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TPA Analytics: Gaining Perspective – Market Rally Vs. Depression

By Jeffrey Marcus | May 8, 2020

Gaining Perspective – Market Rally vs Depression

It is difficult to think back to what life was like in January, but on 1/2/20 the Dow Jones Industrial Average was 28,828 or 20% higher, the unemployment rate was 3.5%, and there were no known U.S. Covid-19 infections or deaths. The table below shows how much life has changed since January 2.

market, TPA Analytics: Gaining Perspective – Market Rally Vs. Depression

market, TPA Analytics: Gaining Perspective – Market Rally Vs. Depression

The S&P500 is now 29% higher than the close on 3/23, but it is hard to say what will happen from here with an available vaccine for Covid-19 possibly a year away. On a more global basis, CNN’s Senior Writer/Analyst Zachary Wolf writes, “Driving home the size and scale of this hit, the Bank of England has said the UK is headed for its worst economic shock by gross domestic product since 1706.

I’m not exactly sure how you compare this economy with that one, but in terms of GDP, this is looking worse than:

  • The Napoleonic wars
  • The American Revolution
  • The Great Depression
  • Both World Wars

Technically Speaking

The U.S. market is showing the worst overall uptrend data since TPA began monitoring it a decade ago. The percentage of Russell 3000 stocks that are in a confirmed long-term uptrend as defined by the 50DMA above the 200DMA is at 8.99% on a weekly basis.

This is a low extreme from which we would expect a bounce, but as the Trend Barometer below shows that uptrend % number has fallen every week even as the S&P500 has rallied from its 3/23 low when the percent of up-trends was 29.55% (see table below).

Overriding everything else is what TPA said in the 4/20/20 World Snapshot and what is, was and will always be the case:

“As bad as the economy is, stocks can only go lower if people sell and the subsequent liquidations take place. The asset management industry is overwhelmingly run by managers whose mandate is to remain invested in stocks. There is over $100 trillion managed worldwide. The top 2 managers in the world are Blackrock and Vanguard. Blackrock manages most of the ETFs and Vanguard is the largest index fund.

These companies, like most money managers must follow their mandate of being invested in stocks for their investors. Money out of asset managers, not economic numbers or EPS, will be the signal that stocks are in for a sustained decline.”

So far, we have not seen massive liquidations and until we do, investment managers will do their jobs and stay invested in stocks. We are advising clients to cautiously watch many indicators, but keep a watchful eye trained for liquidations as a signal that the market will test new lows.

market, TPA Analytics: Gaining Perspective – Market Rally Vs. Depression

market, TPA Analytics: Gaining Perspective – Market Rally Vs. Depression

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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.

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