INVESTOR’S first read.com – Daily edge before the open
S&P 500: 2,630
Friday March 27, 2020 9:17 a.m.
November 15, 2019 (DJIA – 28,004) My blog headline: “Bear Market…Why? Here I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February.
December 17 (DJIA: 28,235) I repeated that projection.
January 20, 2020 (DJIA:29,348) My blog, “INSANITY,” projected a bear market decline of 30% – 45%. We are already down 30%.
On March 2009 (DJIA: 6,800) I issued a SPECIAL BULLETIN “BUY” a day after the Great Bear Market (2007-2009) ended.
Currently, I see an attempt to base out until May then another slide into October with a total bear market decline of 45% to 55%.
A game changer would be a sharp reversal in the growth of COVID cases and the lifting of measures designed to counter it. Additionally, the ability of people and businesses to adapt and innovate.
Brief bio: In investment business 57 years, writing about stock market for 52 years, including investment publishers, brokers, research firms, investment bankers, plus my own investment advisories, mostly as independent contractor to maintain independence of analysis. “In the trenches” for every bear/bull market since 1962. Started before quote machines as a tape reader/trader, posting charts by hand. Primarily a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Love rough and tumble… telling the story. Been writing this letter daily before the open for 11 years.
For three days it was scramble to get back into the market, so soon after a scramble to get out of the market….Ugh.
It wouldn’t take much for the start of another plunge to prompt a scramble to sell again.
I see extreme volatility ahead, big swings in both directions. Mindless computer algos, never programmed for the horrors of an enraged bear, that have been wrongly screaming buy ever since the market first dropped 3%, and terrified investors selling on every uptick thinking only of salvaging something out of their portfolio.
Who can blame anyone for wanting to claw back some of the 30%+ losses which came in the granddaddy of all flash crashes – I can’t. It hurts, and pain is what drives bear markets – humans being human – people who can’t wait to count their winnings every morning when the bull is up-ticking, but dreading the market’s open the next day when stocks are cascading in a bear market.
My message here is, use strength to sell back to the sleeping level if the market rebounds. The market just recouped one-third of its February-March loss, it reached my Tuesday projections in only two days. A gift ?
Bear market rallies suck a lot of investors in well before a bull market starts, and here is the danger.
IF THERE IS ONE TAKE-AWAY FROM ALL THIS, IT IS THAT COVID PRICKED THE BUBBLE, BUT THE MAGNITUDE OF THE PLUNGE WAS DUE TO THE FACT THE MARKET WAS HISTORICALLY MORE OVERVALUED THAN AT ANY TIME EXCEPT THE DOT-COM INTERNET BUBBLE OF 2000.
Even at these levels the market is overvalued, and especially if corporate earnings are adversely impacted for a year or more.
The Fed and government didn’t ante up all those concession and cash because they are spendthrifts. They are absolutely petrified with what is happening in a presidential election year.
Fed to the rescue ? They damn well should be. I think they were primarily responsible for that 45% surge in the stock market in 2019 and into mid-February that pushed valuations to extreme levels. Naïve ? Political ? Don’t know, but a lot of investors got hurt.
If the Fed and Administration have their way, the bear market and recession of 2020 will only be marked by an asterisk in the record books of stock market annals, a glitch unrelated to normal economic/stock market behavior, something to be ignored at least until the November election.
Expect unrelenting misinformation, lies, and hype. Everyone wants the bear to end and bull to crank up stock prices to February levels. Not going to happen. Settle for salvaging a quick one-half of this bear’s losses, two-thirds if you are lucky.
Bottom line: Expect big ups and big downs as the market probes for the level that discounts the known and perceived positives and negatives.
CURRENT RESISTANCE AND SUPPORT LEVELS:
Resistance: DJIA: 23,241, S&P 500: 2,716, Nasdaq Comp.:8,027.
Support: DJIA: 21,673, S&P 500: 2,547, Nasdaq Comp.: 7,577
Thursday March 26, 2020 (DJIA:21,098) “Rally Should Follow Through – Sell Off a Bad Sign: This week’s two-day surge hit my Tuesday morning DJIA projection on the nose, but fell a smidge short for the S&P 500 and Nasdaq Comp.. The market proceeded to give up a lot of yesterday’s solid gain, which is not surprising.
For one, investors are still in shock after a DJIA 38%, four-week bloodbath.
For another, the rally was driven by short covering and panic buying and needs confirmation.
The futures point to a lower open today, and the obvious question is, was that the bounce ?
We do know the market will open a smidge lower but it is weakness that can give us the answer.
A stall on the downside would attract buyers. A positive open after the futures traded much lower before the open would be even better.
Odds favor an attempt to beat Tuesday’s projections for this rally (DJIA: 22,037, S&P 500: 2,617, Nasdaq Comp. 7,776) , failure to come close would be a warning signal..
This is classic bear market stuff. With a little luck, the market will enter into a wide-swinging trading range where one day it looks like it is heading much higher, the next day a lot lower.
The market is trying to find the level that discounts known and perceived negatives, and that is difficult in this environment.
Before the crash, I was projecting a decline of 45% to 55% for the DJIA. It is already down 38%. That is how the Street’s new normal, the “flash crash,” works.
Let’s address my Monday headline “Bear Market Rally to precede Spike Down to DJIA 14,000 (S&P 500: 1,575).”
I still see another leg down when reality sets in on just how much damage has been done so far this year. That leg down could start within a couple days. More than likely, it will start in a month or two.
The market was incredibly overvalued before the crash, but is still so if earnings going forward are still part of the P/E equation.
The economy was weak before COVID pricked the bubble, why else did the Fed cut rates three times ?
After horrendous economic numbers, the economy will rebound sharply, but won’t have legs. There will be a hangover from all this, so do not let Fed, Administration and Wall Street hype suck you in for another crunch at higher levels.
Wednesday March 25, 2020 (DJIA: 20,689) Rally For Real ? Should Know by 10:45 Market Oversold…But Still Overvalued
As noted yesterday, the upside potential for the major market averages is: DJIA: 22,037 up 3,000 points (18%) and the S&P 500 rising about the same to 2,617 and Nasdaq Comp. 7,776.
Whether the market can get there will be known by late morning. The market should open down a bit. If this rebound is for real, buyers will step in before 10:30.
I also noted yesterday, I see the potential for another leg down with a bottom in the fall, most likely October. That seems like years off, so just be aware of the risk, because there will be a lot of Fed, Administration and Wall Street hype in the interim to juice the market before November 3.
After what has just happened, any upside will be welcome, just remember it was the hype that inflated the December 2018 – May 2020 bubble, and the end result this time around stands to be the same – another flash crash.
The “trampoline” effect of stocks rebounding from an extremely oversold condition yesterday was driven by short covering in face of a massive stimulus package coming out of Congress.
Add to that, institutions waiting to pounce on sharply discounted stocks and you get a bear market rally.
Can it be a new bull market ? I have grave doubts. For one, investors got so badly hammered by the 30%, 30-day plunge in the market, they will be sellers as they see their stocks recoup part of their losses.
For another, we are in uncharted waters. The “flash crash,” vertical plunges in the market without warning, are the new normal. This one was the granddaddy of all. It did huge damage to investor confidence. What’s more, COVID is showing no signs of cresting any time soon. The domino effect of the shutdown of businesses in major business centers is immeasurable at this time.
At its Mid-February peak, the S&P 500 was more overvalued than at any time except for the 1999-2000 dot-com bubble.
Not even when this crisis is over, are we going back to those levels. Worse yet, the stock market is historically still very overvalued, and more so considering how badly earnings will be impacted.
BOTTOM LINE: I hold to my projection for the upside potential for yesterday’s rally and acknowledge the market can edge higher depending on news flow, but this is a bear market rally.
