Entering text into the input field will update the search result below

What Comes After The 40% Surge


  • The S&P 500 has skyrocketed by 40% in roughly 5 weeks.
  • There is no shame in taking profits after extraordinary gains in this market.
  • Volatility should continue to provides significant opportunities for active managers.
  • Despite "some" uncertainties surrounding stocks, there are some remarkable bright spots in the market as well.
  • This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »

Image Source

The S&P 500/SPX (SP500) has appreciated by about 40% since its mid-March bottom.

Source: StockCharts.com

Why does this market continue to climb higher? After all, this is with the U.S. unemployment rate approaching 20% and with riots raging across the country. Furthermore, 40% rallies in a 5-week period is not a typical phenomenon.

Will the SPX continue to go higher?

I think so, but "only" to around the 3,150 level. It's likely only a matter of time before stock prices become more reflective of the real economy. Continued coronavius disruptions should contribute to an unpredictable and unstable economic environment going forward. Furthermore, technical factors suggest that the SPX will get quite overbought if it reaches my higher-end target of 3,150.

We can already see the RSI well above 60. Elevating the market to 3,150 should put the RSI firmly in the critically overbought category (70-75).

Therefore, it seems quite plausible that we will see choppy, volatile price action for some time in the SPX as well as in most equities in general. In fact, the SPX could potentially retest the mid-March lows, or roughly around the 2,400-2,500 level, before a W-shaped bottom is put in later this summer.

No Shame in Taking Profits

There is no shame in taking profits in any market, but especially in this one. In this uncertain atmosphere, it is better to lock in solid gains rather than watch them decline or even disappear completely (in a worst-case scenario). Furthermore, there is always the option to buy back into a stock at a lower level. Therefore, after abnormally sharp profits in several sectors, we recently decided to realize some profits and do some re-balancing in our portfolio.

Recent Positions

Banks - This group was enormously oversold and was selling at a remarkably cheap valuation relative

Want the whole picture? If you would like full articles that include technical analysis, trade triggers, portfolio strategies, options insight, and much more, consider joining Albright Investment Group!

This article was written by

Victor Dergunov profile picture

Victor Dergunov is an independent investor and author with 20 years experience. He preaches diversification and shares investment ideas across all market sectors. Victor aims to help readers build portfolios that perform well in all economic conditions.

He runs the investing group The Financial Prophet where he covers all market sectors and shares strategies for well-diversified investing. Features include: the All-Weather portfolio, trade alerts, technical analysis, daily reports with his latest updates, covered call strategies, and direct access in chat. Learn more.

Analyst’s Disclosure: I am/we are long DIVERSIFIED PORTFOLIO. 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.

I am/we are long assets mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. 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.

Recommended For You

Comments (317)

GameBuzz profile picture
Thanks for noting the GSM abbreviation this time. New readers will appreciate it. (Every article is someone’s first.)
This week is profit taking week, I plan to make a nice tally, 25% or so.

techy46 profile picture
The 20% drop WWWWW !
The bull still has legs to run for a few more months. Then the election risks and Democrat control of government and their high taxes and stock market hostile policies will kick in and a sell off will happen before November. Get out before then. It's the best advice you'll get all day.
Ta0 profile picture
Wouldn't it be a great time, after the crash, to rush in and buy at rock bottom prices, all the great companies? Keep cash ready.

My wonderful dog was murdered by a car when I was 8.
I cried an entire day.
SilverSun profile picture
I am a dividend investor. Stock price increases are of course very welcome, but I am increasingly considering selling most positions that covered in 3 months my year dividend projection income. I ve made some considerable profits in the last months.

The risk is that I might lose a possible bull market craze. However, I think that it might be better to put today's profit in a market that has stabilized (vaccine, treatment , who knows), probably at a higher valuation, than risking probable losses.
Illuminati Investments profile picture
Sell some calls on those positions (if you have 100 share increments).
More of that profile picture
Then you will know that dividends are likely to be pressured for some time as earnings will be down in most cases. It really depends upon what companies you hold.

