Bear Markets End When Nobody Is Watching

Don't let this rally fool you... Bear markets end when nobody is watching... The bad economic news has only begun... The doctor is in (again)... Where tech is keeping things alive... Four personal finance basics...

Don't let this rally in stocks fool you...

That's the message from many of our editors over the past few days...

For instance, we shared Ten Stock Trader editor Greg Diamond's thoughts in detail in yesterday's Digest...

Based on the market's technical indicators, Greg sees similarities between today's market environment and the crashes of 1929 and 2008 – when stocks each saw double-digit pops before heading to their ultimate bottoms...

Late yesterday and today, even as the major U.S. indexes each neared a 20% rally since last month's lows, Greg urged continued caution...

We either just witnessed the FASTEST bear market in history (-38% in 27 trading days) or the bulls are about to get slaughtered with another massive decline coming up. History is pointing to a slaughter...

Remember the market is still making a series of lower highs (it's a downtrend) despite the big rallies – that is all they are, rallies – within a downtrend.

Greg's point is clear...

Based on his research and analysis, he believes this bear market rally "will likely end this week." He will be keeping an eye on the 2,715 level in the benchmark S&P 500 Index moving forward...

If the S&P 500 closes above that level multiple times next week, Greg said that would change his mind about whether we've seen "the" bottom already.

But for now, he expects more downside. And according to Greg, history has shown that "bear markets don't end on good news."

Our colleague Dr. Steve Sjuggerud said the same thing in a different way recently...

In his latest issue to True Wealth Systems subscribers, sent last Thursday, Steve said...

When the market is close to hitting bottom, people are beyond disgusted with stocks. They don't want to talk about them, and they don't want to log into their brokerage accounts.

But the disgust isn't the bottom – that happens on the way down. The true bottom happens when people reach a new emotional low – "apathy."

Steve detailed two ways to know that "you are nowhere near the bottom"...

1) When the stock market's ups and downs are on the daily news every night, and 2) when mom-and-pop America is still talking about the stock market. As Steve said...

I am seeing and hearing both of those things now, to a degree I haven't seen in a long time. More "regular" folks in my hometown have gone out of their way to ask me about the stock market in recent weeks than any time in decades.

These folks – many of whom have never bought stocks before – are trying to time the bottom.

It's bizarre. We are in a terrible moment in history. Many people will die, and the economy is likely about to enter the worst recession in my lifetime... Yet many regular folks are buying stocks.

This is why Steve, who acknowledged himself as "Mr. Melt Up" in the issue, said he's betting against stocks in the short term... And he recommended a way to profit on this downside.

In the meantime, the bad economic news has only just begun...

We might be starting to get "less bad" news regarding the spread of COVID-19 in the U.S. By that, we're talking about potential "curve flattening" numbers...

Just today, officials in New York reported the largest single-day increase in deaths (to more than 700) while also saying new cases are plateauing. That report follows the trend we've seen in China's Hubei province and other global hotspots for the outbreak... Yet there's still a lot we don't know about the course of the virus.

Either way, as far as the market is concerned, the bad economic news in the U.S. has only just begun... About 10 million Americans without jobs and counting is the biggest headline, and that may just be the start...

Companies begin reporting their first-quarter earnings in earnest next week. And we don't know anybody who expects the numbers to be good...

Those lousy numbers could lead to another big leg down in stocks, as Stansberry NewsWire editor C. Scott Garliss has told us repeatedly over the past few weeks.

At the same time, though, President Donald Trump and the federal government have indicated they'll do whatever it takes to treat the damage COVID-19 has done to the U.S. economy.

The doctor is in (again)...

Retirement Millionaire editor Dr. David "Doc" Eifrig and analyst Matt Weinschenk checked in last week with another special COVID-19 briefing to cover the big topics in nuanced detail...

You can watch their full video for free right here, and we urge you to check it out. As Matt said during the conversation with Doc...

I'm more concerned with how it's going to come back, and that's a much harder question to answer... I think we're going to see a 5% quarter-over-quarter decline going into [the third quarter of 2020]...

[But] if you are looking at your portfolio and you're deciding what to do, you don't need to say, "OK, it's going to be..." You just need to know that things are going to get worse.

You don't need to decide now, "Well, I predict it's going to bottom in five months or eight months." All you need to know is it's not now... I don't know when it will turn around, but I don't think we've seen the worst of it.

Matt also explained that the assets that have rallied the most recently are ones that have been supported by the Federal Reserve – like investment-grade bonds, and indirectly, "the big large-caps that might have investment-grade ratings on their bonds."

Riskier assets like small-cap stocks have rallied as well, but they've lagged the S&P 500. According to Matt, that's another indicator that the market has room to run lower...