I see a volatile trading range and attempt to develop a base over the next two months, then a slide down to new lows as the extent of the damage is more visible, not just for this year but next.
This is a presidential election year. Expect an unprecedented amount of misinformation and hype about the future of the economy and stock market.
That is precisely what inflated the December 2018 – May 2020 bubble that COVID burst and which decimated investment portfolios in a month’s time.
Covid pricked the bubble, but it was the overvaluation of stocks that was the root cause of the ensuing devastation.
What happened during 2018 will be written about in future books that cover the COVID Crash of 2020, and it won’t read well for The Fed, Administration and Street.
After taking such a big short-term beating, investors may want to raise some cash on stocks that are rebounding sharply and will soon run into selling by other investors who have the same idea. Cash may be needed going forward, as well as peace of mind if the market tanks again. All the hype, manipulation, lies and fabrication can’t recoup all that has been lost.
Tuesday March 24, 2020 (DJIA: 18,591) “This Is The Rally I Referred to Yesterday” This is the rally I referred to yesterday in, “Bear Market Rally to Precede Spike Down to DJIA 14,000 (S&P 500: 1,575).”
I still see lower prices probably later in the year (DJIA 14,000 and S&P 500: 1,575), but expect a big rally starting today with an We don’t know how much the economy will hemorrhage as a result of the global response to COVID-19. Regardless how much aid the federal, state and local governments will anti up, dominos will tumble for many months.
That’s what complicates the market’s discounting of negatives process and increases the odds that another leg down into the fall months.
To give this perspective, we have given back everything gained since early 2017, but a big part of the crush in the market came after COVID pricked the bubble created by Federal Reserve, Administration and Wall Street hype between December 2018 and February 2020.
WHY the bubble ? We know why the Street hyped the market even though it was historically extremely overvalued – they wanted the party to go on and on. We Know why the Administration hyped the market – Trump’s re-election. What we don’t know for sure why the Fed hyped the market !!! If the economy was as Fed Chair Powell often said (in a good place and economic picture “rosy”) why cut rates ? Why paint such a rosy picture if they knew the economy was not in a good place ?
Bear market bottoms occur when investors reach the point where they are too scared to buy even though stocks are obviously only one-half to two thirds the price they were months ago.
What’s different about this bear market is its length – four weeks versus an average of 10 months. The shock of a 30%+ plunge may not have had a chance to sink in enough to scare investors enough to deter them from jumping back in if they see a big rally under way. They may think this was like so many flash crashes, a “flash in the pan.”
Months from now, reality may dictate the bear has further to go in length and downside risk once it becomes more obvious how far the tumble in dominos will reach and that is why this rally is risky.
Monday, March 23, 2020 (DJIA: 19,173) “Bear Market Rally to Precede Spike Down to DJIA 14,000 ( S&P 500 1,575)
As noted Friday, there is no way to predict the extent the dominos will tumble.
At some point, institutions that have cash will nibble, I am not sure they have enough firepower to make a lasting difference.
A 32% discount should be attractive, the key here is to fast forward 9 months to gain the benefit hindsight and that is not possible – too many balls up in the air.
At this point, economic and personal survival is more important to most people than the stock market.
This one is different. This is not a terrorist attack on one particular geographic area in the country, it is not a financial meltdown that money can solve, this is an unpredictable and immeasurable wave of economic devastation that is open-ended.
As in all stock market crises, the markets must find a level that discounts known and perceived negatives.
Generally, I would expect the market to give up two-thirds of the 2009 – 2020 bull market rise, which takes the DJIA down to the 14,000 – 15,000 level (S&P 500: 1,575-2,030).
That can be done with one huge spike down that clears the air, or a sideways trading range that yields to one more plunge (May – October) that clears the air.
There will be rallies that look like the big turn, but fail. Investors don’t have to catch the bottom. If the ensuing bull market is the real thing, there will be plenty of time to make money.
The S&P 500 is just 1.8% lower than it was on December 26, 2019 when the Fed decided to reverse policy and pump money back into the system along with rate cuts and a lot of misleading hype leading to a huge bubble.
COVID-19 pricked that bubble in mid-February. The market gave back what the bubble created.
Friday, March 20, 2020 (DJIA: 20,008) “No Way To Project Tumble of Dominos”
Re-read Thursday’s post below, “Fed’s Bubble Set Market Up Crash -Shame” for perspective.
The market is probing for a level that discounts an adversity we cannot at this time measure. We passed the “ouch” point weeks ago and are into the “I can’t stand it anymore” point, where we would all like a well stocked cabin in the woods away from everyone.
I have been here many times going back to 1962, and they all bear at least one characteristic – unless you have a sizable annual income and a lot of cash – you are too scared to buy. The tendency is to wait for assurance that another leg down is not going to happen after you buy.
If you do buy, you will be paying up for stock, which has its risks as well.
If so, you are human, that’s how normal people without a huge safety net of income and liquid assets should feel.
This crisis is different from ones in the past. It is forcing businesses to close and people to stay at home, thus expanding its economic adversity beyond anything we have experienced in the last hundred years.
We do not know how far the tumbling dominos will reach. We don’t know how effective government efforts to reduce the economic carnage will be.
I expect sharp rallies to occur that give the impression we have seen the bottom, only to yield to another leg down.
Odds favor a bottom in the fall at lower levels, October and a DJIA of 15,000 – 16,250 (S&P 500: 1,750-1,850).
What can change the outlook dramatically ? The obvious, a sharp slowdown in the spread of COVID-19, a new drug to arrest it, or new innovations and a mobilization by the government, corporations and individuals to counter it.
Thursday, March 19, 2020 (DJIA: 19,898) “Fed’s Bubble Set Market Up For CRASH ! SHAME !” The S&P 500 is up 2.2% from the December 26, 2018 low.
But it is down 29.3% from its February 19, 2020 high.
What gives ?
Blame it on the “bubble” created by an abrupt Fed policy change in December 2019 followed by Fed nurturing along the way and three cuts in its fed funds rate. Add Administration hype the usual Wall Street BS and you got the most overvalued market ever with one exception – the dot-com Internet bubble 1977-2000. The Powell bubble was burst on February 12 sending the market into a freefall.
Bubble DOB: January 4, 2019.
The birth and inflating of the bubble that sucked investors into the market in route to the slaughterhouse should not have happened. It was designed to head off a recession/bear market going into an election year.
With the S&P 500 down 20.2% in Q4, 2018 and the economy on the threshold of recession, the Fed suddenly reversed its policy of raising interest rates to one of “ease,” the message being rate cuts were coming.
On January 4, 2019, Bloomberg News headlined “Fed Chief Powell gave the markets the message they wanted – that the Fed was sensitive to downside risks, i.e. no more rate hikes and an end to balance sheet unwinding in June. The market soared 6% in four days.
Throughout the year the Fed maintained a “supportive policy, characterizing the economic outlook on January 30 as “Rosy.”
If the outlook was rosy, why did the Fed switch to a policy that would result in interest rate cuts ?
The market continued to soar by the end of March it would be up 26%.
After a 7.3% correction in May, Powell hinted at a rate cut in early June indicating he was closely monitoring the impact of trade developments and would act as appropriate to sustain the economic expansion, giving the Street to expect a rate cut in the near future. The market surged 10.6% between June 3 and July 25.
In his October post-FOMC presser, he said. “There’s plenty of risk left, but I have to say, the risks seem to have subsided.” This fueled the final leg of the bubble, one that gained 17.3%, sucking investors in only to get blindsided by a bursting bubble in mid-February 2020, worse yet by COVID-19.
On two occasions, Powell said, “the economy is in a good place” – February 28 and October 4, both preceded market rallies.
IF THE ECONOMY WAS IN A GOOD PLACE, WHY CUT RATES on August 1, September 19, and October 31 ?
