Editor's note: Before we get to today's piece, we're seeing a lot of action in the gold market. Gold has blasted past $1,700 an ounce in recent weeks... And many predict it could soar as high as $3,000 in the months ahead.
That's why we're turning to gold-investing legend John Doody. On Monday, April 27, he will speak to our readers for the first time this year. He'll explain what's going on in the gold and silver markets... what's behind the recent price swings... and, most important, how you can set yourself up for big profits in certain gold-related stocks.
From 2001 through 2019, John's unique approach to gold investing helped readers achieve 923% gains – during both bull and bear markets in gold. That turns every $10,000 invested into more than $100,000... So you really don't want to miss this.
Simply head to www.StansberryGold.com at 9:30 a.m. Eastern time on Monday to tune in to our "Gold Rally Kickoff Call." (We'll also send you a reminder early that morning, so you don't forget.) Now, on to today's essay...
The panic-buying is shifting from toilet paper to stocks...
And if you've participated, you may have too much of both.
Just as wearing masks in public is starting to seem normal here in Baltimore, stocks are soaring...
Using the common "up 20%" gauge, the benchmark S&P 500 Index is now back in a bull market. With stocks up so much, a lot of things are surely going through your mind.
If you stopped out of a bunch of your holdings and went to cash, you likely now regret that action...
You're probably thinking, "I locked in my losses right near the bottom. If I don't buy now, I'll miss the entire recovery... And I'll never get back to where I was."
With the monster rally we've seen this month, a lot of people feel that way right now.
Acting on emotions, a lot of folks are jumping into stocks in a big way.
We could call it panic-buying, or we could call it fear of missing out ("FOMO"). But we would definitely call it ill-advised...
Now don't get us wrong. Stocks could push higher from here. This is one wild market... And in this environment, you have to be ready for the incredible.
But that's the short-term action. Rallies of 18% to 24% are normal during a bear market. And they don't necessarily change the big picture, which is still cloudy at best.
We can see why in two charts...
First, we'll look at the big trends in stocks.
In our DailyWealth Trader (DWT) newsletter, we often use the 50-day moving average (50-DMA) and the 200-day moving average (200-DMA) to gauge an asset's intermediate and long-term trends.
As you can see in the chart below, the S&P 500 fell below its 50-DMA in February. Then, it crossed below its 200-DMA in March. That's when the decline accelerated...
From its February 19 peak, the S&P 500 fell nearly 34% to its March 23 low. Since then, stocks have soared. But as of yesterday's close, they're still below their 50-DMA and their 200-DMA. And both of these moving averages are falling. The intermediate and long-term trends in stocks are downtrends...
Stocks have to climb a lot higher before they'll even test these trendlines. And they have much more work to do before the downtrends will turn back into uptrends.
Until stocks trade above these two moving averages and the moving averages turn higher, stocks aren't out of the woods. For now, the path of least resistance is lower.
When we say stocks have a lot of work to do, here's what we mean...
Aside from breaking through their moving averages, the S&P 500 also has some major resistance levels it needs to tackle.
"Resistance" is a level at which traders tend to sell an asset. You'll often see resistance at a recent high or low. These levels – where the price action has turned in the past – tend to be turning points in the future, too. Resistance levels are obstacles for rising prices.
In the chart below, you can see the two important resistance levels (the red lines) around 2,850, and 2,950...
The S&P 500 has traded around its 2,850 key resistance level for a few days now. That tells us that this resistance level is holding stocks down – for now.
It's important to note that you should think about these resistance levels as "zones"...
Prices do not need to hit an exact level and then turn lower "on the dot." It's best to watch how the price responds over a few hours – or even a day – in these areas. That will give you a clearer picture of the importance of that level.
As you can see, while the most recent price action in stocks has been positive, it's not time to rush into stocks just yet. This "bull market" is meaningless... at least until stocks overcome some of the hurdles we just showed you.
We were expecting this rally... And even though stocks could go higher in the short term, the big picture is bearish. The trends are down.
If you want to buy or already have bought shares of some world-class businesses, we don't have any problem with that approach. In the DWT portfolio, we hold more than one of these top-tier companies. You just need to be prepared to hold them through a lot of volatility.
If you can't handle the volatility, hold off on those purchases... or take partial positions, which you can add to later.
For all other bullish positions, we suggest you stay cautious. Emotions are running high now... And they likely won't lead you to good decisions.
Good trading,
Ben Morris and Drew McConnell
Editor's note: Ben and Drew's goal is to provide the world's best short- and medium-term trading ideas. To do this, they track the latest in market sentiment and technical signals... reveal what the investing "gurus" are doing with their money... and more. Plus, they've recently added a new strategy to their tool kit that's perfect for today's market. If you're interested, you can learn more about DailyWealth Trader right here.
Further Reading
Buying bonds in times of extreme uncertainty is a smart bet for any investor. But not all bonds are created equal. These five steps will keep you extra safe if you want to hedge against market volatility... Read more here: Five Steps for Avoiding the Credit-Market "Bombs."
"For most investors, bonds sit somewhere between boring... and a godsend," Dr. David Eifrig writes. With the rampant volatility in stocks lately, many investors are headed for safe-haven assets. And with this type of security, you'll be content collecting income no matter what... Learn more here.
While the market hasn't entered a new long-term uptrend, another asset is taking off. And it's one that will likely continue even if stocks fall...
PROVIDING TESTS TO THE FRONT LINES OF THE COVID-19 BATTLE
Today's chart shows a company fighting back against this pandemic...
There are now more than 800,000 COVID-19 cases in the U.S., with the numbers climbing each day. Medical workers and companies are racing to develop a vaccine... And in the meantime, they're also scrambling to provide treatments and testing. Today's company is aiding the fight by creating tests for patients...
Abbott Laboratories (ABT) is a $170 billion health care giant. It provides everything from diabetes care and medical testing to nutritional supplements like Ensure and Pedialyte. Abbott's tests are already being used to identify coronavirus in infected patients. And it recently released a new antibody test that can determine if a patient has already had COVID-19, even if they never showed any symptoms.
ABT shares were in a long-term uptrend before the pandemic. After falling in March, they recently bounced back to a new all-time high. Shares are up nearly 130% over the past three years, including dividends. As doctors and hospitals keep using Abbott's products to help fight COVID-19, that uptrend should continue...
