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S&P 500 Weekly Update: A Break In The Selling Stampede

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Via SeekingAlpha.com

“Do not be fearful or negative too often.” – Sir John Templeton

This great investor went on to say:

“For 100 years optimists have carried the day in U.S. stocks. Even in the dark 70’s, many professional money managers, and many individual investors too, made money in stocks, especially those of smaller companies”.

“There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up. As national economies become more integrated and interdependent, as communication becomes easier and cheaper, business is likely to boom. Trade and travel will grow. Wealth will increase. And stock prices should rise accordingly.”

The virus-induced bear market continues. How does this end? How do we stop the virus? How do we restore public confidence? What is necessary to restore the economy? Are we through the worst of this? What will be necessary to convince states to reopen?

If we had answers, it would help assess the scene, but my stance remains the same when it comes to trying to cope with this coronavirus situation. While it is important to review the potential economic impacts that are in store for us, in the short term, I am using the technical picture as a very important tool to navigate now.

Light at the end of the tunnel in the coronavirus outbreak is important because the sooner we see the light, the closer the U.S. economy will be to moving out of this self-induced coma. A contentious topic has been brought to light this past week. On the one side, there’s a growing camp voicing concerns over the economic damage of the U.S. and global shutdown. They are calling for at least a plan to be made for when, how, and under what conditions Americans will be allowed to go back to work.

On the other side, several people argue that it’s still way too early to even start thinking about starting the economy back up as there are many more pressing concerns facing the country. OK, I get it, and now we see some sending two different messages on the same topic. In the words of N.Y. Governor Cuomo, over the last weekend, 40-70% of NY will be infected with this virus. That would be 8-14 million people. As of Friday, New York has 37,000 cases. New York reported 6,000+ flu cases last week. At the height of the flu season, they reported 17,000 per week for two consecutive weeks.

Calls for medical equipment based on the model-driven coronavirus projections were heard all last week. Mr. Cuomo stated the need for 30,000 ventilators and 140,000 more hospital beds. Despite the grim analysis and commentary, it is noted that approximately 10,000 were hospitalized across the entire country due to COVID 19 as of March 26th. The CDC states the lower range of their estimates shows the seasonal flu generated around 400,000 hospital visits so far.

Two days later the governor announced, “you have to walk and chew gum in life.” In other words, can’t we address both the pressing health care needs facing the country and also start coming up with a plan for how Americans will be able to go back to work when the peak of the outbreak passes?

This presentation should NOT be taken as criticism of the Governor, he faces a daunting task. Instead, it shows just how difficult these decisions are when faced with a VERY complex situation. There is some commons sense in his commentary, we just have to recognize where it lies. Later in the week, the commentary from the Governor took on a different tone, perhaps a more balanced approach. If you are the emotional type, you might want to skip to the next section of the article.

Of course, that brings out stinging criticism from both sides. Now that both federal and state governments are thinking ahead, though, I don’t believe ANY criticism is warranted now. It is time to band together and have meaningful common sense discussions. Everyone has wonderful 20/20 hindsight. Just ask any perma bear that is taking bows for calling this massive decline. The investment world is packed with pure unadulterated nonsense. However, there are other segments of society that employ the same traits.

There are no easy answers in any of this, and no one is looking to get things back up and running if it is only going to make things worse, but that doesn’t mean we shouldn’t be asking the questions and coming up with plans and strategies as new data and treatments come to light.

Since early March THE issue has always been the economic ramifications associated with the emotion associated with this virus;

“My concern isn’t with what I foresee as potential global economic impacts. For sure there will be many. My concern lies with the uncoupling from reality that the never-ending fear rhetoric is adding to the storm.”

“Right now the consensus view is extremely negative, producing FEAR that can have a destructive impact on the economy. Ironically, we have the possibility of that occurring without the virus causing any REAL serious health problems for populations all around the globe.”

Given the fact that by our nature we will tend to take an event and extrapolate that to the worst case, we should know by now that is something that MUST be avoided when dealing with the markets. One could also say that is also needed in everyday life. It is best to keep any situation balanced.