Bottom Line: Investors got sucked into overvalued stocks thinking the Fed had their backs, all of which inflated the bubble again and again.
This all begs the question, should the Fed micro-manage the economy and the stock market ? Should it try to extend an economic expansion that is already 10 years old ?
IMHO, its action, along with Administration and Street hype, inflated the bubble that made the market so vulnerable to such a steep decline once the bubble was pricked. If that wasn’t done by COVID-19, it would have burst on its own, or been pricked by something else.
While the Market was still historically overvalued in January 2019, it was at levels that could better absorb the impact of COVID-19. Recession/bear market, YES, but slaughter – NO !
Markets should trade freely, be let them find their own comfort level that discounts known and foreseeable positive and negatives.
The public is pretty well aware drastic measures are being taken to head off the spread of COVID-19 and its vast impact on the economy and financial markets.
It is now up to stocks to find a level that discounts the worst of the worst.
Barring a Depression and global meltdown, I expect a huge momentary spike down to DJIA 15,000-16,000 (S&P 500:1,700-1,800) before a meaningful attempt to base out. The spike would occur so quickly, investors/traders would have to have orders on the books well below the market hits low in order to execute an order and in a new electronic and restricted environment I am not sure even that would work.
Wednesday March 18, 2020 (DJIA: 21,237) “At Some Point – A Huge Spike Down to Clear the Air” This is what I meant by Friday’s post warning about “Wide swinging trading range to start today [Friday].
This is classic bear market stuff, fear, hope, confusion, and sharp reactions to news flow.
The financial press refers to the possibility of a recession. Really ? We have been on the threshold of a recession since December 2019 without COVID.
This will be worse than 2007-2009 without a major break in the intensity of COVID.
That is possible, but the shuttering of businesses and restricted mobility of individuals and disruption of supply chains will continue until companies and people adapt. They will do so, but it will take time. We must not under estimate the ability of companies and people to innovate !
So what happens to the valuation of stocks ?
Clearly the 30% plunge in stock prices has reduced the overvaluation of stocks present before the plunge, but only temporarily, because earnings will plummet meaning stocks will continue to be historically overvalued.
It will end with a huge spike down that will discount all known and wildly perceived negatives and that could be DJIA 16,250 as I projected months ago, or 14,200 which would a two-thirds retracement of the 2009-2020 bull market.
One certainty: There will be rebounds that look like the BIG TURN. All but one will be sucker rallies.
While borrowing at zero interest rates is attractive and may be necessary to the alternative, bankruptcy, that money must be paid back. With individual, corporate and government debt already uncomfortably high, new borrowing is not the answer.
We came within a whisker of a total meltdown in the Great Recession/Bear Market of 2007-2009, and will do the same again this time.
Chasing rallies is dangerous, so is buying dips. If an investor “must” buy, a less risky tactic is to take a partial position (10% -15%), then add to it when more sure the worst has been seen.
What is not known now is the domino effect, just how many will tumble and how far reaching that tumble will be.
Eventually stocks will discount the extreme and under these conditions, that will take the form of a spike down 4,000-5,000 Dow points all at warp speed, no one can buy the low unless they have orders on the book below the market.
RE-READ THE POST BELOW FOR A SPARK OF OPTIMISM.
Tuesday, March 17, 2020 (DJIA: 20,186) “Depression ? But the Worst Doesn’t Have to Happen.” Covid-19 pricked the outrageous stock market bubble, but a bear market was long overdue. The bull market was 11 years old, constantly buoyed by Fed and Administration hype to the point the S&P 500 was more overvalued than at any time in the past except the 1997-2000 dot-com Internet bubble. Wall Street insisting on partying beyond last call and this is what happens.
In three weeks, the major market averages have declined: DJIA: -32.0%, S&P 500: -29.8%, Nasdaq Comp.:-30%, Dow Transports:-38%, Russell 2000: – 39%, ValueLine Geometric: -40% (the latter is unweighted).
The market has erased the entire December 26, 2018, Fed-induced, 45% bubble blow-off that never should have happened. Shame on the Fed !
The DJIA, S&P 500 and Nasdaq Comp. have given back one-third of the entire 2009 – 2020 bull market.
This bear market can drop 45%-55% before the carnage is over, even more if a recession turns into a depression.
THAT DOES NOT HAVE TO HAPPEN.
The growth of COVID must shrink enough for people to be allowed and comfortable enough to go to work and out to buy and have fun. Such a change could happen quickly. Everyone on all sides of the economy wants to get back to normal.
The stock market would stabilize, even rise to DJIA 24,500 (S&P 500:27,500), but the days of “hold-your-nose and buy” are over.
Institutions’ blind trust in computer algorithms to make buy/sell decisions are over – They not only failed, they contributed to the steepness of the decline.
The best computer in this business is an experienced human brain, not the fastest, but capable of thinking without a silly hand-held toy.
In November, I called for the bull market to top out in January, it did not do so until mid-February. I expected the market’s absurd bubble to burst on its own or be pricked by an event.
Covid Pricked the bubble. I expected a 45% plunge into October, even a flash crash of 18% in its initial plunge, but not this carnage.
The extent of this damage only partly COVID, it is the nation’s response to it that will choke the economy. Depending on how long that lasts, we could be in a global Depression. Like noted above, if stay-at-home lasts only a month or two, we will be dealing with a nasty recession. The wild card here, and it is a wild one –IF THE U.S. AND OTHER COUNTRIES ARE ABLE TO ADJUST TO STAY-AT-HOME WITH INNOVATION THAT REDUCES THE IMPACT, THE PICTURE IMPROVES !
Monday March 16, 2020 (DJIA: 23,106) “A Halt To Trading For more than a Day ? Spike Down to DJIA 16,260 ?
The perfect storm gets stormier.
No, we are not going back to new highs where everyone would like to have sold.
Yes, we are going into that wide swing trading range I said would start Friday morning, but the low end will spike down to DJIA: 16,260; S&P 500:1,866; Nasdaq Comp: 5,211.
That spike depends on exchange circuit breakers the first at the open and others if needed to calm panic.
It is possible trading will be halted for a day or more. That has happened twice, once on Oct.27 in face of the Asian financial crisis and a second time following the Sept. 11, 2001 attack on the World Trade Towers when it was halted for four days.
Over the weekend the Fed slashed its fed funds rate a full point to 0.25 percent But, if individuals, corporations weren’t borrowing enough before, why would they at lower rates, especially since borrowings at all levels are uncomfortably high ?
So what does the Fed do when the market slides again and the recession deepens ? Oh my !
I have little regard for the Federal Reserve. As noted frequently since January 2019, it misled investors to think it was safe to buy, that the “economy was in a good place, all the while it was planning to cut rates. The result, a 45% surge in prices to a level of overvaluation seen only once, the 1999-2000 dot-com bubble.
There are times when the dog wags the tail, and times when the tail wags the dog.
This reminds me of watching the World Trade Towers come down and the confusion that followed. The difference today is twofold. Will Americans rally in support against a presumed enemy ? Or, will they slide into a survival mode and panic against a mysterious enemy, COVID, which has the potential for an open-ended impact ?
This crisis is different, it has a far reaching potential for economic impact even if Americans rally to counter it. This time around, just about everything comes to a halt with a devastating impact on the economy. Expect bailouts of airlines and banks for openers and major damage to small businesses.
There are not enough federal and State dollars to prevent serious damage.
THE STOCK MARKET WAS SERIOUSLY OVERVALUED BEFORE COVID, AND BASED ON WHAT WE ARE SEEING NOW IS STILL OVERVALUED.