Demand : not so many will want to fly, not so many will want a cruise, not so many will go to restaurants, not so many will want a package holiday, not so many will go to the gym, not so many will go to the spa, ... not so many will want to make big risky purchases, ... Everyone I know with money is cutting back and acting cautiously. The only people that are not acting cautiously are the sock puppets who are busy pumping stock markets.

Productivity: downsizing and social distancing have negative impacts. I have 2 clients who are not bothering to restart . They need 80% seating capacity to keep their restaurants open.

Insolvency: there is no escape that many businesses will fold. Let's hope that debt defaults do not spiral and create a domino effect.
Donggle profile picture
@SilverSun If you are selling to protect principal, you are not a dividend investor.
Gordbuffett profile picture
As of last week, 94% of stocks in the S&P 500 were above their 50-day moving average. That is the highest level in 20 years. Don’t fight the tape. 94% is by definition very overbought, so that suggests some consolidation is in order in the coming weeks. But overbought in a bull market is something entirely different than overbought in a bear market rally.

Meanwhile, the Fed continues to pump liquidity into the market, with a promise to do much more if needed. Don’t fight the Fed. The Fed’s balance sheet is now $7+ trillion.

Fundamentals are in the tank, technicals suggest very overbought.

But here’s the bottom line: Don’t fight the tape and don’t fight the Fed.
Diesel profile picture
Fed's balance sheet will soon pass $10 trillion but it's no big deal. Keep the party going baby.
Ta0 profile picture
Damned if we do and damned if we don't. What the hell else do we do??? 😵🥴
TaiPan profile picture

Exactly. And I heard this type of talk when quantitative easing kicked in back in 2009 -- dire prophecies of inflation and stock market crashes. Neither happened.

So many analyses seem clever, thorough, and wrong. Don't fight the tape, but put stop limit losses in place in case you're wrong.
Green Jacket profile picture
From now on everybody is " chasing the market " . If you are not a professional day trader the market can burn you. Both, bears and bulls, will prove to be right but at different times.
Benjamin Graham Cracker profile picture
I would say the only way the market burns you is if you're an active trader. Otherwise, doing nothing at all is the best trade you can make. Buy more when the VIX is high and all those "traders" are filled with fear of losing their jobs (chasing anything that works). Easy.

Day traders just provide liquidity for long term investors.
Ta0 profile picture
@Benjamin Graham Cracker
But wouldn't a crash in the market, caused by a second great depression, also affect sleeping long holders? It's not completely risk-free, even if you do nothing.
@Benjamin Graham Cracker
All the people who got scared when this virus crash hit, and sold out their positions at a big loss, are now ready to buy back in with their dwindled resources at higher prices than they sold at. They managed to lose money when the market went down, and when it moved back up without them.

Those who had faith in their investment strategy will find themselves where they started before too much longer, in most cases, plus possibly with additional dividend-reinvested shares at the lower prices.
"In fact, the SPX could potentially retest the mid-March lows, or roughly around the 2,400-2,500 level."

Of course it could -- almost anything is possible. But with the Fed backstopping almost every asset class and assuming we don't have another major, exogenous, negative event, how likely is it?
Green Jacket profile picture
@toromi Japan has been printing money and pumping the market for 20 years and whoever was invested in Japan made 33% in Japanese Yen, but lost 80% in gold terms . with the Nikkei stock index at 15,000 in year 2000 you could buy 53 oz of gold. now with Nikkei at 20,000 you only can buy about 11 oz of gold.
With the Dow Jones at 11,000 in year 2000 you could buy 38 oz of gold , now with the Dow jones at 25,000 you only can buy 14 Oz of gold.
Money printing is ok to keep people busy but not for investors .
Thanks for a good article. But can you really neglect the actions of FED? Without FEDs actions, the stock market would likely be close or even below the MA50 (of that in such a case).

