End of Month & Quarter. Bears Getting the Ball

To say this has been a long month would be the classic understatement! Four weeks ago, I was all packed and ready to head to Cabo San Lucas for a long weekend before going on to LA for work. Cabo has been on my bucket list since I used to watch The Love Boat on Saturday nights in the 1970s followed by Fantasy Island. I know. Kinda pathetic, but with only 13 channels, there wasn’t much on.

From high to low, the major indices lost between 28% and 42%. It was much worse in the sectors with energy and related groups down more than 60% and some topping 70%. As you would imagine, the less impacted sectors like healthcare and staples lost under 30%. It was a very difficult months for most investors and one people would like to forget. As we know from history, they won’t easily forget this just like they didn’t erase the 1987 crash, 1990 and 1998 events, Dotcom burst, 9-11 and the great financial crisis so quickly.

And that lack of amnesia will be precisely what hurts investors as the crisis abates and the markets and economy recover. Many investors who have not reduced their risk tolerance already will likely do so sooner than later when stocks rebound a bit more. And judging by history, they will likely stay more conservative for years to come, missing out on what I believe will be huge gains.

For almost 5 years, I have written about Dow 30,000 when the masses were mostly warning of impending doom. It wasn’t until late 2019 and early 2020 when they threw in the towel and went all in. I now think Dow 30,000 will be too conservative for the next bull market. While our model hasn’t come up with anything beyond 30K yet, when I plug in make believe future numbers, there are scenarios to see 40,000 and even 50,000 in the 2020s. I know. I am putting the cart way, way before the horse when we may not have even seen the final low yet. Stay tuned.

With month and quarter end here, there is a seasonal tailwind for stocks the rest of the week. However, during volatile times, seasonal tendencies usually get run over. Yesterday, I wrote that the bulls have the ball for the first part of this week with risk increasing as the week went on. I still think that holds true. It would be a huge victory for the bulls to win the battle over the last three days of the week, but I don’t see that as the likely outcome.

 

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Setting Up for the New Week

Last week was certainly one for the ages. It had everything a bull and bear would love and hate. March 23rd will go down as the internal or momentum low for this bear market, if that’s even the right term anymore. By internal low, I am referring to the bottom where the biggest swath of damage was done, where there was the most downside acceleration and panic. If there are subsequent lows in the coming weeks and months, I will go out on a limb and say there will be more stocks resisting the decline than we recently saw and we will actually see widespread differentiation.

From the March 23rd low, stocks rocketed higher by 13-21% in the major indices, causing some to conclude a new bull market has started. As you know, I have never been one to hang on the arbitrary metric of 20% in either direction as the line in the sand. In 2011 and 2018, we saw 19.90% declines that people refer to as bull market corrections. However, somehow adding 0.10% would make them into bear markets? That doesn’t make sense.

Anyway, the bulls made an important stand last week and the tiniest of green shoots has now grown and grown. I will add them to my list of things to publish here this week. It’s a lot of charts. The model for the week will be continued volatility with the edge to the bulls at least for the first two days. It becomes less likely as the week wears on. We shouldn’t rule out a small range setting up either.

I think it’s important to watch the Volatility Index or VIX to see if it can break lower, signaling less stress in the stock market. I also want to see if long-term treasury bonds can finally stop going up each and every day. Finally, the big winner during Friday’s rout was the high yield bond market. It was supposed to decline as it has been behaving like the stock market. However, it finished higher and is showing the earliest of early attempts at leadership. That’s another tiny green shoot.

Remember, taken in a vacuum, any little green shoot can be easily dismissed. However, when you add them up, the tiniest of green shoots ends up being something significant. The news regarding the virus, especially in New York and other big cities, is going to get worse, perhaps much worse. Watching market reaction will say a lot about where stocks are heading. This bears repeating; it’s not so much what the actual news is, but how stocks react. Bear markets do not end with good news, just like bull markets do not end with bad news. For those waiting for the “all clear” sign to invest, my sense is that it won’t come until stocks have recovered a significant portion of what they lost.