BUT , IT WILL FIND A LEVEL THAT DISCOUNTS KNOWN NEGATIVES AND PROJECTED NEGATIVES AND FIND A BASE MOST LIKELY SPIKING DOWN TO A LEVEL THAT EXISTS ONLY FOR A SECOND OR TWO. IF ORDERS AREN’T ON THE BOOKS AT OR ABOVE THAT LEVEL, INVESTORS WILL HAVE TO PAY UP FOR STOCKS THAT WILL GAP UP.
Friday March 13, 2020 (DJIA:21,200) “Wide Swinging Trading Range to Start Today And End in May With Final Bear low in October – Total Damage 45% The market will open strong today as the U.S. House will introduce legislation to address the debilitating impact of COVID-19 on the economy, investments and global financial liquidity.
While the bear market can extend into October with a total decline in the major market averages of 45%, a wide swinging trading zone will develop over the next two months ranging between DJIA 21,700 – 24,040; S&P 500: 2,517 – 2,790; Nasdaq Comp.:7,360 – 8,115. That zone may feature a breakout-fake-out in April/May, but will lead to a final plunge to DJIA: 16,260; SPX: 1,866; Nasdaq Comp.: 5,211 as the fallout from what is happening now becomes more clearly defined.
Ideal for hit ‘n run traders, wild at times with big swings up and down.
Obviously, progress on COVID-19 would help, but at this point it depends on how open-ended the tumble of dominos is, which we won’t know for months.
Again, risk here will be another plunge, probably May to October, but action for traders in the interim.
I do not expect a recession to end quickly – too much financial damage, too much damage to confidence, the driver of economies.
The 45% rally between late December 2018 and February 2020 was a phony event and triggered and nurtured by Fed, Administration and Street hype designed to tack on gains and get President Trump re-elected.
All of it has been wiped out as will be Trump’s re-election.
A return to normalcy, truthfulness and problem solving will replace the chaos we have experienced over the last three years.
Safe wasn’t safe ! A killing in bonds !!
On Monday, with all-time lows for interest rates, I warned NOT to buy the long-term bond, noting that any increase in interest rates from these historic lows will hammer the value of the bond before redemption. In. fact, I noted, this is a good time to lock in profits since these bonds have increased in value with rates plummeting. On Tuesday, interest rates jumped a smidge but the long bond ETFs plunged with the Vanguard Long Term Bond ETF (BLV) dropping 14.4% in four days.
Calling the bottom for the Great Bear Market 2007-2009 11 years ago with my Special Bulletin March 10, 2009 – DJIA 6,850
I had experienced 14 bear markets in my career, I was sure this was the bottom, and prepared readers for the buying opportunity with headlines like:
>February 24, 2009 (DJIA: 7,114) “Does the Cauldron of Fear Have to Boil Before
this Market Turns ?”
>February 25, 2009 ( DJIA: 7,350 ) “When the Fear of Owning Stocks Turns to Fear
of NOT Owning Stocks”
>February 27, 2009 ( DJIA: 7,182 ) “Lock and Load” a surge of 2,000 points in the
>March 2, 2009 (DJIA: 7,062) “$9 trillion Cash on the Sidelines vs $8 Trillion
NYSE Market Value”
>March 2, 2009 ( DJIA: 6,832 ) “Ready …Aim. ”SPECIAL BULLETIN”
>March 3, 2009 ( DJIA: 6,818 ) “Big Money Reaching for the Bushel Basket”
>March 4, 2009 (DJIA: 6,726) “Once off the Sidelines, Big Money Good for a 1,500 –
>March 5, 2009 (Thursday – DJIA: 6,875 ) “Climactic Buy Possible by Tuesday
>March 10, 2009 “TUESDAY” ( DJIA: 6,805) “FIRE !” (BUY !) “
Thursday March 12, 2020 (DJIA: 23,553) “Straight Down Should Change To Sharp, Tradable Volatility In a Bear Market” If the DJIA gets to 22,000 (S&P 500:2,400; Nasdaq Comp.:7,500), they will have retraced one-third of the 2009-2020 bull market, as well as the December 2018 – 2020 Fed-induced surge.
That presumed support level would be a good place for a bounce and the beginning of an attempt to form a base. Depending on news flow about the domino effect from COVID, including the short-term and intermediate-term impact on the economy, which was struggling before COVID, that support can be broken before October with the DJIA tumbling below 2,000 (S&P 500: 2,300; Nasdaq Comp.: 6,600.
TODAY: We are getting close to a sharp, but limited bounce at the open. The Bear market is far from over, but nimble traders, well aware of the risks, can scalp a profit buying the open and selling today or a day or two.
Based on futures trading, of the entire 45% move that began on December 26, 2018 has been erased in 15 days. The market was historically overvalued that December when the Fed-induced surge started and became the most overvalued market ever excepting the 1999-2000 dot-com bubble.
The Fed created and nurtured that bubble. Fed Chief Powel should resign of get fired, but as a Trump appointee neither will happen. His is not to blame for COVID, but is for the outrageously expanded bubble. No, Mr. Powell, the economy is not in a “good place” now.
The bubble was pricked by COVID-19, but would have been pricked eventually by some other news event, the market cannot sustain that level of overvaluation in definitely.
It is doubtful any event other than COVID could have meted out this much damage in such a short period of time.
While a slow down in its spread, an effective treatment or vaccine will trigger a sharp recovery, the domino effect will extend its reach well into the future.
Look for bear market rallies that look like a new bull market. As I have warned repeatedly, do not chase those rallies, there will be plenty of time to make money.
That does not rule out taking a partial position of 20%, then averaging up or down. At extremes, most investors won’t even do that much, fearful the stock is going lower yet. Humans being human.
At extremes, this isn’t about discounting dividends into the future as you’re told in business school, it’s about common sense and human nature.
Chasing extremes can HURT ! – Safe wasn’t safe !
On Monday, with all-time lows for interest rates, I warned NOT to buy the long-term bond, noting that any increase in interest rates from these historic lows will hammer the value of the bond before redemption. In. fact, I noted, this is a good time to lock in profits since these bonds have increased in value with rates plummeting. On Tuesday, interest rates jumped a smidge but the long bond ETFs plunged with the Vanguard Long Term Bond ETF (BLV) dropping 14.4% three days. That is an example of how you can lose money scrambling for safety
Wednesday March 11, 2020 (25,018) “Gutsy Trader’s Buy – Stimulus Plan Due – Bear Market Until Fall – Rallies, But More Downside”
As expected, yesterday’s 4.6% rise in the stock market was a classic technical reaction to a precipitous plunge in prices. It recouped close to two-thirds of Monday’s 7.8% loss.
While normal, the move can also can be attributed to Administration/Congress’ promises to offset some of the adverse impact of COVID-19.
At some point, I expect an announcement that Saudi Arabia and Russia have entered into negotiations to end the oil price war between the two, which is severely impacting U.S. shale companies, though the Saudi’s just announced yet another plan to flood the globe with more oil. Are they looking for more trouble than they can handle ?
This being a presidential election year, expect all stops to be pulled by the Fed and Administration to reverse the big drop in stock prices which is identical to the 20% plunge in Q4 of 2018.
With the economy on the threshold of a recession and bear market in Q4 2018, the Fed intervened in January 2019 with an abrupt change in policy, first promising lower interest rates, then actually cutting its fed funds rate three times, all the while claiming the “economy was in a good place”. Their action gave investors an “all clear” signal leading to an unsustainable bubble which led to the carnage investors have experienced over the last 13 days – irresponsible ! If economy was fine, why cut rates ?
The Fed caved to political pressure, unsuspecting investors paid a huge price.
Expect the Fed, in coordination with the Administration, to attempt a repeat. While any respite from this market plunge would be welcome, it may not work this time and only serve to suck investors back in before another plunge after a modest rally.
Expect President Trump to announce an effort to resolve the Saudi/Russia oil problem, currying the favor of oil producing states.
