The S&P 500 gained 2.7% last week ending the week at 287.5, very close to the next resistance of 290, as more and more countries around the world reach deep into the government pockets to get the much-needed funds to get the world economy going once again.
The next quarter is going to be much about the companies earning report and the economic contraction in many countries, the news from China is -6.5% contraction, for the first time in at least two decades.
AlphaOverBeta Next Week Forecast
The next week is going to be a tougher fight between the bottom callers and the more optimistic voices in the market, as two powers are pulling the market to both sides the suffering economy on one hand and the stimulus packages that support it on the other, the US government reacted fast and with big money and at least in the short term its working and the market is moving forward.
Our models support the more optimistic side of the fight with a 290 target for SPY in the near future that will be followed by a correction and then another leg up.
Are we in a stock market bubble?
Stock market bubbles are created when assets are overpriced, way and beyond their fair value. Examining equity prices under the economic conditions we might say that last week’s move inflated prices way over their fair value.
Current indices are now less than 20% down from the all-time high, that’s out of bearish territory that was declared only two weeks ago.
So which prices are fair value? The – 35% bottom made three weeks ago?
Or the current prices which are only 20% off the all-time high?
We are in a fed created bubble.. again.
As the fed was trying to stabilize the economy they threw money at the problem which ultimately finds its way to equities and bond markets.