In doing so, the following statistical data is offered. Not as an opinion, but as a guide to reaching a sensible assessment of the situation. China, South Korea, and Germany report 2 deaths per million in their respective countries. The U.K. has lost 5 people for every million and sadly the worst is Italy with 151 people per one million of their population succumbing to the virus. Spain has lost 106 lives for every million people in their country. Of course, the numbers per million could certainly increase.

During the seasonal flu season here in the U.S., the death toll is 2 per 100,000 people or 20 lives per million. Coronavirus takes 5 people for every million in our population here. Total deaths attributed to coronavirus in the U.S. stands at 1,600. The swine flu epidemic in 2009 took 12,000 lives in the U.S. Seasonal flu accounted for 25,000+ deaths in 2019/2020.

The world with its 8 billion people has now lost 27,000 lives to the coronavirus. The WHO estimates that 250,000 to 500,000 people die of seasonal flu annually across the globe.

South Korea has been hailed for its response to containing the virus. Their total number of deaths stands at 139 as of today. In a population of 51 million, that is noteworthy. The U.S. has done more testing in 8 days than South Korea completed in 8 weeks. It is reasonable to expect that the total number of coronavirus infections rises dramatically. For some that statistic is alarming, for others it’s expected given the actions that are being taken.

If we assemble a million Americans, 5 tragically have passed, 304 have been infected. The remaining 999,995 are alive, 999,696 have not been touched by the virus.

Of course, what I just stated would not be considered a politically correct statement. It is why we haven’t heard that mentioned on any daily COVID-19 briefings. Anyone that has followed my missives realizes I am not a fan of being politically correct. However, as of today, what has been stated is a fact. Now all can see why the concern from the outset was all about perception. Emotion rules when relativity leaves the scene.

Why is this part of any discussion on investing today?

Until the FEAR rhetoric stops, it is virtually impossible to invest. On that note, it appears some are now walking back the worst-case scenarios that were laid out for investors to ponder.

While discussing the revised numbers from Imperial College London which is now predicting 20,000 deaths at most in England, instead of 500,000, Dr. Brix sent a message to reporters regarding facts as they stand today.

Perhaps someone can generate a study to show what the dramatic increase in mental health issues will be as the unemployment total in the U.S. balloons above 10% on its way to what could be 20%.

Last week when the discussion centered around the swift seemingly unending market decline, this quote seemed very appropriate:

“We have never seen anything like this in our lifetimes.”

“At some point, we will get a relatively strong bounce that could last for a while. Then perhaps stabilization. We may have seen an intermediate low put in this week, then again we may be headed much lower.”

“If anyone wants to take a stand that the S&P is headed to a 50% decline or that we have already seen the bottom, I wish them good fortunes. You won’t find that here; it is simply too early to tell.”

Today, I will add this piece of advice. There are no guidelines for a self-induced recession that has put the economy in a coma. We’ve never seen this before. NO black and white rules on how to proceed will be found anywhere. There aren’t any to be found under normal circumstances, we certainly won’t find any in this investment environment. What investors have witnessed in the last 5 weeks is hardly “typical”. What may take place in the next 5 weeks may also prove to be equally “out of the norm”.

A savvy investor keeps themselves distanced from the advisers that want to call extremes. Those that highlight wild projections for highs or lows that garner attention need be avoided. At the end of the day, they prove to be worthless fiction.

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It’s a fine line to walk now, we have to be watchful that we don’t get too down, and that is very difficult now. On the other hand, we have to rely on the facts we have and avoid painting a picture of what we want to see versus what the reality is. The bottom line we try and stay balanced and steady in our approach.

The technical picture is what we have to rely on today. However, as this situation unfolds, the fundamental picture will ever so slowly start to become more clear. Suffice to say any data coming out now will be terrible. It will be a matter of just how much the market has already discounted.