A breakthrough in the testing, treatment or a vaccine for COVID would drive prices much higher, but the latter is much further out into the future. Beware of unsubstantiated rumors about solving COVID problems.
Barring major new developments in oil and COVID and action by the Fed, I expect the market to trace out a normal bear market pattern of failed support levels as new negatives surface to reverse rallies back down to new lows into a bear market bottom in the fall.
Yesterday’s bounce needs a bit more to reach my rebound target of DJIA: 25,387; S&P 500: 2,907; Nasdaq Comp.: 8,367. We are in a news whipsaw market where sharp moves in either direction can be triggered by a statement or development.
The futures indicate a loss at the open, if that loss is erased before 10:30, expect my resistance levels to be broken and the market to move higher, especially if news of stimulation is announced.
I hold to my warning that chasing rallies is risky. Anyone buying at the open yesterday saw lower prices most of the day, typical of “gap” opens where the market opens at a much higher level than the prior day’s close.
Tuesday March 10, 2020 “Government To The Rescue – Ha ! Don’t Chase a Short-Lived Rally” (DJIA: 23,851) Here comes the government rescue plan I alerted you to yesterday morning and again in the afternoon’s Special Bulletin. It is what is done by administrations early into recessions and bear markets but all it does is suck investors into the market in time for another crunch as the rally is met by sellers leading to another leg down.
Corrections become bear markets when the S&P 500 declines 20%.
To date, the S&P is down 19.5%. Try to find anyone who does not think this is a bear market.
Besides I believe this is just the beginning, as new negatives unravel to hammer prices lower taking the bear market down a total of 35% – 45% by October.
President Trump is pushing a payroll tax cut, the Democrats opting for paid sick leave, expanded programs for food stamps and unemployment insurance as well as free COVID-19 testing.
The market will gap at the open today with a DJIA surge of some 800 points. As usual, the temptation will be to buy the open.
Chasing the rally for fear of missing out is highly risky. As I have emphasized over and over, frequent rallies occur in bear markets, some impressive.
This rally should start to hit resistance at DJIA: 25,387; S&P500: 2,907; Nasdaq Comp.: 8,367).
I also expect an announcement that Russia and Saudi Arabia will enter negotiations to halt the price war that is so globally disruptive.
That too would stoke a rally – avoid.
A lot of damage has been done since February 12, including:
-The naïve perception that bull markets are immortal, that bear markets are a thing of the past has been shattered.
–Confidence in the federal government and Federal Reserve has been shattered.
–Portfolio values have taken a severe beating.
-The economy was struggling before COVID-19 and the Oil shock, it is now at risk of a deep and drawn out recession regardless what the Fed and Administration does.
-This is just the beginning, the shock waves will extend for many months jolting confidence further.
-We do not know how serious the impact will be on leveraged investment/speculation, but the suddenness of all this heightens the risk of an implosion.
–Wall Street’s algos were woefully unprepared for the unexpected – COVID-19 and the oil shock. They will have to be tweaked, or abandoned for the best computer of all, the human brain (with someone who knows how to use it).
-While home buyers and borrowers may celebrate record low interest rates individual, corporate and government debt is uncomfortably high. Then too, the plunge in portfolio values just cancelled spending plans on homes, autos, trips and big ticket items.
Daily disclosure of new negatives will plague the market for the next seven months. There will be rallies and what appear to be support levels for a major turn that break down.
Expect several sharp rallies followed by equally sharp plunges to new lows as the market attempts to discount known and foreseen negatives (like descending karati chops).
A one-third correction of the 2009-2020 bull market would take the DJIA down to 22,000 (-26%) ; S&P 500:2,500 (-26%); Nasdaq Comp.:7,500 (-24%). This level should trigger a sharp rally
Depending on news flow, The 2009-2020 bull market could give up close to half of its gain or: DJIA 18,000 (-39%); S&P 500:2,100 (-38%) ; Nasdaq Comp.:5,250 (-47%). This is closer to my expectations.
ONE FINAL NOTE: On Monday, with all-time lows for interest rates, I warned not to buy the long-term bond, noting that any increase in interest rates from these historic lows will hammer the value of the bond before redemption. In. fact, I noted, this is a good time to lock in profits since these bonds have increased in value with rates plummeting. On Tuesday, interest rates jumped a smidge but the long bond ETFs plunged with the Vanguard Long Term Bond ETF (BLV) dropping 3.6%.
Monday March 9, 2020 (DJIA: 25,864) “Bear Market…More Downside. Buying Opportunities For Nimble Traders Bidding Well Below Market
My SPECIAL BULLETIN at 3 p.m. Friday warned that a selling panic will hit the market Monday morning if there is no action by the Fed or Administration over the weekend.
I noted, “We are in a bear market that needs to run its course to correct the excesses that were built up by the Fed. Administration and Street hype and disillusion. Impressive rallies will intervene especially in face of government intervention and the potential for encouraging news for a change about COVID-19.
I concluded, “The spell has been broken. Recessions can occur as can bear markets. No quick fixes to years of excess…needs more downside. Bottom in October possible- chasing rallies risky.
The S&P 500 was down 12.4% from its February peak at Friday’s close. Without several major announcements before or at the open to quell the panic, we will have a panic at the open and the Feb. 28 lows (DJIA:24,621; S&P 500:2,865; Nasdaq Comp.:8,264) are in jeopardy.
WHAT CAN HELP:
–OPEC and Russia can take action to stabilize oil prices. I do not know what form that would take, not sure anybody else does either.
-The Fed can try to verbally talk things up. I am not sure what form that would take, not sure anybody else does either.
-The Administration/Congress can promise to pump money into the economy ??
-Good news on the spread, treatment, or vaccine for COVID can be announced, can it be trusted ?.
Bottom Line: INVESTORS SHOULD GET MORE BULLISH AS PRICES PLUNGE, BUT THIS MARKET IS ONLY DOWN 12%. RISK OF GETTING BACK IN TOO EARLY ARE HIGH. I think it can decline 35% – 45% before it’s over.
Panicky markets like this offer traders buying opportunities, but positions must be taken at extremes, chasing rallies is too risky. Today’s open is one such opportunity, though circuit breakers will be employed by the exchanges to curb the selling panic. Assuming no news before or at the open, traders can enter bids 6%-12% below the market as long as one realizes the bear market has further to go.
Friday I noted the SPDR S&P 500 ETF (SPY:297) could get to 279 in a selloff today. That looks more like 256 now. I also noted the Energy Select SPDR ETF (XLE:42.5) could get to 39, but what has happened since leads me to think it can go much lower.
Bear markets must run their course, just expect rallies to intervene that look like the “big turn” but turn out to be fake-outs.
In September 2008, with the 2007-2009 “great Bear Market” in full steam, I said don’t buy the $700 billion Bailout news which was thought would stop the carnage. The market had another 25% to go on the downside before my Special Bulletin “Buy” March 10, 2009 with the DJIA below 7,000.
The entire surge between December 26, 2018 and Feb 12, 2020 could get wiped out.
A one-third correction of the 2009-2020 bull market would take the DJIA down to 22,000 (-26%) ; S&P 500:2,500 (-26%); Nasdaq Comp.:7,500 (-24%).
Depending on news flow, The 2009-2020 bull market could give up close to half of its gain or: DJIA 18,000 (-39%); S&P 500:2,100 (-38%) ; Nasdaq Comp.:5,250 (-47%).
ONE FINAL NOTE: Do not buy the long bond. Any increase in interest rates from these historic lows will hammer the value of the bond before redemption. In. fact, this is a good time to lock in profits since these bonds have increased in value with rates plummeting.
Friday March 6, 2020 “Selling Climax Close to or Below Feb 28 Lows (DJIA:24,681) Today or Monday at the Open – A Trader’s Opportunity” (DJIA: 26,121)
Ever try to wade into a stormy surf ? Fortunately, you can’t get very far, but you can feel the raw, untethered, unfriendly turbulence.