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This is NOT 1931 But Still Too Many Looking for Easier Markets

The bull are back in town, at least from Tuesday through Thursday they were. If you even casually follow the markets, you have probably heard that it has been the biggest rally since 1931 after the sharpest decline in the least amount of days since, well, 1931. 1931 was in the heat of Great Depression part I (GDI) which is not an enviable analog. From 1929 to 1932, stocks lost 89% before rallying more than 400% into 1937 when Great Depression part II (GDII) began because the governmental powers that be started taking victory laps, restricting money and tightening credit.

The answer is NO.

I do not believe the current situation even remotely resembles GDI or GDII. People put up 5% and borrowed 95% in the 1920s. The government tried raising taxes during an economic crisis and then putting on protectionist measures. Global governments defaulted on their debt. Because of severe weather, crops were wiped out which led to food shortages. World War II obviously changed all that and the economy was instantly recharged. Some conspiracy theorists argue that FDR knew Pearl Harbor was going to be attacked, but he thought it was the only way to get America into the war. I have no idea and it really doesn’t matter anyway.

Sorry. I got sidetracked.

From the February 19th peak to the March 23rd low, the major market indices lost the following:

Dow Industrials -37%

S&P 500 -34%

S&P 400 -42%

Russell 2000 -41%

NASDAQ 100 -28%

That is a whole lot of red for such a short period of time. From the low on the 23rd to the high on the 26th, the major market indices gained the following:

Dow Industrials +21%

S&P 500 +18%

S&P 400 +21%

Russell 2000 +17%

NASDAQ 100 +13%

That’s a whole lot of green for only three days. However, the major indices are still down:

Dow Industrials 24%

S&P 500 23%

S&P 400 30%

Russell 2000 31%

NASDAQ 100 19%

It has been a crazy week and head shaking month, but that provides a little perspective as to what’s happened to date.

I keep talking about volatility and how it has abated lately as measured by the VIX. On each successive decline, the VIX has declined when it usually rallies. That’s a good thing, however, the volatility index remains stubbornly high at 60+. That is an important thing to watch. We need to see the VIX well below 40 and even 30 before normalcy can return. That won’t happen overnight, but on successive declines into April, we do not want to see the VIX spike higher again to above 80.

One of the many emails I received this week from the many updates I have done asked me if I am worried about anything. I literally laughed out loud. In the 31 years I have been in the business, I have ALWAYS worried about something. I especially worry when I can’t find things to worry to about as was the case to begin 2020. The problem at that time was that the underlying foundation of the market was still pretty solid. Uncharacteristically, it did not warn of impending problems.

Back to the question, of course I worry about things today. I worry that I am hearing only two possible market scenarios here. Either stocks put in a very rare “V” bottom on Monday and a new bull market has begun. Or, stocks are going to see a “W” low with one more decline to revisit Monday’s lows. I don’t hear anyone talking about the major indices cutting through the old lows. That concerns me. However, pundits change their opinions like I scrub my already raw hands these days, all day long.

Finally, there were only 27 stocks hitting new lows on Thursday. As you can seen below, we have seen fewer and fewer stocks doing this since March 12th.

The worst of the carnage should be behind us, but that does not insulate the stock market from an undercutting of Monday’s low. Now we get to watch which sectors lead on rally and decline days. The bulls definitely do not want to see staples and utilities up big on big up days. We want to see people moving into “risk on” sectors.

I will likely work on an update over the weekend since the weather looks crummy in CT and there’s not much to do anyway besides throw and hit with my kids. That’s baseball and softball, not physical violence!

Please stay safe and let me know if I can help you with anything.

Paul

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A Financial Strategy to Use Right Now

Tax Day Postponed

As I wrote about the other day, I want to begin each update with something positive. As most people know the IRS has extended tax filing day to July 15th. My read and that of the many CPAs I speak with is that’s across the board. If we are correct, that includes IRA, SEP and HSA contributions as well along with paying tax owed and estimated taxes. When it comes to taxes, I always have mine done as early as possible to I get it off my list and plan for the rest of the year. Do what is best for you, but please don’t wait until the last minute. If you work with a CPA or other tax professional, know that they have no intention of being locked in their offices come July!

