We’re looking for a dead cat bounce this week after the S&P 500 registered a 5% drawdown to start the week. Investors sold high flying technology stocks over the news of increasing Coronavirus cases. That said, many stocks are rebounding this morning, with the “FAANNG” stocks set to open above VWAP to start the day.
What are our expectations today? Thanks to Charlie Bilello we have a graphic that supports our thoughts for a dead cat bounce.
Some investors will most likely take a few positions off into strength. We were doing that over the past few weeks while taking fewer swing positions. We prefer day trades at this time, due to heightened fear, elevated VIX and safety trade concerns reflected in gold and the USD.
Most mutual funds that track the S&P 500 performed similarly with SPY dipping 5.26% at Monday’s low. Momentum is still with the bears with MACD dropping rapidly with price action. RSI is approaching oversold levels as well, so a bounce would be normal.
SPY 320 (+/-) should hold today, given the looks of S&P futures in early trading. At one point last night, S&P was +30 handles, currently +18.
If for some reason fear returns, 61.8% Fibonacci and previous consolidation support is the next level to watch. A SPY pullback to 307.00 (+/-) equates to a drawdown of (-9.46%).
We are not touching our retirement account. We remain at 44% fixed assets, 45% equities, with the remaining 11% in cash and alternative investments managed by Cohen and Steers (CNS) Asset Group.
Finally, do remember the last major drawdown of late 2018. Even with a 20% shellacking, the markets rebounded shortly thereafter.
While we do not anticipate a similar occurrence, we would reassess would the situation warrant reallocation of funds in our mix of investments in the coming weeks.
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Happy Trading,
Vinny
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