The Fake Rally is Over!

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – The bear is back on and the S&P (SPY) is ready to tumble lower and lower. Let’s discuss why that is the case. Better yet, let me share a strategy to generate profits even as stocks head lower.

(Please enjoy the latest investment insights from the Reitmeister Total Return portfolio).

That’s right. I said it was a fake rally because there was never a sound fundamental reason for stocks to rebound that much. And that’s because the more economists run their models…the more devastation they see coming our way.

Unemployment estimates range from 15% to 32.5% (Goldman Sachs & Fed models). And the President just told you to prepare for 100,000 to 240,000 deaths when we are only at 4,000. That means a LOT more pain is on the way!

Gladly we did not take the bait on this faux rally as we remained locked in with our hedged portfolio strategy. That patience paid off the last two sessions as we gained +3.56% while the S&P tumbled -6.01%.

This hedge should continue to be our friend as we likely retest recent lows and, unfortunately, even lower. We will discuss that and much more in today’s commentary.

Market Outlook

Let’s do a helpful thought exercise together so I can show you just how bad things are and why we need to continue to remain bearish.

Imagine that I told you that on May 1st there would not be a single case of the Coronavirus in the US. That we completely eradicated the disease. Would that be the end of the bear market?

Probably, but not a slam dunk by any stretch. Why? Because unfortunately in the previous 2 months there was still too much economic destruction that a recession was unavoidable.

Meaning there are too many companies on the brink of collapse, or losing too much money that will equate to serious and continuing job loss. And that equates to lower income and by extension lower spending. Meaning that even with this best case scenario, we would still likely be diving head long into an extended recession because of the damage that has already been done.

Now let’s get back to reality. We know that the Coronavirus will not be gone by May 1st…Nor June 1st…Nor July 1st.

Even if we contain it fairly well in coming weeks and months it will linger for a long time in the economy. Meaning airlines, hotels, health clubs, movie theatres, restaurants, retailers etc will continue to suffer because the potential for virus contraction in public still exists. So these industries would see better results than March and April, but nowhere near full capacity. And likely still running at a substantial loss.

That is why one of the Fed models shows up to 32% unemployment.  Goldman Sachs only sees unemployment at 15%.

Did you catch that? ONLY 15% unemployment!!!

That is several notches worse than the Great Recession. And 32% is worse than the famed 25% of the Great Depression.

Actually I don’t believe either will come true. I suspect it will turn out better than those apocalyptic predictions. But even at 8-10% unemployment we are talking about an extended contractionary period for the economy that pushes out the bottom of this bear further out in time and in depth.

How much longer? How much lower?

You knew this answer was coming…NOBODY KNOWS!

Truly that is unknown and unknowable at this time as there are no sure fire models for how/when this virus stops devastating society. And thus no way to know exactly when this bear is exhausted and ready to become the next bull.

What I am fairly confident in saying now is that at a minimum we should retest the recent lows at 2191. And probably end up below 2,000 when all is said and done…maybe way below.

Of course, I will continue to monitor the situation closely looking for when it is appropriate to change strategy. For now you understand why we are still bearish. And why the hedged portfolio is so effective in this environment.

Portfolio Update

As noted in the intro, our hedged portfolio of 8 longs and 4 inverse ETFs has performed wonderfully with a +3.56% gain the last two days while the S&P tumbled -6.01%.

Yes, it easy to appreciate the power of the inverse ETFs as they soar at times like these (like the +20.3% for TZA today).

But really I think the most special part of the hedge is how well the long stocks are holding up. For example, today NONE of our 8 stocks fell more than the S&P. Even more impressive is that 3 of them were actually in positive territory.

The impressive gains of the inverse ETFs less the very modest loss of the long stocks is what led to the +2.82% gain today alone. As you can see that is a better strategy than going to cash where breakeven is the best possible outcome.

Here are some other portfolio notes to take into consideration:

(End of Free Preview)

The rest of the commentary with insights on the portfolio of 8 stocks and 4 inverse ETFs is reserved for subscribers to the Reitmeister Total Return portfolio.

These positions have formed an effective hedge allowing subscribers to enjoy gains while the market tumbles lower. It is not too late to get on board this strategy if you have not protected yourself already.

Going forward I will look for spots to emerge from the hedge by buying more and more undervalued stocks for the eventual return to a bull market.

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 8 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.

30 Day Trial of Reitmeister Total Return


SPY shares fell $0.20 (-0.08%) in after-hours trading Wednesday. Year-to-date, SPY has declined -23.07%, versus a -23.07% 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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