Convert Your IRA to a ROTH

In every crisis, there comes opportunity, some that are obvious and some that are more subtle. Here is one that should have mass appeal. One the broad topic of taxes, I think now is a great opportunity to do a ROTH IRA conversion for those of you have Traditional IRAs. This strategy would have you convert part or all of your IRA into a ROTH IRA. Doing this would result in a taxable event as that amount of money becomes taxable income for 2020, payable in April 2021. So, you would need to have cash on hand or in the bank to pay that bill.

Why Should I Consider Converting to a ROTH IRA?

ROTH IRAs are funded with after tax dollars, meaning you do not receive the tax deduction. However, in return for that, the money inside your ROTH IRA grows tax deferred, meaning you do not pay any capital gains or other taxes on that. Additionally, when you withdraw money from your ROTH IRA, you do not pay income taxes or other taxes on that. Also, unlike Traditional IRAs, there is no Required Minimum Distribution for ROTH IRAs so that money can potentially keep growing and growing.

Why now?

To finish up this topic and strategy for the current environment, the reason you would convert now is the same reason I first discussed doing this in late 2009, 2009 and 2011. It’s because overall asset values are down with the expectation that they will recover and be worth a whole lot more down the road. You would be able to pay the tax when your assets have presumably declined in value than when they could be at a higher valuation down the road.

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Bulls Working on Three Straight

Bulls Working on Three Straight

On Sunday, I discussed the tiniest of green shoots and the scenario for stock market low on Monday followed by a rally. As I said at the time and since, I think it is “A” low, but perhaps not “THE” low. It is certainly a start and I am glad that the market responded to what was diminishing downside acceleration. It looks like those geniuses in Congress will finally pass a massive $2 trillion stimulus plan by the end of the week. I haven’t read the 1400 bill and likely won’t, but I do think it’s a flawed start at what needs to be done. I wrote about the other day in TRUE Shock and Awe. I have no doubt that once the bill gets around, there will be all kinds of nonsense included, but at least the Senate passed it 96-0. The unintended consequences will be extraordinary later this decade.

Yesterday, I discussed that this stock market bottom should not resemble 2008 where we saw the internal or momentum low in October 2008, followed by a revisit in November 2008 and final generational bottom in March 2009. That was five long months of bottoming which followed four months of topping in 2007. I promised to offer examples of how this impending low could shape up today, but it’s already lunchtime and I would rather finish this up and work on that tomorrow.

As I type this, the stock market is shaping up to see its third consecutive day of gains. If you remember, I have been writing that we hadn’t seen even two straight up days since early February and that would be confirmation that the tenor of the market was changing. I really hope that if this rally runs 20% off the bottom, we won’t see a chorus of “BREAKING NEWS: STOCKS IN NEW BULL MARKET” from the financial media. That would be embarrassing.

After three straight up days, no one should be surprised if Friday is a down day. I think there has only been one up Friday since mid-February, not that it really matters in this environment. Mondays have the same track record. After the four-week crash we have seen, it would be normal to expect a sharp snapback to regain at least a third of what was lost. That’s the rally we are seeing now. It’s sharp, violent and vicious.

Here are charts of the Dow Industrials and S&P 500 with my zones for the first bounce to hit.

 

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Not “THE” Bottom – 2008 Not a Good Guide

Well Tuesday was fun! At least for the bulls. Monday pretty much bottomed on schedule and we saw unprecedented and massive buying off the lows. It was really across the board with some eye popping numbers, like 93% of the shares traded went into stocks going up on the day. They were more than 2500 net issues trading higher than lower which is more than 10:1.

In a vacuum some people would say that these are new bull market initiating numbers, or a thrust. However, given the depth and acceleration of the decline, right now, this is best viewed as a very strong countertrend rally in a short-term bear market. As I mentioned on Sunday when I talked about the tiniest of green shoots, I want to continue to see volatility decline and the flight to quality in treasury bonds end. The number of stock making new lows is down to a manageable number, for now, and that’s also good.

