Weekly Perspectives: The Great Disconnect

Weekly Market Outlook For May 11 – 15 – The Cognitive Dissonance Between The Economy + Stock Market
May 9, 2020
Weekly Market Outlook For May 18 – 22 – The Markets Are Going Up Whether You Agree Or Not
May 17, 2020
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Weekly Perspectives:   The Great Disconnect

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Happy Mother’s Day!

Here is your weekly newsletter — perspectives on trading and financial markets.

Click here for last week’s edition.


The Best of Times and The Worst of Times

The employment report on Friday came out as bad as expected – 14.7% of the American workforce is now unemployed.

This interesting chart from Andrew Van Dam shows that this is the highest unemployment rate since the Great Depression. 

130 years unemployment data

Source:  @adrewvandam 

By all appearances 14.7% unemployment can’t be good for the economy, and most people would think that the stock market would be struggling in the face of such a number. 

But the SPY has now risen over 34% in the 33 trading days since the March 23rd bottom. 

The market has had a massive decline (like none seen since the 1930s), followed by a massive rally (like none seen since the 1930s). We have unemployment like none seen since the 1930s.

Outsized declines and outsized rallies could very well persist for many months, if not years, to come.

Being able to remain nimble, open-minded, and adaptive to changing conditions may be more important over the next several years than it has been for a long time.


The Cognitive Dissonance Between The Economy + Stock Market 

Last week I posted the following –

“That being said the week ended with all the indices posting shooting stars so the short-term weakness could continue however so long as the higher timeframe remains up expect to see dip buyers in full force.”

What we saw this week were the North American indices opening up with a gap to the downside only to be met by a rush of buy orders as the buyers quickly overwhelmed the sellers then proceeded to rally for the rest of the week recouping all of last week’s losses and then some.

The markets are now trending strongly to the upside and by all appearances, the markets appear to be heading back to all-time highs with the QQQ’s just 5.5% away from those recent ATH’s.

In this trading environment, we’re seeing a real cognitive dissonance between what is happening with the real economy and the stock market.

The stock market has been on a major bull run even though most businesses in North America remain closed. Cynical investors may wonder why we even need businesses to re-open?

In this week’s video I discuss:

  • the difference between the economy and the markets
  • the importance of detaching from personal opinions around matters of the economy and fundamentals and not letting personal biases affect your ability to see the markets clearly
  • Monday’s strong reversal signal that led to the multi-day rally and an examination of what that reversal looks like from the perspective of short-term price action

Now watch this week’s Weekly Outlook video to see the setups and levels we’ll be watching as well as the technical outlook for the VXX SPY QQQ IWM DIA EEM TSX TLT GLD MGC BTCUSD EEM and more for the week of Weekly Market Outlook For – May 11 – 15, 2020.


What Happens to Stocks After a Big Up Month?

Interesting stats from A Wealth of Common Sense showing that 13 out of the 20 biggest up months occurred just before, during, or in the aftermath of the Great Depression.  

One hard part about investing during such highly volatile periods is you can talk yourself into just about any scenario.

Sometimes these huge bounces are the real thing. Other times they’re a mirage.

One of the things I’ve learned from studying historical downtrends and volatile markets is they tend to open you up to a wider range of outcomes, both to the downside and the upside.


Weekly Perspectives: The Great Disconnect

by editor time to read: 3 min