That’s what to expect in bear markets.
Bear markets are always interrupted by powerhouse rallies that look like they are the big turn up. Investors jump in only to get skewered by another leg down. We just had one four days ago and investors who were late to get aboard regret it.
The next major rally will be triggered by a news release (true or false) that millions of COVID-19 test kits are being overnighted to all states, and/or that a cure or vaccine is only a month from development. If partially true, that rally will last more than several days, if not, we will see another sharp leg down.
Astute traders may want to step in today if the market gets hammered (DJIA minus 1,500 pts) as the markets test the Feb 28 lows (DJIA:24,681; S&P 500: 2,954; 8,567).
In fact, if panic sets in, a selling climax may bottom out and bear market rally from a little below those levels will occur (DJIA:24,541; S&P 500: 2,801; Nasdaq Comp.:8,276). The SPDR S&P 500 ETF (SPY) could get to 279. The Energy Select SPDR ETF (XLE) down to 39 in this event.
Again, we are in a bear market. Even with odds of a rally high, so are risks.
That can happen today or Monday at the open. I am sure of one thing, the Fed, Administration and Street will release whatever news they can conger up to stop the slide and it will trigger a rally, however brief.
We are in a bear market with a lot more downside to go, but rallies will intervene.
I see the usual excuses by talking heads of financial firms mostly that these corrections occur and besides “We’re in it for the long haul.”
There is no “long-haul” for seniors or anyone who will need to tap their equity account for major expenses (college, a home, medical expenses)
That doesn’t help to ease the fear of another bear market like the last two (2007-2009 and 1999-2000) that took the S&P 500 down 50% before the carnage ended.
The Fed did it’s thing, but failed. The Administration has little credibility since it fired CDC’s pandemic response team in 2018.
A rally ? Yes, the big turn – NO !
The MAJOR REASON the market has gotten creamed so badly here is because it was soooo overvalued when the news of COVID hit. It will take more downside to correct that.
A one-third correction of the 2009-2020 bull market would take the DJIA down to 22,000 (-26%) ; S&P 500:2,500 (-26%); Nasdaq Comp.:7,500 (-24%).
Depending on news flow, The 2009-2020 bull market could give up close to half of its gain or: DJIA 18,000 (-39%); S&P 500:2,100 (-38%) ; Nasdaq Comp.:5,250 (-47%).
Thursday March 5, 2020 “50% of Flash Crash Losses Recouped – Can the Powers Dismiss Covid-19 as a Market Risk ? (DJIA: 27,090) Yesterday’s strength carried the major market averages back to
the highs posted Tuesday following the Fed’s one-half point rate cut.
The major market averages have now recouped half of the Feb 12,
16% flash crash.
A two-thirds recovery would take the DJIA up to 27,940; S&P 500:3,214 and Nasdaq Comp.: 9,313.
In face of the size of the Fed rate cut and all the hype about a strong economy, the market can get to those levels, but it’s a stretch.
Today’s open will be down, as it should be after a big advance yesterday. What must be watched closely is how quickly buyers jump in at lower prices.
If buyers show up in size, look for a move above yesterday’s close. If they are a no-show, the risk of another big slide increases.
The recent flash crash jolted the Street’s confidence in their “buy-only” algos, so we don’t know how or if they are being tweaked.
Normal human behavior suggests money managers will not take a chance of seeing clients get hammered by another leg down and will defer purchases, even sell.
The HOT money would prefer a crunch so they can leverage-up on buys at lower prices.
While the manipulation apparatus in place today between the Fed, Administration and the Street is capable of propping the market under most conditions, the open-endedness of today’s risks suggests otherwise.
Rate cuts and efforts to head off the destructive impact of a panic, are intended to conveniently eliminate COVID-19 as a market risk, that the Street is looking past any economic weakness or recession to the next business expansion and bull market, making this the first time in history, a bear market would not accompany a recession.
Is a little more upside versus a big downside worth it if the powers behind this 11-year old bull market lose control ?
Wednesday March 4, 2020 “Fed Chief – A Trump Toady ?”
If the economy is as fundamentally strong as Fed Chief Powell stated yesterday, why did the Fed cut rates so dramatically ?
Anyone who chased stocks on the news most likely is sitting on a loss for their haste.
However, the market will surge again thanks to Democrat Joe Biden’s big victory in Super Tuesday, which is was a relief to the Street which prefers a moderate over a highly progressive candidate should the Democrats win the presidency in November.
Yesterday’s surge hit my resistance levels spot on for the S&P 500 and Nasdaq Comp. but fell a bit short for the DJIA. It will give it another shot today. Failure would be bad news for the bulls.
Today’s resistance to the upside is DJIA: 26,667; S&P 500: 3,088 and Nasdaq: 8,988.
Independence of the Fed in doubt
Much as I would like to think Fed Chief Powell is not a Trump toady, his about-face on policy a year ago headed off a recession and bear market and his move yesterday stands to help the president in November. He was appointed to the job of his dreams by Trump, so odds suggest he is not independent.
I am not the only one to be concerned about this. Win Thin, head of currency strategy at Brown Brothers Harriman, told Bloomberg.com the “optics are bad after Trump just called for a big rate cut…I’d like a central bank that doesn’t hit the panic button every time the stock market freaks out…..I am shocked”
OK, assuming Powell is another Administration Toady, investors need to know that. They can count on the Fed to to goose the market every time it tanks. Whether they benefit from the Fed action or get hammered is really their call – no guarantees.
FYI: The yields of the 10-year and 30-yr Treasury bonds are at all time lows. Looking ahead, when interest rates rise again some time in the future, the market value of the long bonds ahead of maturity will drop possibly 20% – 30% – yikes !
Bottom Line: The Fed is doing everything possible to prevent the economy and stock market from tanking before the November elections. The Fed and Administration claim the economy is strong, so I don’t understand why a cut in rates is needed at this time.
What will the Fed do when we have a recession ? What if it is severe ?
The flash crash has warned the Street, buyers can disappear without warning. While fears of the spread of COVID-19 pricked the bubble in stock prices, the flash crash stands to suggest the BIG money walked away for other reasons – a Democrat sweep in November and/or a recession that not even the Fed can stop. Traders only.
Tuesday March 3, 2020 Rate Cuts Would Suck Investors In For Another Crunch” (DJIA: 26,703) I believe we are in a bear market. The trap door was sprung six days ago and buyers were nowhere to be found until the major market averages had registered a 16% plunge.
COVID-19 was blamed for pricking a highly inflated bubble, but the BIG money simply does not pull all bids that easily. I think the Street sees an unavoidable recession, one that could last a long time, as well as a Democrat sweep in the November elections.
Short covering drove the initial surge of buying yesterday.
Yes, the Street will be buying in face of another cut in the fed funds rate and the Administration’s unsubstantiated hype about progress in containing COVID-19, BUT a lot of damage has been done by February’s flash crash and investors and institutions will be ready to sell when they see prices rising to pre-crash levels (overhead supply).
The risk here is investors will now be tempted to jump in after the rebound only to see the market stall as the market attempts to rise further.
The Fed is pretty much a eunuch at this point, without a long-term effective ability to head off a recession any longer, central bankers around the world are scrambling to keep economies from tipping into recession all the while expending all the tools they will need when their country’s economy has plunged into recession.
A moderate recession a year ago would have been preferable to a gigantic one after all stops were pulled to extend this expansion even further. Obviously, the Fed did not want the country in recession heading into an election year.
Bottom line: The Bulls are hoping for lower interest rates to balance off the news flow from COVID-19 and the damage fears of it can do to global economies. The question will be, how much of an impact can
lower rates have when individual, corporate and government are inflated to begin with ? Yes, it would goose the market short-term.