On Monday morning, investors were staring at what appeared to be another dismal round of selling. The news over the weekend remained biased towards the negative, as any positive seemed not worthy of mention. The Federal Reserve then introduced a slew of new measures to help stem the pressure of the medically induced coma that the U.S. economy has been put into. Among the measures taken, the Fed announced unlimited QE and would purchase $375 billion in Treasuries and $250 billion in mortgage securities this week. Other measures being taken include purchases of MBS securities, corporates, and the launch of three new lending facilities.

The enthusiasm over that news lasted 15 minutes. All of the major indices succumbed to the selling pressure and fell 2-4%, respectively. The S&P posted a new closing low in this selloff which reached 34%. The index closed at prices last seen since 2016. The notable exception was the Nasdaq Composite which vacillated between gains and losses all day finished down 18 points of 0.2%

Optimism on Tuesday came from hopes that both sides of the political divide are closer to a stimulus deal in Washington and that some of the hardest-hit hotspots from the coronavirus are showing varying levels of improvement. Enter Turnaround Tuesday, with the S&P and Dow 30 posting their largest point gains ever, ranging from 9-11% on the day.

The buying continued, and for the first time in well over a month, the S&P posted back to back positive sessions. A strong rally had the S&P up 4+% at one point before profit-taking late in the day leaving the index up 1% on the day.

Enthusiasm over the stimulus package extended into day 3, the S&P and Dow 30 rose another 6+% each, while the Nasdaq composite added 5.5%. All eleven sectors finished the day higher with defensives leading. Breadth was strong as 473 stocks in the S&P 500 rose on the day.

After watching the major indices rally anywhere from 18-20% in three days, another one of those weak Corona Fridays seemed inevitable. It is hard to convince investors to hold equities into a weekend where the mindset has all expecting bad headlines. To that end, the S&P 500 and the Dow 30 fell 3-4% respectively. For the week the S&P gained 10%.

Markets are still searching for equilibrium and trying to figure out when the economy will be able to re-open, and right now there is just about zero clarity on that front.

Global markets led the way and remained in retreat on Monday. China A-shares plunged 3.4% and outperformed their other indices. Tokyo managed to finish green in the session. Things were worse in the rest of the region as Korea, Taiwan, Singapore, Thailand, and Indonesia got hammered as well. India’s equity market fell 13% (the worst day ever for the SENSEX) as COVID-19 spread and the government instituted a lockdown on activity. That market is down 38% off recent highs.

The rest of the world then settled into the same pattern as the U.S. A three-day rally then more selling.

Economy

The big question with everything going on right now is what will be the impact on economic growth? Analysts are out trying to forecast the damage and it has been a race to the bottom.

There’s a reason the stock market was down 33% in 30 days. Goldman Sachs now is the clear leader in the negative forecast arena with a dire -24% forecast for the second quarter.

Source: Bespoke

The graphic shows just how glaring that drop would be IF it were to occur. Since 1950, there have only been six prior quarters where GDP declined by 5% or more with the most recent being back in December 2008.

Considering the major firms are forecasting declines greater than 12%, a decline of this magnitude has never happened in the post-WWII period. The next closest quarter in terms of negative growth was 10% in 1958.

The Chicago Fed National Activity Index was +0.16 in February, up from –0.33 in January. The data through February were unlikely to have been affected much by the COVID-19 outbreak. Economic data for March will be incorporated in the next CFNAI released on April 20, 2020.

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 40.5 in March, down from 49.6 in February, to signal a second successive contraction in output.

Chris Williamson, Chief Business Economist at IHS Markit, said:

“U.S. companies reported the steepest downturn since 2009 in March as measures to limit the COVID-19 outbreak hit businesses across the country. The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated. However, manufacturing is also reporting a slump in demand, with production falling at a rate not seen since 2009, linked to either weak client demand, lost exports or supply shortages.”

“Jobs are already being slashed at a pace not witnessed since the global financial crisis in 2009 as firms either close or reduce capacity amid widespread cost-cutting. “The survey underscores how the US is likely already in a recession that will inevitably deepen further. The March PMI is roughly indicative of GDP falling at an annualized rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline.”

