Well Tackle Traders…here I go, I am either going to be labelled a genius or an idiot by what I am about to say in this blog today. You see it is times like these where brave or perhaps foolish men make bold-ass predictions knowing full well that is could ultimately be our downfalls.

Now that I have your attention…I am going to go wayyyyyy out on a limb here and say that this market is not quite ready for prime time. I understand that the market has had a pretty big rebound from the savage beatdown that it took just a couple of short weeks ago but I feel like this could be the great fake out of 2020. I will build my case for this and you can decide if I am a genius or an idiot or maybe a little of both.

So before I present my case as to why I don’t believe that the market is actually ready to resume the massive uptrend that we have seen in recent years let me talk about all the reasons I can understand why folks might be rushing into the markets and thinking that all is well in the land of stocks. The first thing I think people are thinking is that since we appear to have peaked with the corona-virus deal that things are going to start to get back to normal at some point. This is a pretty normal reaction for most folks that are casual market participants. These same folks are probably dealing with a lot of FOMO right now as they are seeing a tonne of household name stocks at prices that haven’t been seen in what feels like a long time. For example, AAPL peaked at 327 in February and then took a haircut all the way down to 212, who wouldn’t want to own the iPhone maker at those bargain basement prices! In addition to the FOMO and the news that we might be on the other side of this pandemic, the action of the last couple of days may have had folks getting antsy as we had a big solid green candle that broke through and closed above the short term resistance line from last week. Take a look at the chart below to see what I mean. I almost forgot to mention all the free money that the FED will be throwing from the helicopters! The announced stimulus packages were designed to elicit this type of response but the question that remains is does it continue to have the desired effect? One could definitely make the case that the market wants to go higher from here.

On one hand, there are some valid points to be made for the case above but on the other hand, there are also some valid reasons to think that all is not right with the world just yet. This is the case as I see it for the other side of this debate and why I am going out on a limb and saying that I think there may be some more downside in our near future. From a fundamental perspective, we don’t really know when all this corona-virus business will be solved. The vaccine could take longer than expected to come to pass and moreover we need to be able to distribute it to the masses and I’m not sure how that will be accomplished? Then there are the lasting economic effects, when will businesses be able to resume production or service or whatever their core business practices are? Will the demand for those things still be there? Will, there be new protocols in place to prevent this problem from happening again? Will these new protocols increase business costs so much that some businesses will not be able to make the jump? Maybe a more pertinent question might be which businesses actually survive this time period in general? All the answers to these questions are unknown to all of us at this time and therefore I make the case that this could be trouble for markets overall, at least in the short-term. There are probably many more questions we could be asking ourselves and not really know the answers to but at the end of the day, I believe that the market is not very fond of the unknown. We can add on the technical view of the markets to this side of the argument as well, although the SPY broke above the 20MA and the near-term resistance it has some formidable resistance levels above it that are must break through before getting any traction to the upside. As I write this one of those resistance levels is posing quite a problem. The last thing I can say for this side of the argument is that before the corona-virus outbreak there was growing concern of a global slowdown and that lack of demand would in of itself been an issue for markets at all-time highs and could pose a similar problem in the current market conditions as well.

I have laid out both sides of the argument for the market and why I made my bold or maybe not so bold prediction on where I think the markets might be headed and I will be proven wrong or right over time and this is the struggle that each trader has every time they approach the markets and because we are not in the business of predicting but the business of trading we need to prepare plans in advance of either scenario playing out and be sure that those plans are rock solid so as to minimize the potential for harm and maximize the potential for gains.

So the real fake out of 2020 is predicting market direction despite being able to make a good case on either side and that the best way to deal with the market on any given day is to prepare one’s self for as many potential outcomes as possible and then to act accordingly.