What is needed are test kits for COVID-19, but that is just a starting point. A vaccine will take months, years to develop.
Resistance to higher prices will begin at DJIA: 26,900; S&P 500: 3,127 and Nasdaq Comp.: 9,097.
Monday March 2 “Successful Test of Friday’s Selling Climax Lows Would Spark a Strong Rally” (DJIA: 25,409)
My headline Friday, “Walks Like a Bear, Talks Like a ……..Selling Climax Could Lead To a Sharp Rally Today or Monday at the Open” may play out. We had a one-day reversal on Friday with the major market averages closing at the highs for the day on significantly increased volume after coming within a smidge of my DJIA, S&P 500 and Nasdaq projected lows of DJIA: 24,560, S&P 500: 2,877, Nasdaq Comp.: 8,237.
Those lows may be tested today. I suspect the market averages will rebound within a hair of reaching these lows or after breaking slightly below them all before 10:30 a.m..
If news of the rapid spread of the Coronavirus (COVID-19) didn’t prick the stock market bubble, a recession or fears on the Street of a Democratic sweep of the presidency and Congress in November would have, obviously not this dramatically.
The 16% plunge in the S&P 500 met the upper end of my January/February forecast for a drop of 12%-18% when the bubble burst.
I think we are in a bear market and will see significantly lower prices by October, but with rallies (some sharp) in the interim that give the impression that the recent big losses will be recouped.
This bear has the potential to plunge 45% – 55% in a panicked sell off driven by COVID-19, plus the ;prospect of a nasty, prolonged recession and a big Democrat victory in November.
A recession is not confirmed yet and we won’t know about the elections until November, but any spark of good news in the spread and treatment of COVID-19 will enable the stock market to recoup one-half to two-thirds of its 16% loss in recent weeks.
I expect the Fed to announce another cut in its fed funds rate, which would trigger a brief rally from a temporary oversold level.
What happens in major downtrends is you have times when the outlook looks like it is improving (rally), but are followed by more negative news (another leg down). Positioning oneself takes patience and the ability to reject the fear of missing the big buying opportunity.
Buying because one fears missing a move is one of the biggest contributors to poorly timed investments. One tactic to employ in late-stage downtrends is to buy a partial position in an attractive stock. Buy 50 shares if you intend to own 150 or 200 shares. If it goes lower, buy more. If it goes higher you can average up. The key is, you don’t risk buying an entire position all at once only to incur losses if the stock goes lower.
Fed Meddling created the super bubble.
I believe in letting the stock market find its level of comfort. That goes for the economy except at extremes.
The Fed created a huge bubble last year that burst in recent days hurting investors who got caught up in the hype, people who thought the Fed had their backs as the bubble inflated taking valuations far beyond breaking points in bull markets of the past.
Now, when the Fed needs something to stimulate the market in a crisis, they are out of ammo – shame !
Another rate cut ? Is that supposed to get people back on airplanes ? Back in stores ? Is the economy in a good place now ? Ha !
They blew it, they sucked people into an overvalued market starting January 2019. The Fed should have highlighted the seriousness of our economy’s weakness December 2018 without promising rate cuts and at the same time saying the economy was in a good place.
What Americans need is a dose of the TRUTH !
This flash crash stripped investors of most of their gains going back to January 2019.
BOTTOM LINE: Expect the Fed to announce another rate cut. While that may bring in buyers, it does little to change corporate and individual plans since rates are already low. Additionally, the Fed will hype pumping money into the system, but they have been doing that for months.
The Administration will hype their progress with in combating COVID-19, but they no longer have credibility after firing CDC’s pandemic response team in 2018.
What is needed is test kits, and they are not yet available.
While China is getting back to work after it reports a slowdown in new outbreaks, that may not be true in the United States, since we are just beginning to see the virus gain traction. Most likely, there have been a host of COVID-19 cases in the U.S. for months, there was no capability to diagnose them.
Again, any improvement in COVID-19 will trigger a huge rally, however other negatives loom to limit the upside beyond DJIA: 26,517; S&P 500: 3,077; Nasdaq Comp.: 8,897, initially.
The market should be developing a base in this general area. From there, expect an attempt to recover, which I see failing around mid-year followed by a slide into October.
There are really too many uncertainties out there, any one of which can emerge to change the big picture.
Risk of chasing a rebound is HIGH. Odds favor more downside starting later in the year.
Friday, February 28, 2020 “Walks Like a Bear, Talks Like a….. Selling Climax could Lead To a Sharp Rally Today or Monday At the Open (DJIA:25,776)
“BEWARE OF HYPE, LIES AND MISINFORMATION COMING OUT OF THE FED, WASHINGTON AND THE STREET. This is a presidential election year and there are absolutely no limits as to what can be said or done – none !
While that would be welcome to investors, it would suck them in at higher levels prior to another leg down in coming months (May)
A rally is likely this morning and even a selling climax today or at the open Monday with the DJIA reaching lows of 24,560, S&P 500: 2,877 and Nasdaq Comp.: 8,237.
Monday would be the most likely low for the selling climax, since traders are wary of negative news over the weekend. But, the Fed and Administration may use the weekend to release statements designed to curb the carnage.
Odds favor a sharp rally from a climax low, which would recoup about one–third of the loss since mid-February.
More downside awaits, I expect losses in this bear market to exceed 45%, we have lost 13%+ already. A bear market low could come as early as October.
Yesterday, the plunge in the DJIA from its Feb. 12 all-time high reached the lower end of my forecast of a flash crash plunge of 12% to 18%. The “trap door” phenom kicked in four days ago as buyers were suddenly a no show creating a vacuum for stock prices, ergo a free fall -m straight down.
Expect the Fed to either cut its fed funds rate, pump even more money into the system, or promise both in the near future.
That would trigger a “gap” open which would be a “Bull Trap” where investors, thinking they are on board for a big run, discover the opposite – a fake out and a plunge in prices.
Yes Coronavirus is horrific, but it is not the only thing that terrifies the Street. A recession is imminent and quite likely a Democrat domination of the Presidency and both Houses of Congress. That’s what scares the Street.
The Fed would take such action because it is panicking again seeing trouble ahead. Nine out of the last 10 recessions have been with a Republican in the White House, this would be 10 for 11.
Economic expansions since WW II have averaged 58 months (4.8 years). In June, this expansion will be 11 years old.
Here is what is going through investors minds now. “If only my stocks could rebound to near where they fell from in mid-February, I would surely get out.”
Not going to happen. Too much damage has been done…..and it is not all Coronavirus, which had as much impact as this only because the stock market was so overvalued when news of its spread hit.
We either are in a recession or on the threshold of one as well as a major political upheaval.
BLAME THE FED AND ADMINISTRATIONM FOR RUNNING THE MARKET UP WITH NONSENSE ABOUT THE “ECONOMY BEING IN A GOOD PLACE.” IF IT WAS, WHY CUT RATES AND PUMP MONEY INTO THE SYSTEM ?
BOTTOM LINE: A rebound is inevitable, most likely fueled by Fed rate cuts and Administration bluster. It would be a bear market rally and the Bull Market’s death rattle. Bear in mind, any indication that Coronavirus’s spread is lessening and the DJIA by 1,500 points.
Thursday February 27 “Here’s Where It Gets Tricky” (DJIA:26,957)
OK, the market averages have plunged 9% in days and we are looking at a big drop at the open. The tendency at bull market tops is to view the initial plunge as a gift to jump back in.
In the last four such flash crashes, the market recovered to new highs.
If this is the beginning of the first bear market in 11 years, anyone jumping back in on a rally will get hammered by the next leg down, which could be another 25% to 40% depending on how economic, political, monetary and psychological events play out.
Once a bull market disintegrates, all Hell breaks loose, things happen that no one dreamed of and fear mounts.
