- The bulls capitulated on March 23.
- Now, the bears are capitulating.
- The bottom deniers see the DJIA going back down below 18,200.
- The "double-bottom" crowd sees a re-test of the March 23 low.
- While they are arguing with each other, the market has made a V-shaped recovery.
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While most individual investors are focused on yesterday, today and tomorrow, the market is far ahead of them, looking at least three to six months down the road. How else do you explain a 35% rally in the Nasdaq and a 33% rally in the S&P 500 while the vast majority of the U.S. economy remains shut?
On March 18 of this year, I surprised a lot of readers when I wrote that "we are not out of the woods yet, but get ready." Get ready for what? At the time the S&P 500 was trading at 2,280 and it was down some 33% from its Feb. 19 peak of 3,393. The economy was almost completely shut down, and it appeared that there was not any light whatsoever at the end of the proverbial tunnel.
I wrote that this was not another 2008-2009. That sell-off lasted for 16 months as the great recession set in. Earnings for the S&P dropped for almost 18 months and led the market lower. I also said that this current hit to earnings would be for several quarters, and the hit to our economy also would be temporary. After all, that's basically what happened in China. Why should it be any different for the United States?
Judging by the comments that came in on the article, I was in the vast minority at that time. Most were not seeing the light at the end of the tunnel that I was seeing. But I felt very strongly that the market would begin to rebound soon, well in advance of the actual recovery in the economy. That's the way the market works. It looks many months into the future.
That evening after that article was published, I looked at about 1,000 stock charts and I was shocked by what I saw. Boeing (BA) had hit $100 per share and the federal government was promising the company financial help. I felt strongly that a Boeing bottom would help put in a DJIA bottom. I also saw numerous individual stocks that were in the early stages of putting in bottoms which also strengthened my thesis.
I learn much more by looking at 1,000 stocks than by just looking at a market. At this moment in time, it has never been more true that it's a market of stocks and not just a stock market.
The market bottomed just four days later on March 23 when the DJIA hit an intra-day bottom of 18,200. That being the bottom is still a subject for debate, but I firmly believe that was the bottom of this current cycle. That was the capitulation day that we had been waiting for. Bottom deniers need a close in the near future of below 18,200 for the DJIA. That seems like a clear long shot now with the DJIA closing in on 24,000 at the current time.
For the DJIA to hit a new bottom in this cycle it would have to go down over 5,400 points in the near future. I could maybe see that if the coronavirus really flared up once again, but that too seems like a long shot with summer weather now beginning to hit and the virus basically running its course.
The w-shaped "double-bottom" crowd would need for the DJIA to go back down and re-test its old low. This seems a little more plausible, but it's still a long shot at best. This crowd would need to see a reason for the economy to close back down in the near future after it begins to open. Can you imagine someone actually rooting for this scenario?
I remain firmly in the "market bottomed on March 23" camp. I went even further than that in my March 27 article that was titled "A New Bull Market is Being Born." This article had 644 comments that ran almost unanimously against me. This was a good sign. During my over two decades as a professional analyst and money manager, I have found that one of the most reliable sentiment indicators is that from the crowd of individual investors.
You can read the comments below that article on what the crowd was thinking at the time. I have to believe that the vast majority of comments came from individual investors. I stated in that article that Boeing was now up 80% from its bottom and the market was starting to string together consecutive days of up moves. This was not a good sign for the bears, but they are a stubborn bunch. The vast majority disagreed with me.
For some reason, they will proudly state that they are all in cash after missing a big move in the market. It's like wearing a badge that they are proud of. "No sir, I am not getting sucked in by this Bear Market" they will state and go on to criticize those profiting wildly by this "Fed-induced" bear market rally. Well, that's what makes for a market, a difference in opinions.
I know many investors that proudly stayed on the sidelines during the recent 12-year record bull run because it was Fed-induced and nourished by companies buying back their own shares. Does your 401-K really care? Earnings are earnings. Stocks and indexes follow earnings. As long as earnings are increasing stocks and indexes follow along like a school of fish chasing bait.
