequences will be. $SPX $SPY #Nikkei $EWJ pic.twitter.com/KmXhQzT2wP
— SpreadCharts.com (@SpreadChartsCom) February 20, 2020
Of course, we didn’t know the extent of the drop. When the market starts falling like a knife, it’s not wise trying to catch it. Neverteless, we kept you updated about the odds of a bounce:
US equity futures went limit up. There's a good chance for bear market rally as Asian equities are outperforming and $VIX backwardation is narrowing. But keep in mind that falling wedge in #ES_F futures may develop further. $SPX $SPY $QQQ $EWJ pic.twitter.com/i7MPnLaDQm
— SpreadCharts.com (@SpreadChartsCom) March 24, 2020
And here we are, more than 30% off the lows and most people are calling the bear market to be over. We don’t share this enthusiasm. Although this rally has been unprecedented, we think it’s not surprising given the magnitude of the previous selloff. Moreover, it’s very unusual for the bear market to begin so soon after the indices make an all-time high. Therefore, some deviations from the past bear markets are justified.
Of course, we can be wrong. But if we’re not, this will be one of the greatest wealth destruction in history as the powerful relief rally has, without any doubt, sucked in many investors. Someone said this is the greatest FOMO rally of all times. This sentiment may prevail for some time and push stocks even higher.
Because of the severity of possible consequences, we decided to publicly release probably the most important video we have ever made. It’s from March 15th and was originally available only to premium subscribers to SpreadCharts. It explains how we would personally behave during the bear market, some hints on how to spot the bottom, and how low we think the S&P500 might fall. Although it’s a month old video, the arguments why the bear market is far from over are still valid. We strongly recommend everybody to watch it:
While it’s tough to trade during a bear market, some carefully selected strategies will make a killing. For example, our smart strategy for crude oil is doing great and will likely continue to do so in the foreseeable future. Moreover, we’re watching another great opportunity emerging in the markets. We will reveal it to our premium subscribers soon.