As for the overall market (SPY), Monday was an interesting rally based on the premise that Europe is seeing a decline in the daily rate of new Coronavirus cases. That was a ray of hope the same could happen in the US leading to the bounce.

I have a hard time holding to that same optimism because I don’t believe this is a proper assessment of how much damage has already been done to the economy that will mean weaker economy…lower earnings…and lower stock prices.

Nor does it take into account that a reduction in cases is not the same as the removal of risk from the population. And thus, still people should expect at least another 1-2 months (and perhaps 3-4 months) where we still spend the majority of our time out of public places. That equates to…

Less spending > lower corporate profits > more cost cutting > more layoffs > lower income > less spending…and the cycle continues grinding lower into the future until it is played out. And rarely is it played out this soon.

That is what Cramer was getting to in this article as the focus on the Coronavirus peak is missing the point about the problems with employment and how that will weigh more heavily on stocks overtime.

And it does have some parallels back to the bear market of 2008/2009 where we can say that the Financial Crisis had an epicenter in September 2008. And even after the big tumble there were 2 serious bear market rallies (+18.5% starting October 27^th and then again +24.2% starting November 20th). But both of those rallies were ill fated as we did wind up at a much, much lower bottom later in March 2009.

This happened because the full extent of the economic pain was not truly appreciated early on. It takes time to see the downward cycle take full effect. And what that means for jobs>sales>profits>share prices.

And given that we are only 1 month into this cycle, I don’t think that the market has properly discounted the full extent of the pain. Which is why for now I am holding firm with the bear market premise even as some would say it technically becomes a new bull market with a close above 2684 (20% bounce from the lowest close of 2,237 on 3/23).

Is it possible that the new bull market is for real and that the bear is ending now? Unfortunately the answer is yes. That is possible. And at a certain point I would have to cede to the price action as it does have a way over time of swaying sentiment of the businesses and consumers that does lead to more spending and improving economy.

Meaning that sometimes the economy moves the market. And yes, sometimes the market moves the economy (that is a much longer story for another day, but the almost bear market that was narrowly averted in Q1 of 2016 was a prime example of stocks leading the charge back before the fundamentals truly improved).

As shared in the RTR webinar yesterday finding bear market bottoms is tricky business. There are many early, and many false rallies that look like bottom before reality smacks investors in the face again leading to lower lows. And often that happens 2, 3, 4 or even more times before a true and lasting bottom emerges.

My hope is that a touch more patience on our part will save us from joining a false rally that fizzles out only leading to more pain as stocks head lower.

What to Do Next?

If you believe this rally is for real, and the next bull market is coming to life now…then stop reading here because we are not on the same page. And I wish you the best of luck.

However, if you suspect this rally is too good to be true and want advice on a strategy to produce profits as stocks go lower then read on…

Right now I have created an effective hedged portfolio of 6 stocks and 4 inverse ETFs that is reserved for subscribers to the Reitmeister Total Return newsletter.

These positions have formed a hedge that allows investors to enjoy gains while the market tumbles lower. And actually this recent false rally has created a great opportunity to get on board this strategy now before the next leg lower.

I know its crazy out there. And I am trying my best to help investors make sense and profit from the situation. The best way for me to do that is give you 30 days access to the Reitmeister Total Return.

This is my newsletter service where I share more frequent commentaries on the market outlook, trading strategy, and yes, a portfolio of hand selected stocks and ETFs to produce profits whether we have a bull…a bear…or anywhere in between.

Just click the link below to see 6 stocks and 4 inverse ETFs in the portfolio now, and all the future trades as we find bottom on this bear and the new bull emerges.

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SPY shares were trading at $271.96 per share on Wednesday afternoon, up $6.83 (+2.58%). Year-to-date, SPY has declined -15.01%, versus a -15.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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