At the lows on Monday, I looked for things that did not make new lows and bucked the trend. Semis, long my favorite group, have been outperforming for several days. Likewise, software, internet, communication services. discretionary, homebuilders, materials and biotech. That’s a healthy number of groups that resisted that final wave of selling.

Let me close with this. All those people invoking 2008 as the model of how stocks are going to bottom will likely be wrong. The bear market began in 2007 and ended in 2009. It was 18 MONTHS long. This decline is 5 weeks so far. Stocks saw their internal or momentum low in October 2008, followed by a revisit in November 2008 and final bottom in March 2009 as you can see below.

I offer that while the bottoming process has already begun as I wrote about on Sunday night, it is going to take some time and more violent swings while the foundation gets repaired. I don’t believe it is going to last 5 months. I also do not believe the low from Monday is “THE” bottom. It should be “A” bottom.

A better model for the stock to bottom can be found from the 1987 crash as well as 1998 and 2011. I will pick up on that tomorrow.

Be well and STAY SAFE!

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TRUE Shock and Awe – We Need MORE from the Government

Target.com

Before I launch into another one of my “brief” updates, I want to share something good that can help everyone. While there has been major hoarding of paper towels, toilet paper and sanitizing products at the stores, I understand that supply chains are stocked and will continue to deliver to stores. Once people have their fill of toilet paper, it’s unlikely they will need more anytime soon. I just don’t get this. Why toilet paper? Why bottled water when the taps work fine, even though you may not like the taste? I totally understand the sanitizing demand, but even then, we know that soap and water works better.

Anyway, our family is a big Target user, both online and in person. If you are looking for specific products, go to Target.com and type your zip code in. A certain store will be your default. Find your product which is probably out of stock at your store. However, there is a great feature to search nearby stores and I am finding Purell, Clorox products, paper towels and even toilet paper all within 20 miles of me. I expect most of the in demand products to be in better and better supply as the weeks go on.

On Sunday afternoon, I published The Tiniest of Green Shoots – Monday Not Looking Pretty where I offered that stocks should see one more selling wave on Monday before finding a low of some sort. So far, so good as Tuesday is looking very strong to begin the day. Those little green shoots I wrote should only increase going forward, but we still really need to see back to back days of gains for stocks. That hasn’t been witnessed since mid-February. I will have many more market comments tomorrow or Thursday.

Congress is on the verge of passing what they deem to be a massive stimulus. Frankly, it’s not enough. More on that later. The markets will not see their final bottom on any passage of legislation. That’s a canard. Markets don’t bottom on good news. They usually find a low on bad news when sellers are exhausted, not when buyers suddenly rush in.

Think about it. Just this young century, we experienced 9-11, the financial crisis and now this, the Corona Crash or whatever it will end up being called. Each of these three historic events were labeled “generational” or once in a lifetime. My math friends tell me these are 5 or 6 sigma events. Better put, they should only happen every hundred or thousand years. I don’t know about you, but three Black Swans (incredibly rare event with unusually severe consequences) in 20 years is unfathomable. The Chinese say, “may you live in interesting times”. Well friends, I don’t know about you but I have had enough “interesting times” this century to last me a lifetime! Lets’ bring back some good ole boredom!

Lots of Opportunities to Share My Opinion in the Media

Over the past week, I have done a number of media segments with local Fox, Yahoo and Fox Business. Here are a few where they have created links. I promise you that if nothing else, they are entertaining.

Fox Business

Yahoo#1

Yahoo#2

Yahoo#3

Interestingly, they were much less focused on short-term market behavior than more big picture stuff. I don’t want to say that I was angry because that’s not true and not really my personality. I wanted to impress upon the need for a sense of urgency. Although I am usually hypercritical of the Fed, I do believe Chairman Jay Powell had his “AH HA” moment almost two weeks ago and the Fed has completely and utterly opened up every spigot they have to help combat the illiquidity and massive dislocations in the markets. They pretty much guaranteed unlimited liquidity.