It is nearly always a good idea to look at the technicals, but dont you think that if the stock market starts dropping again, the prices will again (and at a much faster rate) be manipulated by FED?
I find it odd to recommend taking profits when stocks fell 30% before this remarkable climb back which effectively takes back to base. As long as one has cash on the side it is surely better to Hold for the next sign of double dip and begin to increase the holdings as it drops again.
Great if all that active positioning nets one alpha.

How many really do it well over the very long-term?
Sundance Utah profile picture
Doesn't matter what others do, only what you do.
5ofDiamonds profile picture
Goldman Sachs predict SPY to oscillate between 2750 and 3000 this year. I do plan to buy with SPY under 2800. Meanwhile, I will selectively buy businesses as they report Q2 results @Victor Dergunov I do think that Q2 results when announced will create some buying opportunities.
"There is no shame in taking profits after extraordinary gains in this market."

Trust me, you'll feel plenty of shame when the market is up another 10% by Friday. Today was a great day to take advantage of the pullback in DKNG and GAN, for they will be higher tomorrow and even higher by the end of week. Tomorrow is a good day to pick up CRWD, ZM and ZS at market open and ride them higher to close.
WeC profile picture
Capital preservations supersedes gains in any investment playbook.
Looks like everyone and their mama is buying stocks because it will go up... Chill out build cash and wait for 2nd quarter, then 3rd and 4th... It will drop.... This will be the real fireworks...
All the smart guys have been wrong about the stock market for months. Only the idiots have been correct.
Yup, idiotic me on my idiotic yacht with the idiotic helipad.
Bottom line: As long as one makes money and can do it consistently over the long-term, all's good. It doesn't matter if one is smart or not so smart. Just like it doesn't matter whether this is a bull market rally or dead cat bounce.
if you said market is in ATH with 40 million unemployment in anytime of US history, yes, you will be believed an idiot. but Fed makes idiot win. in my opinion, JPowell is due for an impeachment for creating unprecedented market bubble by destroying US economy fundamentals.
GE Recovery Underway According to Global Equities Research -- Market Talk
BY Dow Jones & Company, Inc.
— 10:26 AM ET 06/02/2020

10:26 ET - General Electric's (GE) business has hit bottom and recovery from the coronavirus pandemic is underway, Global Equities Research says. The conglomerate has around a $400B backlog, which makes the current stock price "very inexpensive." GER keeps a $21 price target, noting that GE deliveries and installations are restarting, as well as bidding on projects and deals. The research firm tells WSJ it doesn't see signs of a second wave of Covid-19 that could disrupt GE's recovery, or any other major risk for the company at the moment. GE rises 4% to $7.03. (paulo.trevisani@ wsj.com; @ptrevisani)

(END) Dow Jones Newswires
06-02-20 1026ET
Copyright (c) 2020 Dow Jones & Company, Inc.
team Gabe profile picture
could be a good time for hedging
Don't expect a pullback. Everyone is barking the same story which is why it won't happen for a while. The Fed is back stopping the market and essentially removing market risk with QE unlimited. If the market goes down the Fed promised to support. Better get on the train before it takes off because it can't coming back for awhile.
Sundance Utah profile picture
The Fed is not backstopping the market. They are propping up the bond / debt markets and everything else is inferred by conditioned BTD investors. The fed may backstop the market if it declines 50% or more. Why would Wall Street or the Fed want equities at these elevated prices after an 11 yr bull run, when they could pull the rug out anytime and get those equities half off or more? The Covid excuse Is already out there as the rationale for a major market correction, and the Fed is not the bad guy this time. Remember, markets are a wealth transfer mechanism from all of us, to them.
the trend is your friend.
Agree in general, but if you are exiting GE here, it has barely moved off the bottom so where did you enter i.e. did you take a loss or a small gain? And if a small gain, why even enter if your target price was so low?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About SP500

SymbolLast Price% Chg
52 Week High
52 Week Low
Prev. Close
Compare to Peers

More on SP500

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.