March consumer sentiment index was revised down sharply to 89.1 versus the 95.9 preliminary print and has dropped 11.9 points versus the 101.0 from February. This is the lowest level for the index since the 87.2 print from October 2016. And it’s the largest decline since October 2008.

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Everyone was expecting a surge in claims this week, but the actual increase was more than double expectations as claims came in at 3.28 million versus estimates for 1.7 million.

Source: Bespoke

Besides being double economist expectations, it was more than 10 times more than the prior week. Just to put this reading in perspective, it works out to 1% of the US population. Not the working population, but the entire population.

Early estimates on where the most pain will be on the job front.

Chart Courtesy of Liz Ann Sonders

Global Economy

The global economy ground to a halt in March as expected; flash PMIs for Services sectors in Japan and the Eurozone showed a downright grim decline in overall activity. These three countries are just the tip of the iceberg, globally, but it’s still an instructive snapshot of the size and scale of the economic shock which has blasted economies across developed and emerging markets.

There were some silver linings; for instance, manufacturing held up much better than Services, which is where economic activity lockdowns have been focused. However, the data is truly disastrous, and if the lockdowns in Europe continue as expected based on the still-accelerating spread of the virus, then it could get much worse in short order.

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At 31.4 in March, the ‘flash’ IHS Markit Eurozone Composite PMI collapsed from 51.6 in February to register the largest monthly fall in business activity since comparable data were first collected in July 1998. The prior low was seen in February 2009, when the index hit 36.2.

Chris Williamson, Chief Business Economist at IHS Markit, said:

“Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis. Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus. “The March PMI is indicative of GDP slumping at a quarterly rate of around 2%, and clearly there’s scope for the downturn to intensify further as even more draconian policies to deal with the virus are potentially implemented in coming months.”

“Demand for many goods and services has fallen dramatically, while near-record supply chain delays have stymied production and business closures mean an increasingly large proportion of the economy is being mothballed.”

“Employment is already falling at a rate not seen since July 2009 as despair about the outlook broadens. Business sentiment about the year has plunged to the gloomiest on record, suggesting policymakers’ efforts to date have failed to brighten the darkening picture.”

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Japan’s Economic Decline deepens in March.

At 37.1 in March, down from 53.0 in February, the seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index, which is based on approximately 85% of usual monthly replies, signaled the fastest downturn in private sector business activity since the series began in January 1998. The prior low of 38.1 was seen in November 2008.

Chris Williamson, Chief Business Economist at IHS Markit, noted:

“The surveys highlight how the COVID-19 outbreak has already given the UK economy an initial blow even greater than that seen at the height of the global financial crisis. With additional measures to contain the spread of the virus set to further paralyze large parts of the economy in the coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.”

“Historical comparisons indicate that the March survey reading is consistent with GDP falling at a quarterly rate of 1.5-2.0%, a decline which is sufficiently large to push the economy into a contraction in the first quarter. However, this decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter as further virus containment measures take their toll and the downturn escalates. “Any growth was confined to small pockets of the economy such as food manufacturing, pharmaceuticals and healthcare. Demand elsewhere has collapsed, both for goods and services, as increasing numbers of households and businesses at home and abroad close their doors.”

Earnings Observations

Any kind of earnings analysis seems like more of a guess than anything else. Right now any numbers posted anywhere should be taken with a grain of salt until we start to hear actual Q1 ’20 financial results, and hear Q2 ’20 guidance. By that time some aspects of the national shutdown should start to be known, and readers should know about which companies might fare better than others.

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Stay focused, particularly during these trying times.

The Political Scene

Congress decided to give the American public a rerun of what occurred in the financial crisis days when the focus was on getting TARP passed in 2008. It’s the same today. Playing their political games, with self interests taking precedence over common sense.

The ball went back and forth and a $2.5 trillion counteroffer to the Senate plan was released by House Speaker Nancy Pelosi, upping the ante in a high-stakes negotiation for a federal fiscal response to COVID-19. The speaker promotes the bill as prioritizing worker protections, ensuring hospital and healthcare workers get the equipment and support they need, and adding restrictions on corporations that received federal assistance.