Not until the “cauldron of fear boils over” will the market turn up from a bear market bottom leaving investors in the dust with huge losses. Many will have sold out at the bottom convinced the market will go lower.
Odds favor a technical rebound today, triggered by Fed/Administration hype, but risks are high. I believe fears of a spread of Coronavirus is partly to blame, the real danger is the economy which is dancing on the edge of sliding into recession.
Fears of Coronavirus can vanish quickly, a slumping economy can’t. The Fed delayed a recession/bear market a year ago with its abrupt policy change toward ease, but a strong recovery did not develop.
Jumping back in today or in the near future may reward investors, but is the risk worth it. I issue an occasional “buy” for nimble traders, who are capable of clipping a quick profit on a bounce from a short-term extreme down move in prices, BUT that is only for that kind of skill set.
Again, I repeat, there is an overwhelming urge to jump in after one of these flash crashes. While it would have paid off in the past, you do not want to be wrong this time around.
The entire scene here (fundamental, technical, political, economic, monetary and psychological could get VERY, VERY UGLY !
Sooo, what about the Street’s algorithms ? Are they in ask no questions “buy” mode ?
If they are now being tweaked for “risk” employing a defer purchase strategy or worse yet a “sell” mode, we will see the “trap door” affect – straight down.
BOTTOM LINE: I think the economy will be what takes this market down with a bull market top leading a recession by 3-5 months.
A big but short-lived rally will be triggered if news of a slowdown in the spread of Coronavirus is reported. But, it is really the economy that trumps everything.
Wednesday February 26 “Buy: Nimble Traders only – More Downside Ahead” (DJIA: 27,081) Probable scenario: an opening rally followed by a sell off then a rally starting after 10:30. Only the quick afoot.
Add fears of a Sanders presidency to Coronavirus as a reason the Street and press gives for the plunge in the stock market.
But these two issues wouldn’t have had such an impact if the market was not as historically overvalued as it was (and still is).
What will crush this market is an 11-year old economy that is running out of steam. The party is over – last call and the stock market, which always leads recessions and economic recoveries is telling the Street a recession is looming.
We would be in the middle of one if the Fed hadn’t panicked a year ago with hype about easier money then cut its benchmark rate three times before year-end.
Their irresponsible action triggered a 40% + surge in the market averages,
sucking investors into a highly overvalued market. The Fed only delayed the inevitable.
Expect the Fed to trot out its minions with all kinds of bluster about the economy being in a good place at least until November.
Expect the same from the Administration.
Do not buy it !
We are ;looking at a bear market that will slash 35% – 55% off the market averages AS CLUELESS INSTITUTIONS REVISE THEIR “BUY ONLY” ALGOS TO DEFER PURCHASE/SELL.
WHY ? Because they cannot afford huge losses on the magnitude of 50%, buy hold won’t do it as clients panic and accounts shift over to mother money managhers.
What fed the buying panic in recent years will feed a SELLING PANIC.
It happens ! It always happens and this one is overdue.
BOTTOM LINE: A sharp rebound can be expected as the Fed, Administration, and Street pundits fire off a zillion reasons why this eight-day crunch is temporary, that business is great. At the very least this was a warning shot of worse to come.
More than likely, it is the beginning of a bear market.
Technical support capable of preventing more major downside at this time lies a little below yesterday’s close. This was a trading range established between February and October 2019.
A bear market scenario would have a 4-6 week rally stall in early March with another leg down.
Triggers could be one tiny smidge of encouraging news about Coronavirus, or as noted above the Fed, i.e. talk of another rate cut.
Tuesday February 25 “Ignore Fed and Administration Hype”(DJIA: 27,960)
As I have repeatedly said, a nasty correction was imminent, whether it turns into a bear market (down 20%), depends on what new negatives hit the market when it attempts to rebound from that initial correction.
Expect the Fed and Administration to rush out with hype about how good the economy is and what a great time it is to buy stocks.
Don’t buy it ! The hype from both sources has been relentless, but has served to draw investors into the market at extremely overvalued levels.
The U.S. will be lucky to avoid a recession/bear market this year.
Yesterday’s plunge in the market is being blamed on the spread of coronavirus. While I recognize the horrors of it, other negative factors are looming to put the survival of this bull market at risk.
Coronavirus is having a big impact now since the market was so overvalued when news of its increasing spread hit.
For one, the 11-year old economy is struggling and if it weren’t for the Fed stepping in with a lot of hype and three rate cuts last year, we would be in a full-blown recession bear market today and the President’s re-election chances diminished.
For another, even if the economy was not on the threshold of a recession, stocks are vastly overvalued (see Feb 24 post below).
What disturbs me most is the lack of truth and accuracy coming from all levels at the top. Nothing is believable and that is dangerous.
This market will get crushed by the economy. The stock market turns ahead of recessions/expansions, the lead time varies.
BOTTOM LINE: Expect a rally attempt in early trading, sparked by “hype.” A lot of technical damage has been done in the last 7 days, but we have seen five freefalls like this over the last two years, all were followed by recoveries.
The S&P 500 has given up 5% of its value since February 19. That will attract buyers who see this as an opportunity. Overhead supply gets formidable at DJIA 28,720 and S&P 500: 3,315.
As I have warned relentlessly, we are a high risk, overvaluation in the stock market exceeds all levels in the past except the dot-com bubble 1999-2000.
Monday February 24, 2020 (DJIA: 28,986) This is a very dangerous market, especially since “I Am Not The Only One Seeing a Bubble Burst” (DJIA:28,986)
speculative fever is over the top. This is classic bull market top stuff. It is a bubble and will burst at any time. The Fed and Administration will do everything in their power to prevent a bear market before November, but the new normal is a flash crash, a precipitous 12% – 18% plunge in prices without any warning except from a few of us, one of which is InvesTech Research (see below).
InvesTech Research came out swinging in its Feb.21 issue. It blasted the Fed for the “Powell Pivot,” its about-face 13 months ago resorting first to stimulative rhetoric until it cut its fed funds rate in July followed by two more cuts, as well as pumping money back into the system and undoing half of the monetary normalizing underway that started in 2017.
The “pivot” headed off a recession and bear market but created the potential for asset bubbles in the stock market and real estate.
Driven by rate cuts, InvesTech’s Housing [Bubble] Bellweather Barometer is surging to extremes not seen since the 2005 real estate bubble burst that preceded the 2007-2009 Great Recession/Bear Market.
Corporate sales are not as easily manipulated as corporate earnings, InvesTech points out, noting that the Price/Sales Ratio of the S&P 500 has surged to a level not seen since the dot-com bubble burst in 1999-2000.
It’s widely known that the Price/Earning Ratio of the S&P 500 is extremely overvalued with the Shiller P/E higher than at any time over 100 years except the 1999-2000 dot-com bubble.
Additionally, InvesTech notes that the percent of IPOs with negative earnings recently reached that same extreme level as in that 1999-2000 bubble burst.
With all the hoopla about Tesla (TSLA), few know it now sports a valuation higher than that of Honda, Fiat Chrysler, GM and Ford combined.
While the media hypes a historically low unemployment rate, job openings are collapsing. While service employment is still increasing, goods-producing jobs are tumbling.
InvesTech recommends a 35% cash reserve. If all this sounds familiar it is to readers here.
Bottom Line: I am in good company with my warning of downside risk. Granted, the Fed will do everything in its power to prevent a recession/bear market in a presidential election year, including more rate cuts.
This is a big week for reports on the economy. The Chicago Fed National Activity Index comes at 8:30 Monday, the Dallas Fed Mfg. Survey at 10:30.
Aside from the Fed standing ready to cut rates if the economy weakens, we can expect the Administration to hype the Hell out of any report that suggests improvement and downplay any that doesn’t.
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.