In a year literally plagued with bad news and uncertainties about public health, social unrest, and a political crisis, the stock market posted robust returns. This doesn't surprise me -- the stock market has a long history of defying expectations, and 2020 was a flagship year for doing just that.
I expect 2021 to be different, and assuredly more volatile, in my view.
The stock market staged a strong rally off the spring lows, with frequent stories of 100+% gains and more recent news about explosive returns in cryptocurrency. From an investment standpoint, the strength across many asset classes has led to a surge in “FOMO,” or fear of missing out on returns.
Many investors are rushing into the markets, pushing sentiment from pessimistic in the spring to optimistic today. Investors borrowed a record $722.1 billion on margin through November 2020, a signal that risk-taking may be approaching a crescendo.
Optimism and overt risk-taking combined have been ominous for markets, as historically they have tended to result in corrections, pullbacks, and bouts of volatility (see 2000 and 2008 for examples). I'm also seeing signs of too much optimism in the retail brokerage market, with individual investors opening more than 10 million new brokerage accounts in 2020 – a record. The Wall Street Journal also reported that the online trading platform Robinhood saw 500,000 new downloads in December, as well as upticks in volume on brokerages like TD Ameritrade and E*Trade.
If history serves as any indication, I think this rush of investor enthusiasm ends with a sharp, sudden, and probably pretty scary correction of -10% to -20%. I'm spending the next few weeks getting cash at the ready.
The Aroon Indicator for SPY entered a downward trend on April 30, 2024. Tickeron's A.I.dvisor identified a pattern where the AroonDown red line was above 70 while the AroonUp green line was below 30 for three straight days. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options. A.I.dvisor looked at 108 similar instances where the Aroon Indicator formed such a pattern. In of the 108 cases the stock moved lower. This puts the odds of a downward move at .
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
The Momentum Indicator moved below the 0 level on April 30, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on SPY as a result. In of 64 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for SPY turned negative on April 01, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 49 similar instances when the indicator turned negative. In of the 49 cases the stock turned lower in the days that followed. This puts the odds of success at .
SPY moved below its 50-day moving average on April 15, 2024 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for SPY crossed bearishly below the 50-day moving average on April 19, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 13 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where SPY declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
The RSI Oscillator points to a transition from a downward trend to an upward trend -- in cases where SPY's RSI Oscillator exited the oversold zone, of 27 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in of 356 cases, the price rose further within the following month. The odds of a continued upward trend are .
SPY may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
Category LargeBlend