However, the bill contains a “wish list” of Democratic policy positions.

  • Corporate Board Diversity
  • College Debt “relief”
  • Election Auditing
  • Canceling the debt of the Postal Service
  • Same-day voter registration
  • Requiring airlines to offset their emissions
  • Pay Equity
  • Funding for community newspapers
  • Free internet
  • $100,000,000 for NASA’s environmental restoration group
  • Mandatory paid sick leave for every single business
  • Hiding the citizenship status of college students from the Census Bureau

Emphasis should be placed on what will be a severely displaced middle-class workforce. Common sense tells us the only way to ensure that is to keep the corporations that employ and pay that workforce in good condition. None of the corporations here in the U.S. inflicted this upon themselves. The government-induced coma in the form of mandatory lockdowns in multiple parts of the country took care of that.

Sending a check to a worker is fine, but it won’t be of any use IF that person does not have a job to go back to in the corporation that employed them before the panic over coronavirus. Once the “actors” and “actresses” (members of congress) got their 15 minutes of “air time “ to explain how they are saving the country while telling us the “other guy’s” proposal is nonsense, it was time to finally agree.

The Senate passed a large, but possibly insufficient, fiscal relief package that we have been discussing at length. Notably, all unquarantined Senators voted in favor, passing a package that includes hundreds of billions in loans for businesses that can be leveraged up via Federal Reserve lending, cash grants and relief for specific industries, hundreds of billions in expanded employment insurance, and hundreds of billions in cash payments to individuals. A huge range of other programs is also included, from state and local government relief to hospital grants.

The House passed the bill on Friday. More relief will be necessary given the scale of the economic contraction currently underway, but this is an excellent start. The Senate has adjourned until April 20th, but note that long recess (designed to protect Senators amidst the outbreak) can be called off if need be. If more legislation is necessary, the Senate can return to work.

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The Fed

Economic stimulus bills have already been passed and others will be in the works. The Fed stepped back in the spotlight this week with a proposal offering unlimited QE. In simple terms, this alleviates a lot of the stress and concerns about the credit markets falling apart. Besides the obvious economic impact, the markets were extremely concerned about the state of those credit markets.

The 10-year Treasury bottomed at 0.40% over the worldwide fear that is present. The 10-year note yield rallied off those lows to 1.18% before falling back to close the week at 0.72%.

The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.

Source: U.S. Dept. Of The Treasury

The 2-10 spread was 30 basis points at the start of 2020; it stands at 47 basis points today.

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Sentiment

32.9% of respondents in AAII’s weekly sentiment survey reported as bullish this week. That’s little changed from 34.4% last week. Bearish sentiment has been above 50% for three consecutive weeks now. That is the longest stretch since 2009.

Meanwhile, the percentage of equity newsletter writers reporting as bullish in the Investors Intelligence survey has continued to fall with just over 30% reporting as bulls this week. That is the lowest level since the first week of 2019. Before that, there have only been 29 other weeks since 1997 with lower readings.

Crude Oil

The Weekly inventory report shows commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.6 million barrels from the previous week. At 455.4 million barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year.

Total motor gasoline inventories decreased by 1.5 million barrels last week and are at the five year average for this time of year.

Following a 42% drop in the price of WTI, prices closed down again. WTI settled at $21.60, down $2.20, another 10+%.

This is as imports came in at their weakest level since November and a five-year low for the current week of the year. Exports also fell as net exports generally remain around record highs. Gasoline inventories, on the other hand, continue to shrink as is seasonally normal, but this week’s 1.53 million barrel draw was much smaller than normal and what has been observed in recent weeks.

That decline is largely due to a massive decline in demand which totaled 8.83 mm bbls/day as more people socially distance themselves or cut out their commutes by working from home. That is the 17th largest week-over-week decline in demand on record.

