The Aden Forecast: Uncharted Territory

06/23/2020 5:00 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Despite all the negatives facing the stock market — like the worse economy since the Great Depression, soaring debt, political unrest and more — stocks have continued rising, notes Mary Anne and Pamela Aden, editors of The Aden Forecast.  

Nevertheless, under these uncertain and unprecedented circumstances, we’ve taken a cautious position. We feel it’s warranted because we’re in uncharted territory and anything is possible. 

As our late dear friend and legendary technical analyst Richard Russell pointed out, “A bit of history... following the 1929 crash, the market turned up in November of that year and a big upside correction advanced the market to an April 1930 recovery high.  

“Volume was greater on the correction into the 1930 high than it was during most of 1929. Investors piled into the market again,  believing that the bull had revived. (Note: The strong up move lasted five months.) 

“But then in April 1930, the stock market turned down again, and the rest is history. Reporting on the situation, Dow Theorist Robert Rhea wrote that far more money was lost during the rest of 1930 than was lost during the 1929 crash.” (Note: The market plunged 86% from 1930 until 1932.)

At this point, we don’t know if we’re in for a 1930 repeat, but all things considered, it’s a possibility and the stock market is vulnerable. We feel the stock market is high risk and it’s much safer to stay on the sidelines. 

We can’t forget the reaction of the markets has been aggressive to the liquidity injections coming from the Fed and the ECB. But the weak fundamentals will likely prove to be more powerful. 

A potential vaccine that will eradicate Covid-19 is one of the big uncertainties hanging overhead. No one knows what’s going to happen next. The main point is, Covid-19 is the biggest wild card we’ve ever seen and it’ll continue to be a major influence for probably a long time to come. So stay tuned.

Meanwhile, the stock market is overvalued, earnings are down, the VIX, or fear, index is rising, and it’s high risk. That’s why we continue to advise staying on the sidelines for the time being. Yes, we might miss out on some short-term upmoves but the downside is looming and at some point, which could be sooner than we think, the market could fall sharply again. 

Please keep in mind, we’re in uncharted territory.  What’s currently happening is unprecedented and anything is possible.  As time passes, our view is that this virus and the economic fallout is going to last longer than we originally thought. That’s not going to be good for business, or jobs, or a quick economic recovery. We hope we’re wrong, but that’s the way it’s looking.

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