Mnuchin Gets It But It’s Not Enough

Treasury Secretary Steve Mnuchin wasn’t far behind. He gets it. First, there was the $8 billion immediate bill. That was followed up by the $100 billion Family First Corona Response Act, signed into law last week. Both had wide bipartisan support. Next up is a bill to help average Americans. Whatever number is being bandied about, $1.3 trillion, $1.5 trillion, even $2 trillion, it’s simply not enough. Our economy is 70%+ consumer driven. We have 35 million small businesses.

The economy has literally fallen off the cliff. In 2008 many people were to blame for their behavior as they took on way too much debt and did worse. Today, it’s hard to blame anyone for a pandemic. Through no fault of their own, the average working American and small businessperson will be severely impacted. No one should have to worry about feeding their family or keeping a roof over their head. Action needs to be taken for the next 4-6 months, not sending a one-time check to people. Small businesses need loan guarantees and debt forbearance to get back on their feet at a minimum.

If everyone is really talking about shock and awe, let’s deliver true shock and awe and stop the piecemeal nonsense. The unthinkable, the unimaginable, the unfathomable has happened. There needs to be an equal response from government.

Our behavior today was deemed extreme, unnecessary and almost laughable just 14 days ago. If we had taken extreme measures early enough, we would be in a better place today, like South Korea and not Italy. Reopening the the country for business is lunacy, in my opinion when New York City is close to capacity for hospitals. People need to have a little more patience so everyone can get through this sooner than later. Sending healthy people back to work is penny wise and pound foolish.

If Congress wants to leapfrog in front of the problem right now, they should be considering a multi-pronged stimulus in the many trillions. TRILLIONS. Not one. Not two. A program for small businesses. Short-term forbearance for mortgages and student loans. Direct cash in consumers pockets and not just a one and done. People are going to need cash for at least the next 3-6 months.

No Handout for Corporate America

Rescuing corporate America is a different story. While the airlines, hotels, cruise lines, casinos and retailers all operated legally and probably in the best interest of shareholders, only the airlines are systemically important to the economy. I am absolutely not in favor of bailouts and handouts. However, just like the government did with AIG, Fannie Mae, Freddie Mac and the money center banks, I am all for having Uncle Sam invest in and recapitalize many of these entities in exchange for non-voting stock and warrants that can be sold in the public markets if and when things recover.

I also believe that if a company accepts the government’s terms, executive stock options should be wiped out along with stock buybacks for as long as the government remains a shareholder. At the same time, executive compensation should be limited. It’s foolish to ask companies for a moratorium on layoffs.

Let’s remember that the government made more than $100 billion from its financial firm investments in 2008. They didn’t hand out charity, but they did allow corporate elite to grow richer at the expense of everyone else.

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The Tiniest of Green Shoots – Monday Not Looking Pretty

I want to begin by hoping everyone is staying safe and taking the necessary precautions when venturing out. I spent part of my work weekend mapping out a series of updates and then writing content. As you all know, I am not known for brevity so I thought it would be more beneficial to create a series rather than one very long newsletter. After this piece, I have a short one with some financial planning tips and a big picture one about what the powers that be should be doing. I also have one full of indicators pointing to a strong bottoming process.

In this update, I am going to discuss a few tiny, green shoots that have developed. If you are not familiar with the term, green shoots occur after a big forest fire when the earth is totally scorched. The soil becomes overly rich with nitrogen and then you start to see one tiny piece of green vegetation pop up. Eventually, what used to be a huge forest is now full of green shoots that will grow into very tall trees. As I was conducting my research and analyzing the landscape over the weekend, one common theme kept popping up. As dark as it is or seems right now, stocks are not done going up after this storm passes. I have projections to new highs, possibly in 2021 which I know doesn’t appear to be likely.

Bears Ready for Monday

However, with that piece of really good, long-term news, Monday is setting up to be another ugly day for stocks after the bulls couldn’t hold on to control on Friday. Congress will likely be blamed, but I think the odds favored stocks going down on Monday almost regardless. Given what you are about to read and some fairly wonky data that I won’t go in to, there is a reasonable scenario for finally seeing a low of some sort before the closing bell rings on Tuesday. IF that comes to fruition, I can also make a case for a 10-20% rally over the following two weeks, but that’s putting the cart before the horse. Let’s get through Monday first and see what looks likely.

