The Everything Rally Continues
Risk on is sweeping across markets as the “everything rally” looks set to continue. Despite the nearly 24 million confirmed coronavirus cases worldwide, risk appetite remains strong. Unprecedented Fed stimulus, expectations for a V-shaped recovery, as well as other factors are enabling a great deal of capital to flood the global financial system.
Let us start by looking at what is probably the most widely watched stock market index in the world, the S&P 500/SPX (SP500).
SPX Update: New All-time Highs
Source: Think or Swim, Ameritrade
SPX futures finally did it, as they broke out above their pre COVID-19 all time high/ATH, now trading decisively above the critical 3,400 resistance level. This is a significant breakout, and SPX is likely to melt up to 3,500 – 3,550 within the next several weeks, in my view. If we take a closer look, we see a clear breakout occurring here, suggesting momentum is likely to propel stocks to higher highs from here. Extremely important support is at 3,400-3,395. The next resistance level I’m looking at is 3,500 – 3,550, and then possibly 3,600 (short-term, best-case scenario in my view).
However, any run-up we get into early to mid fall will likely be followed by a notable technical correction supported by numerous fundamental factors. Uncertainty about the upcoming presidential election in the U.S., technically overbought market conditions, a possible second wave of the coronavirus, worsening economic data and corporate earnings, as well as other detrimental factors will likely drive stock prices substantially lower once this run-up concludes. I expect about a 15%-20% correction in the SPX to materialize around mid fall after the market reaches the 3,500-3,550 level.
Nasdaq: On Fire, Perhaps Getting Too Hot We can see Nasdaq futures hitting new ATHs once again as big tech continues to lead major market averages higher. Remarkably, the top five tech giants Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG) (GOOGL), Amazon (AMZN), and Facebook (FB) now account for over 23% of the S&P 500’s entire weight.
If we take a longer term view, we see that the Nasdaq is roughly 20% above its pre COVID-19 highs now, and is up by about 77% since its mid-March bottom. Madness, a bubble you say? This may be true, but this rally will likely continue for several more weeks along with the SPX’s climb toward 3,500 – 3,600 level in my view. However, I expect the Nasdaq to decline notably once this bubble like rally comes to an end. We could possibly see a decline of 20% or more once air begins to deflate out of tech stock bubble.
Gold: Recovering Nicely
Following gold’s 10% correction, we saw the yellow metal attempt to retest the correction low, but the $1,900 level support held firmly. Now we see gold trading decisively above key support at $1,950. Key level to watch for support now is $1,950 – $1,940.
If gold dips decisively below this support level, we could be looking at more downside for gold. However, given the favorable fundamental backdrop for gold I expect prices to continue to move higher in the intermediate and longer term despite short-term market gyrations.
Key levels to get above are $1,980, $2,000, and then $2,020. Once gold is above the $2,020 point it will likely melt up to recent ATHs, and then higher after that. Due to unprecedented monetary expansion we expect gold to continue its bull run for some time (three to five years), and our one-year price target range for gold is $2,500 – $3,000.
Silver: A Similar Image
Silver is moving up nicely as well this morning, up by around 0.75%. Initial key support level to watch is $26.50, then $25, and then $23.50 after that. However, I believe silver will likely move higher from here, as it essentially moves in tandem with gold. The key resistance level silver needs to break above is $27.50 – $28.50 before it will likely make a move at new highs.
A Look at Oil – WTICWTIC oil also is looking relatively constructive as it’s trending toward $43 – $43.50 resistance. If oil can break out above this level I suspect we can move into a higher trading range of around $45 – $55 for now. To the downside, initial support is at around $41.50 – $41, and then at the all-important $40 level.
Finally, a Look at Bitcoin (BTC-USD)
This is a one-minute chart, but it clearly shows that BTC is attempting to break out above a significant resistance level at $11,800.
If we take a longer-term view, we see that BTC had a healthy correction after failing to stay above the $12K level. Yet, BTC is coming back and is likely to make another run for $12K resistance. I believe that this time Bitcoin will hold above $12,000, and will likely steadily try to move up to and then break above $13,000 resistance next. To the downside, simple levels to watch are $11,500, and $11,000. I do not think BTC will head lower from here, but if it does breach the underlying support levels, $10,500 – $10,000 support could be next.
The Bottom Line
There’s clearly a great deal of liquidity in the financial system, and we see it pouring into many key markets all over the place. Apple is worth $2.12 trillion now! Nevertheless, stocks look ready to head higher from here even though the Main Street economy is not in “tip top” shape. Therefore, we are cautiously optimistic in the short term and expect the SPX to climb to roughly 3,500 – 3,550 before we see a sizable correction around mid fall.
Gold, silver, miners/GSMs are likely to move substantially higher in the intermediate and longer term due to global easing by central banks and other favorable fundamental factors.
Bitcoin and many systemically important altcoin projects also are very likely headed much higher as well due to their limited supply, increasing functionality and popularity, bullish technical set up, as well as perpetual monetary easing by central banks.
Please keep in mind, Bitcoin and other “digital assets” have a max supply that can ever exist, fiat currencies do not. Fiat currencies can be printed and/or digitized limitlessly by central banks.
I hope you enjoyed reading my article. All the best to everyone and have a great day!
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Disclosure: I am/we are long GOOG, MSFT, FB. 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.
Additional disclosure: This article expresses solely my opinions, is produced for informational purposes only and is not a recommendation to buy or sell any securities. Please always conduct your own research before making any investment decisions.