Trading room commentary: April 1, 2020
Commentary: Depression? Recession? Where are we heading?
Video duration: 8min 7sec
The market is going lower
Remember I said on the 60-minute chart [last week] that I thought we had to go lower. I thought we really needed to get to this low or a little bit below, and maybe to this low, before we get an attempt at a Major Trend Reversal.
I also talked about Friday’s unemployment report [today is Wednesday]. Who cares, right? It’s going to be crummy, so nobody is going to pay any attention to it. Everybody knows it’s going to be bad, and everybody knows that there are tons of layoffs going on. Whether or not they’re in the April report or the May report, there are going to be tens of millions of people laid off. I would not be surprised if we start to get depression type of data.
A regional depression unlike the 30s
I do think we’re going to be in a depression, but I also think it’s not going to be like the 1930s. I think it’s going to be more like regional for the areas that are in depression with unemployment 25%. And I also don’t think it’ll last a long time. Officially, the Depression ended in 1932, but that’s really not true. My parents were both alive back then, and they said it was really hard through most of the ’30s. So, even though the stock market may have bottomed and they said it was really bad for a long time.
So I don’t think this is going to last like that, and I don’t think we’re going to lose 89% of the stock market. I would not be surprised if we lost 60% of the stock market by the time this is all done. But first leg down, I don’t think we’re going to go a lot lower. Maybe below last month’s low and then a bounce, and I think we’re probably going to be in a trading range.
Pandemic worse than being reported
Back in February, I wrote a weekend report, and I said that the whole pandemic thing is going to be far worse than what the press is reporting, and they’re missing the story. They’re not listening to medical experts; they’re listening to politicians. There were only 70 confirmed cases of coronavirus when I wrote that report, and I said I would not be surprised if we had over 50 million Americans infected and over a million Americans die. And I still think that is realistic.
If you think about it, we’ve got Dr Birx and Dr Fauci saying 100,000 – 200,000 dead, best case scenario. But that doesn’t make sense. A 1% death rate – so let’s say you get 100,000 people die. If it’s a 1% death rate, that means 10 million people infected. You say, wow, 10 million people, that’s a lot. Well, 10 million people out of 330 million people, that’s not even 1%, okay? [Al spoken error, 3% actually.]
Do you think the market is doing what it’s doing because of a problem that is less than 1%? Right? Do you think the market loses 35% in a month because 1% of the country might get sick? Of course not. It doesn’t make sense. The numbers that the government is giving do not make sense. So we’re going to get more than 10 million people infected. 1% of the country is not going to make the stock market sell off 35% in a month. There’s no sense to that at all.
I do think the problem is going to be much bigger than what the government is saying. I think it’s going to last a lot longer than what the government is saying. I don’t think we’ll have a vaccine until at least a year from now, so not January. Maybe April, maybe June 2021. By that time, I think there’ll be far more than 10 million people in the United States infected, and far more than 100,000 dead, and far more damage to the economy than what the clowns on television are saying. You cannot shut down that many industries for months on end, and then pretend that everything is going to be back to normal in a few months.
Emini chart commentary
By the way, we should bounce here [Al is now talking about today’s 5 minute chart], but that does not mean it’s a very good-looking buy. But we’re at the Measured Move, we’re at the Globex low, we’re getting a bear breakout below a bear channel – all those things attract buyers. Bears buy back shorts and bulls start to buy for a bounce.
US Federal Reserve and Congress
Now, the Fed (Federal Reserve, the central bank of the United States) and Congress (United States Congress) – Congress is passing stimulus packages. The Fed is trying to rescue the economy, trying to prevent a catastrophe, a depression. I think both the Fed and Congress are doing good things, okay? But you’ve got to remember their goal. The Fed is not saying “We’re doing all this stuff so that the bull market will resume, and everything will be back to normal in a few months.” That’s not what the Fed is saying.
What the Fed is saying, “We’re going to do everything in our power to prevent the economy from crashing.” Right? That’s what the Fed is saying. Their goal is not to get the bull trend to resume. When I hear those people on TV talk about that, I think they’re fools. That’s not what’s going to happen. All that the Fed is going to accomplish is they’re going to reduce the damage, okay, and slow down the damage. They are not going to fix the economy.
The Fed cannot fix the economy. They can prevent damage and they can slow the rate of damage down, but they cannot stop the damage and they cannot erase it. It’s not like you take a pill and you get better. All the stuff that you’re hearing on TV about “Is the bottom in?” – that’s crazy talk. And all this talk from experts saying, “Oh, I was around in ’87. It was a great buying opportunity” – that’s true, ’87 was a great buying opportunity, but there’s an entirely different situation. ’87 happened for no reason. It just happened.
Crash happens for a reason
This crash is happening for a reason. The market was the most overbought in history in 2017. When that happens, you’re going to get a correction that is deeper and lasts longer than your typical correction. So there’s a reason behind what’s going on now, and there’s nothing that the Fed can do to stop it. The talk on television, it’s really easy to listen to it and conclude that the Fed is going to fix things. They’re not going to fix things. They’re trying to reduce damage, okay?
The patient has cancer. They’re not trying to cure the cancer. They’re trying to make the person die more slowly. I haven’t heard a single person on television talk about that, but that’s the goal of the Fed. I keep hearing, “The Fed is going to fix everything.” The Fed is not going to fix anything, okay? This problem is a bigger problem, and it’s going to last a lot longer than what people think.
Second problem: Overbought market
And you get two problems, and that’s another thing that nobody’s talking about. You’ve got two problems. You’ve got the short-term problem, the pandemic. That’ll last a couple years. But what happens if 4 years from now, 3 years from now, we’re still not anywhere near the high? Then are you still going to blame the pandemic? No, because the problem is not the pandemic. It’s the second problem: the market was the most overbought in history, 2017, and you’re probably going to be in a Trading Range for a decade.
Price got too far ahead of fundamentals. It’s going to take more than a couple years of sideways trading for the fundamentals to catch up to price. It will take a decade, and that is the fundamental problem. That is the fundamental problem. That Buy Climax in 2017, that price had never in history been that far ahead of the fundamentals, and it’s going to take a long time of sideways trading before the fundamentals catch up to that price.
Am I right? We’ll find out.
One thing I noticed is that 10 million is about 3% of 330 million, not 1%…..so….still not large, but might as well be accurate.
You’re right and i noticed it right away too!
Thank you Al, Always good to hear your opinion.
Really appreciate your insight!
Quick questions, how do you measure/judge the market is ahead fundamentals and by how much? Are their any factors or data you specifically looking at?
You can’t measure it. It is an assumption based on the charts. We only find out if it was correct after several years. If the bull trend quickly resumes up to 4,000 – 5,000, then the price was not far ahead of fundamentals.
But there were the most extreme buy climaxes in history on the daily, weekly, and monthly charts. That makes it more likely that the price went up too fast.
It was easy in late 2017. I talked about the measures I was using. Here is one example, just before the January 2018 collapse:
Here: Buy Climaxes on Daily, Weekly, and Monthly Charts
At the moment, fundamentals do not matter. The market will be in a trading range for months. That means lots of reversals.
thanks for the analysis