The shares should build on yesterday’s substantial gain with a strong opening this morning. Fears of the spread and duration of the coronavirus have declined sharply, with a number of hotspots around the world having published more positive data, and there are few signs of parabolic growth in other places.
There has been a strong political motivation to project the worst results for the coronavirus in order to ensure respect for the practices of social distancing and isolation, but it now seems to be optimistic that the path to “ normal ” is not not as long as we fear.
The big jump in the market yesterday and the strong opening this morning are sure to create FOMO (fear of missing out). The only experience that many market players had with deep market remedies was in December 2018, when the pullback ended in a V-shaped movement marked mainly by an accommodative federal reserve. Given the huge amount of stimulus that is currently being created, many market players anticipate a similar recovery this time.
Those challenging a V-shaped recovery this time focus on the huge economic disruption that has occurred, the high level of uncertainty that continues to exist, and comparisons with bear markets in 2008-2009 and 2000- 2002.
The indices have not re-tested recent lows, which traditional technical analysis suggests. Supporters of the V-shaped rebound point to the massive $ 6.2 trillion stimuli and the fact that there are still more on the way. If there is some control over how the coronavirus will progress, then it should be clear to navigate higher.
Several times in the past decade, I have felt that a V-shaped move is unlikely and has turned out to be wrong. It can never be completely counted, even if the odds seem unlikely.
The big question is what action to take now. If you have remained heavily invested, you will feel relieved that the losses have been reduced. It may be a good time to reposition in other stocks that may offer more opportunities.
If you have high levels of liquidity like I am, then the focus is on finding individual charts that offer prudent entry points. Due to the high level of volatility and erratic movement, there are very few graphics that are properly configured. Keep in mind that there are few benefits to buying stocks rather than indices when the stock is correlated. Individual stocks can offer more “beta”, that is, a movement in tandem with the indices. However, there is not a lot of alpha, which refers to the ability of an action to move against global indices. Stock selection works best when there is a high level of uncorrelated movement.
If you are making entries at this point, the focus will be on managing exchanges. Although the graphics do not look very attractive, that does not mean that you still cannot control the risks with careful business management. If you are a buyer in this force, the support levels should be obvious stopping points as the V-shaped movement collapses. Risk control is essential, especially since the continuation of a V-shaped movement presents a higher level of risk.
It is very easy to feel that you are missing when there is a strong counter-trend rebound of this type, but that is the nature of a bear market. The possibilities of creating longer term positions are still important, but they will require patience as the chart develops. The best time to buy the market is when there is a bull market. It is still a bear market and it will continue to be for a while, even after it has formed a holding trough.
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