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Last Tuesday through Thursday, the markets were on a tear. Action was being taken against the coronavirus pandemic, the President was signing the stimulus bill that Congress had bickered over, and Boeing Co. (BA) jumped 70.5%.
For the Dow and S&P 500, it was the first three-day win streak in months.
Then come Friday, markets tumbled. Still, the Dow was up 12.8% for the week, the best weekly result since 1938.
The big question for April and beyond is whether the winning streak of the middle of last week will carry on, or whether Friday's tumble is a sign of things to come.
Both narratives have their backers. You have the ultra-bulls on TV, in newspapers, and online saying that the worst is over, the virus isn't all that bad anyway, and so much liquidity and stimulus has been pumped into the system that will find its way to the stock market that stocks simply have to go up…
And you have the ultra-bears who say the impact of the pandemic is worse than we thought, and could get catastrophic. In their view, this isn't going away any time soon.
On each side, the believers fully expect not only to be right – but also that the market will act accordingly any day now. For the bulls, everything is OK and getting better, so markets will spike upwards any day now.
For the bears, we're on the express elevator to an 80% drop, no question about it.
But the Reality Gap here is that, while the bullish believers are convinced they have it right, so do the bearish ones.
And while those two forces battle it out, we're not going to get either of their outcomes.
Here's why…
Now Is Not the Time to Pick Sides
Rather than a quick, V-shaped recovery, or a rapid plunge to historic lows, the market will be caught between the two. It will swing up and down from day to day, interspersed with sideways trading when neither side is getting any new convincing data to back their claims up.
Traders with at least a few years under their belt might recall similar moves from 2011-2012. Then, in the lead up to and just after the downgrade of America's bond rating, markets were stuck in a tug of war between bulls and bears. And rather than prove one or the other right, markets whipsawed up and down, giving both bulls and bears cause for celebration – and tears.
In 2008, we saw something similar in the lead up to AIG's collapse. Uncertainty about just how bad the crisis was reigned, and so the markets reacted to every little bit of news, positive or negative.
Expect the same in the weeks and months going forward. We're going to see false rallies to boost the bulls, only to have their spirits be broken when the markets whipsaw down into lower lows.
The absolute best thing you can do right now…
About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.