The Technical Picture

The virus-induced bear market has retraced the entire breakout that investors witnessed in 2016. The 30 days it took to fall 30+% is the fastest ever, a faster drop to 30% than both the 1929 and 1987 market crashes.

The stock market is often referred to as a barometer of the economy, and the chart below of the S&P 500’s daily changes over the last year can be thought of as its EKG. Right now the economy is in an induced economic ‘cardiac arrest’ as businesses in the United States have been forced to shut down. To help offset this, central banks and lawmakers have the paddles out in an attempt to keep some semblance of stability.

Source: Bespoke

The daily chart of the S&P now shows the rebound rally that for the moment has reversed the initial wave of selling. The short-term 20-day moving average (2,654 -green line) provided resistance, and the indices took the path of least resistance and fell back.

This recent price action remains classified as a rally from a severely oversold condition that is working off the excesses established on the downside.

More evidence is needed to call this any type of sustainable advance. There is simply no need to chase anything here. For long-term oriented investors, this is a good time to use the recent strength to upgrade your holdings by culling the stocks that may not be well-positioned to do well in the immediate aftermath of this COVID episode.

No need to guess what may occur; instead, it will be important to concentrate on the short-term pivots that are meaningful. However, the long-term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.

Short-term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short-term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.

During tumultuous times, investors always turn to the sage advice of the Oracle of Omaha: Warren Buffett. With the S&P 500 down almost 30% from its record high back on February 19th, many are surprised by the silence out of Omaha. While Buffett is well known for weathering the worst market downturns and coming out stronger, the last several weeks have been just as painful on his portfolio as it has on the broader market.

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Source: Bespoke

Of Berkshire’s (NYSE:BRK.A) (NYSE:BRK.B) top holdings, the average stock is down 36.62% since the S&P 500’s last all-time closing high on 2/19 and down 34.82% YTD

So if anyone wants to call Mr. Buffett a fool for hanging on in this unprecedented decline pick up the phone and give him a call. I’m sure he will be glad to hear from you.

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Individual Stocks and Sectors

To say that it has been an incredibly difficult investing environment over the last month would be an understatement, but for investors looking for beaten-down opportunities, they should focus on companies with strong balance sheets that have successfully weathered treacherous environments like wars and political upheaval in the past. Companies that have provided stability in the past.

Through all of the events and turbulent times that have shaped modern history, there are a handful of stocks who have not only continued to pay shareholders, but grow their dividends regardless of the environment. While the current outlook remains as uncertain as ever thanks to the COVID-19 pandemic if history is any indication these names can continue to weather the storm.

The Dividend Investing Resource Center is a good place to gather information on Dividend aristocrats that can be great candidates to add for more security and income.

Cloud computing and working from home are the norm now and I don’t see that going away anytime soon. Companies associated with that technology should suffer much less as the economy weakens.

My favorite names in that group: Amazon (AMZN), Alphabet (GOOG) (NASDAQ:GOOGL), Alibaba (BABA), Citrix (NASDAQ:CTXS) (at a new high), and Cisco Systems (NASDAQ:CSCO). Startup Slack Technologies (NYSE:WORK) is also a candidate for research.

Whether an investor finds themselves bearish, bullish, or undecided, it never pays to get too stretched in any one direction. Common sense tells us that when we come across a parabolic move in the markets. Don’t be fooled into believing that these emotion-filled moves only appear on the upside. Never lose sight of ALL of the data that is put before us. In doing so, keep in mind the negative data will always get highlighted first. Sometimes we have to dig to find the positives. We saw that play out while we were in a bull market. Now that the backdrop is bearish it will be even more difficult to try and find a balance.

While there will be economic pain, all is not lost. Governments in the U.S. from the local level up to the federal hammered out some new plans that will see the government borrow many hundreds of billions of dollars and release the money into the economy. The Federal Reserve has gone to full throttle with its monetary policies and those measures will prove to stabilize the financial system. Actions and benefits provided in the last two weeks took months to work out during the financial crisis. The unprecedented economic damage that is expected to come from this scare has been met with unprecedented action.