Getting Outside for Some Therapy

While some people have stayed glued to the news or social media, I have found that getting outside and doing something has been super therapeutic. I do have the luxury of my office being only three miles away and I can come and go as I please. Except for the healthcare professionals in my park, everyone else seems to have closed up. Every day feels like a Sunday.

It felt really good to work out with one of my sons on the baseball field, preparing for his final season of Little League. I just don’t have the heart to tell him that there isn’t going to be a season. It was also nice to hit some golf balls, but I found it very disturbing that so many young people at the range were just hanging around in close proximity and even sharing vaping pens. They just don’t seem to get it and that is causing a bad chain reaction.

As I type this on a sunny, but cool Sunday afternoon in New England, it’s almost impossible to believe what has transpired in such short order. Looking outside it’s like any other Sunday afternoon in early spring. But beneath the surface, WOW!

On Friday, it was no surprise that stocks could not hold on to early gains in hopes of that elusive back to back rally. As I mentioned last week in Looking for a Green Shoot, there are a number of signs to look for that will indicate sellers have been exhausted. The easiest one for you is back to back rally days, something I do think is coming sooner than later.

On a more technical front, we want to see that downside momentum is waning. We may see lower prices, but those should be with less stocks participating and less acceleration. Friday saw an ugly afternoon after the usual bad news on the virus along with Ronin Capital being liquidated. They may be the first, but they won’t be the last.

On the more than 6 days of panic since the decline began, you can actually see the massive selling waves if you sit and watch the market trade. I keep saying that it looks like someone or a group is indiscriminately hitting the sell button at any price just to get out. In reality we are seeing computers executing mass liquidation programs, literally across all major asset classes, stocks, bonds, gold, oil, etc. Eventually, which I think may be this week, sellers will either be fully or at least temporarily exhausted to allow for a sharp, snap back rally.

Here Come the Tiniest of Green Shoots

Getting back to Friday’s action, and I don’t want to put too much importance on one single day, there were a number of positives in an otherwise brutal day. Let’s go through them. First, I have the number of stocks making new 52 week lows on Friday as you can see on the far right of the lower chart. The S&P 500 is in the upper chart. There were 299 new lows on Friday versus 2200 last Wednesday and almost 2400 last week. With each successive decline, fewer and fewer stocks are participating. That’s what I mean by a loss of downside momentum. If I am right about Monday being down, let’s see what this number brings.

Next, let’s take a look at the Volatility Index (VIX), something I discussed last week. Just like with the number of stocks making new lows, we look for the S&P 500 to go lower with the VIX not exceeding its previous high. That would also show very early signs of selling pressure beginning to ease. As you can see on the lower chart, the VIX has been trending down (less volatility) while stocks continue lower, the tiniest of green shoots.

Continuing on, I often write about one of my favorite canaries in the coal mine, the New York Stock Exchange Advance/Decline Line which measures market participation. Again, it’s only one single day in what has been a sea of red, but last Friday amidst the carnage, there were only 330 more stocks falling than rising. Given the size of Friday’s decline, that number should have been three or four times that amount. Another tiny green shoot.

Below is a chart of TLT which is an exchange traded fund (ETF) that invests in long-term treasury bonds. During stock market meltdowns, this security usually goes up in what’s often referred to as a flight to quality. Looking at the chart below, TLT peaked two weeks ago and has made at least one lower high, so far. Of course, there may be other things at play in the treasury bond market which caused an inital exaggeration two weeks ago. We will see.

It has been an incredibly tough four weeks for the bulls with relentless selling waves and panics. That’s not easy for anyone but a bear to sit through and watch. However, just like we saw in 2011, 2008 and 1987, when downside momentum began to wane and the tiniest of green shoots started to sprout, the bears’ grip was loosened on each successive decline to new lows. There is a reasonable scenario for the tide to turn this week.