We did have a liquidity event, that sort of has passed, [and] people aren't doing the same amount of forced selling, but there's not a lot of risk appetite out there in the market, which is when the market really starts to rally.

Given that the riskiest things like small caps have not rallied so much, that proves to me that we haven't gotten to the bottom yet in stocks.

Doc also detailed why this rally may be short-lived...

And it's a lesson that comes from being a long-time student of the market. From Doc...

You get this buying that comes in, but because the people who have been saying "not going to sell, not going to sell, not going to sell" haven't sold, they're not going to sell on this up move because they're hopeful now that this will go back up. And so that moves up fairly quickly...

That's because there are no sellers. Limited buying can move markets really, really quickly. And those people, they have very, very, very, very short-term plans. And so if they have to, for whatever reason, start to sell capital, calls, leverage... watch how fast this thing drops.

According to Doc and Matt, if you're looking at stocks right now, you want to look at high-quality, dividend-paying stocks that you would want to hold even if the market experiences another 20% or 30% drop from here.

There will be a time to get into risker assets, but now is not that time. And as always, we remind you to be mindful of your asset allocation and diversification.

The places where technology is keeping things running...

Switching gears to a slightly smaller-picture theme in play today, let's look at how technology is keeping entire industries alive...

For instance, how many Zoom (ZM) calls have you had with co-workers or friends lately? Or how many online grocery orders have you made recently?

Extreme Value analyst Mike Barrett recently sat down with our colleague Jessica Stone for a video interview on this topic...

They chatted about how COVID-19 has accelerated the use of technology and automation in certain sectors like restaurants and call centers, and how these changes might stick around long term...

Mike also shared an interesting nugget of information from Germany... McDonald's (MCD) has agreed to essentially share 300 laid-off employees with discount-grocery chain Aldi until things return to "normal" in that country.

Click here to hear Mike's conversation with Jessica. And be sure to subscribe to our YouTube page for more video content from Jessica and all of our editors in the coming days and weeks.

Finally, share the good word...

We'd be remiss if we didn't pass along a recent bit of timeless advice that our friend and Empire Financial Research founder Whitney Tilson recently shared with his readers...

Like Steve, Whitney also said he has heard from a number of friends – folks who aren't investors or businesspeople – over the past few weeks who are wondering what to do with their money.

In his free Empire Financial Daily newsletter last Wednesday, Whitney said he shared the following four points with everybody. (They might be useful for you to share if anyone asks, too.) As he wrote...

1. Make sure you're living beneath your means, which for working people simply means spending less than you make (after tax), year in and year out. This means you're a net saver.
2. The first savings each year should be from maxing out on retirement plans like IRAs and 401(k)s, especially if there's an employer match. The best way to do this is to have a portion of your paycheck automatically deducted.

3. To invest your savings, if you want to keep it super simple, just have all of the amount withheld from your paycheck automatically invested into an index fund. But personally, I set some of it aside and pick some stocks because I think I can do better than average. You want to do your investing in a tax-free account so you don't pay taxes on your gains each year... Invest your taxable money in tax-efficient index funds – my favorite is the plain old S&P 500 Index.

4. Pay off all high-interest debt like credit cards – even if you have to borrow money from a family member or friend. If you don't, you're almost certainly going to be trapped in a terrible spiral of outrageous fees and interest payments. (Of far lesser importance, take advantage of today's ultra-low rates by refinancing good debt like your mortgage.)

If you do these things, you're much less likely to need to rely on anybody else, Uncle Sam included. Speaking of that, has anyone gotten their CARES Act direct deposit yet?

New 52-week highs (as of 4/6/20): Dollar General (DG), DB Gold Double Long ETN (DGP), and Polymetal International (POLY.L).

"Hi, love your reports, just couldn't believe what was reported [in yesterday's Digest] about the increase in traffic at Public Parks.

"I recently viewed a video of a research by some scientists in Japan showing that micro-vapors from our mouths can float in the air, around the area, for up to 20 minutes, and it's only from someone making the 't' or other hard consonants' sounds, not even from a cough!

"These people at the parks are putting themselves and their loved ones in jeopardy, especially if they might be downwind of someone who has unknowingly contracted the virus.

"That can really unduly increase the stress on our medical professionals, who seem already overwhelmed! Just something to consider." – Paid-up subscriber Rodney Y.

Corey McLaughlin comment: That was the one piece of data from Google's "Mobility Report" that surprised us, too. And officials in the city of Paris seem to agree with you...

Authorities in the city banned daytime outdoor exercise today as the virus continues to spread in France. The number of deaths in France totaled more than 830 in a 24-hour span from Sunday into Monday, a daily high since the outbreak began in January.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 7, 2020