As of today, the S&P 500 is down about 25% from its record close on February 12th. A lot of great things have happened in the U.S. economy during the past three-plus years. Those transformative catalysts are still in place. The coronavirus has brought parts of the economy to a temporary halt. COVID-19 virus data out of China and South Korea has improved dramatically offering some hope for the rest of the world. There is a sense that just about anything could happen in the immediate future. FEAR continues to be THE driver of this market.

In addition to the almost immediate change in fundamentals, the resultant explosion in volatility also reportedly forced a massive unwinding of leveraged positions by institutions to further contribute to the selling. (I mentioned that last week). It is my opinion, these are the main factors that kept the selling stampede in place for 25 or so days. This past week we finally saw the kind of bounce and retracement of the losses that typically occur during major declines. So perhaps that is a small sign. The forced selling appears to be winding down.

Economic damage, extreme economic damage, yes. Remember we have already taken 30%-40% off the average stock, and that might understate the situation. Where is the balance and when does that come in? A question we will deal with now and the technical aspects of the situation will begin to give us answers.

We probably are a lot closer to the “equilibrium price” right now than most want to believe, and that equilibrium price could move even lower if this ends up being a “Financial Crisis-type” event that spills over across several months. On that front, it is a “wait and see” situation.

Even if Monday’s low ends up being THE low (which is still a big IF), it’s now going to require a 55% upside move in the S&P 500 to get back to where it was on February 19. The Russell 2000, meanwhile, will now need to gain around 80% from its recent low to return to its January high. It’s probably not realistic to expect those kinds of significant moves to happen quickly. That doesn’t mean, however, that there still won’t be plenty of opportunities to make money, especially with the unprecedented stimulus measures now in place. During this time, it doesn’t pay to get too LOW on the selloffs nor too HIGH on any rallies.

I think as time goes on unless the news on the pandemic side gets radically worse, I mean radically worse, the “FEAR” rhetoric that I was so concerned about will slowly abate. We know from history ANY parabolic move in ANY stock, sector or the overall market itself is eventually resolved. Over time we have seen countless examples of these swift emotional moves occur to the upside. We know they never end well. We also know that it takes time to unwind that momentum.

One look at the chart of the S&P 500 shows what I just described. It is the same only in reverse. It’s been a rough month for equity investors, and it’s likely to stay difficult for some time to come, but just as it has every time in the past, the market will eventually bounce back from this. It may not be quick, but eventually, we will see some stabilization in the economy and the markets.

There is a fine line to walk now. We have to be watchful that we don’t get too down, and that is very difficult now. On the other hand, we have to rely on the facts we have and avoid painting a picture of what we want to see (overly optimistic) versus what the reality is. The bottom line we try and stay balanced and steady in our approach.

The technical picture is what we have to rely on today. However, as this situation unfolds, the fundamental picture will ever so slowly start to become more clear. Suffice to say any data coming out now will be terrible. It will be a matter of just how much the market has already discounted.

A market bottom will be elusive until the FEAR commentary on COVID-19 is eliminated.

Stay safe and Healthy

I would also like to take a moment and remind all of the readers of an important issue. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation. Please keep that in mind when forming your investment strategy.

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Thanks to all of the readers that contribute to this forum to make these articles a better experience for everyone.

Best of Luck to Everyone!

A new trend has emerged. This time we find ourselves thrust into a BEAR market. Can the rally last? How deep might the next leg down take stock prices? 

With the “Markets in Turmoil”, efforts to keep every member apprised of the situation have been aggressively ramped up, with new strategies employed. In addition to the Weekly missives, Daily chart updates and Interim Weekend articles are now published. 

Comprehensive “Elliott Wave” Analysis is also part of the package. 

Navigate using a strategy that has one of the highest probabilities of success in the investment world. Please consider joining today. 

Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. 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: I am Short the VIX via ETF’s. Various Option strategies are in use now to produce income in this bear market backdrop.

This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.

IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.

Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control.
The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.

Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.




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