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Looking for a Green Shoot Within a Week

Stocks have not been up on back to back days since the market peaked one month ago. As I mentioned the other day, we have seen 6 independent days of widespread panic as you can see in the chart below. The very first sign of even a tradable rally will likely occur when we finally see stocks able to rally for two straight days. That opportunity should come next week at some point.

Once we see some sort of low forming there will be a lot of damage to repair. The way that happens is by entering a wide trading range that can sometimes be violent. Stocks should initially rally into the zone formed by the blue, horizontal lines which is roughly Dow 22,000 to 23,500. What we want to see is the historic level of volatility begin to abate.

How exactly do we measure volatility?

There are many ways, but looking below at the chart of the CBOE Volatility Index or VIX is a common one. I won’t go into the wonky details of the how the VIX is calculated. You can read about it online if you have the patience. The long and short of it is that volatility almost always goes through the roof during stock market declines. A VIX between 10 and 20 is fairly normal. This week, it hit 85. The VIX usually collapses quickly when downside momentum begins to slow down and that’s a good sign.

To give you a long-term view of the VIX over the many market declines we have seen this century, take a look at the chart below. You can see enormous spikes in volatility at the end 2018, early 2018, mid-2015, mid-2011, mid-2010 and of course, in the fall of 2008. It’s unheard of for the VIX to stay elevated for long periods of time because that type of downside momentum in stocks can’t last. It’s just hard to imagine while you are living through it.

I suspect that after the market gets through the middle of next week, we will see volatility begin to abate and stocks begin to find their footing. I don’t imagine that investors will be lining up to buy heading into a weekend. And Mondays have not been kind to the bulls over the past month. There may be one selling wave left. However, if you can close your eyes, swallow hard and wait until Wednesday, I think stocks may be closer to calming with a green shoot sprouting here or there.

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More Panic in the Air. Looking for Back to Back Rally Days.

I was hoping to post a number of indicators showing historic levels of bearishness and oversold readings in the stock market. However, when I started creating the charts, I couldn’t stop and I just gave up after making 18. Perhaps, I will offer again in a future post. As has been the case with every post, these are truly history making times, in the financial markets, the economy, global health, etc. The word “generational” doesn’t seem to do it justice.

Today (Wednesday) was the 6th day of panic in the past 14 trading days and yet another potential low for stocks. During “normal” times, just one day of panic is enough for stocks to hammer out a low of some sort. The average daily move over the past three weeks exceeds 5%. That’s daily, not monthly or even weekly. Now that’s volatility.

You may have noticed that once stocks began to plummet, some pundits stopped offering short-term forecasts. I know I did because doing this for more than 31 years, I have learned that once the markets stop functioning normally and panic sets in, traditional or sensible analysis just stops working too, for the time being. Some folks keep on calling for levels like popular moving averages which have all been exceeded. Some have used trendlines connecting old lows in a rising fashion. Many were looking at some “key” prior lows to be tested or revisited.

Today, the S&P 500 briefly breached its lowest point from the Q4 2018 massacre as you can see below at the horizontal blue line. By the end of the day, it had regained that level and closed above it. Again, during “normal” times, that would be one way for stocks to hammer out a low of some sort. However, when I look at the other major stock market indices, the Dow Industrials, S&P 400 and Russell 2000 are all well below those levels. The NASDAQ 100, however, remains well above its Q4 2018 low. It would have been much more convincing if most of the indices lined up together rather than have one index on an island.

Thursday is another day as they all have been. With so much price movement taking place overnight, it has become expected to see a 5% move just at the opening of trading and that’s what I expect on Thursday. It is quadruple witching this week which is a fancy term for the big expiration of options and futures four times a year. In “normal” times, a big decline during the week would tend to begin its reversal late Wednesday afternoon with a rally ensuing on Thursday. Although these are anything but normal times, the bulls will take the slightest edge out there to begin the bottoming process.

I want to close with something more tangible and actionable. Since the stock market peaked on February 19, there has not been any back to back rally days. None. Seeing two consecutive up days will be one sign to look for that perhaps the tide is turning.

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