That's why the market is moving upwards now. It sees earnings bottoming in Q2 and Q3 of this year and then starting to recover in Q4 of this year, and Q1 of next year. That seems like quite a way down the road, but then again that is where the market is looking, while the average individual investor is looking at yesterday, today, and tomorrow.
The definition of a bull market is a primary uptrend in the chart of a major index and earnings that are expected to grow. For the first time in 12 years, earnings for the S&P will be lower this year than in the previous year. The index earned a record $163.34 last year. Now that the dust is starting to settle on this year, the consensus estimate has plunged to $138 per share. Hence the end of the 12-year bull.
But the bear was short-lived as we are now looking at a solid gain in earnings in 2021 vs. 2020, and continuing to grow further in 2021. Why is it deemed so ridiculous to state that a new bull market is being born? The U.S. indexes are back in an uptrend, the coronavirus is receding, the U.S. economy is now beginning to open again, and earnings are expected to begin growing again in 2021.
This is the very definition of a new bull market. No wonder the bears are freaking out and running for cover! Just as the bulls capitulated back on March 23, the bears are now in full capitulation mode.
This fact shows up all over the place in individual stocks. Shopify (SHOP) is exploding to new all-time highs while the shorts scramble. I wrote about SHOP back on Aug. 2 of last year. I called in one of the best growth stories in the market today.
Check out the alpha that this stock has delivered since then. Lastly, check out my target price on the stock at the time. Did it hit it? We are currently working on an update to that article as SHOP had a monster EPS report this past week.
DexCom (DXCM) is breaking out once again to new, all-time highs. This stock is one of the biggest winners that I have ever found during my 23 years as a money manager. I have written about it numerous times here on this site. You can check out my most recent article about it here.
Check out the explosive move being made by ServiceNow (NOW). This has been one of my largest holdings for a long time. I last wrote about this mega-growth stock back on Sept. 4 of last year. How much alpha has this stock delivered since that article? We continue to own it.
I also currently own several other stocks that I have not written articles about. DocuSign (DOCU) is one of those "work-from-home" plays. It's breaking out to new highs.
Sea Ltd. (SE) is one of the stocks that I currently own in my most aggressive Emerging Growth portfolio. This is one of the four portfolios that I manage. It's currently breaking out with a vengeance. I could show you numerous more articles like this, but this should do for now.
The tone of this article may sound a little arrogant, but how else am I going to get your attention? I'm really not an arrogant kind of guy. I have spent the last two decades plus of my life observing the markets and individual stocks. I have followers all over the world that respect my observations. They claim that they have made some very good money by following me. That makes my work all worth it to me.
I'm here once again giving you my honest opinion of what I'm observing. You can blame the Fed, point a finger at stock buybacks, deny market action, or refuse to see what numerous individual stocks are screaming at you right now.
Yes, at a forward PE ratio of 21X, the S&P 500 is a bit expensive right now, but I don't buy ETFs or indexes. This more than ever is a stock picker's market and I 'm still finding many that fit my strict criteria of momentum and value.
In conclusion, the market has put in its bottom, a new bull market is now underway, and a good stock picker can do quite well in an environment like this. In fact, April was the best month in the market since 1987. I know, because we were in it.
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This article was written by
Bill Gunderson is CEO and Chief Market Strategist at Gunderson Capital. He is a professional money manager, former research analyst, author, and media personality with over 24 years of experience.
He runs the investing group Best Stocks Now! Premium. The group offers users: daily commentary and forecasts for the markets, live buy and sell signals, 4 portfolios, a daily 45-minute show, a weekly in-depth market newsletter, full access to the Best Stocks Now App that Bill invented, and chat for discussion and direct access to Bill for questions. Learn More.
Analyst’s Disclosure: I am/we are long SHOP, DXCM, SE, DOCU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.