No Adjectives to Describe. Generational?

The collapse in the financial markets this week has certainly been historic and epic. It has been on par with the moves we saw in 2008 and 1987 in terms of underlying carnage. The difference here is that it started from an all-time high only one month ago, something that we have never seen before in history. It also began without the usual crumbling foundation of the stock market, something I will write about next week.

After Thursday’s whopping decline, the market remains in need of stability to begin to stem the downside. While looking at pre-market futures being up 5% as a sigh of relief, the usual scenario from there sees sellers coming in during the morning with an opportunity to stabilize and rally later today. While I usually discuss how it’s good to look for leaders and laggards during the first rally off a bottom, I don’t think that’s the case just yet. That time will come sooner than later after the bottoming process officially begins. We don’t have confirmation of that just yet.

When the bottoming process does begin, the odds heavily favor it being very complex and volatile. There should be multiple 10% rallies and declines to create a range. The big question will be the length of the process. In 2008, it began in October and ended in early March. In 1987, it began in October and ended in early December. Adding in 2018, there was no bottoming process at all. Stocks just soared in rare “V” fashion. In 2011, the began in August and ended in October. After the Dotcom burst, the bottoming process went from July 2002 to October. In 1998, it was August to October, the same as 1990. Because of the compressed moves we have seen since 2009, I won’t be surprised if the bottoming process is quicker, but we will have to see how it unfolds.

Over the last few days, I keep making lists of all the truly historic extremes in the markets to share with you. First, there was what I thought was the internal or momentum low on February 28. Then it became March 9. Today, it looks like March 12. Each of those three days have certainly qualified for seeing peak downside momentum at that time. And on each of those days, my list of extremes grew longer.

The financial market collapse has been generational. That’s the only word I can find that makes sense. However, 2008 was also generational and that was only 12 years ago. I am sure many people will claim the 2020 decline was so easy to forecast with the benefit of hindsight. I know that’s not something I will ever say.

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A Decline for the Ages – Turnaround Tuesday Possible

Seeing the Dow Industrials lose 2000 points in a single day was something that wasn’t even on my worst case radar as recently as last month. But as we have seen many times this century with the advent and domination of computerized trading, things change at warp speed. Declines that used to take weeks, months and even quarters to unfold and complete are now compressed into days and weeks. Risk no longer slowly builds; it happens all at once. I have discussed several metrics to put this decline into context and the latest should come as no shock. This correction is now the deepest ever coming from an all-time high.

While I have always been a proponent of the free market, that doesn’t mean there shouldn’t be any regulation nor safeguards. Until 2007, traders couldn’t just short stocks willy nilly. They had to wait until a stock traded at a higher price so there couldn’t be a piling on effect to drive a stock into the ground. That rule, the uptick rule, was changed to eliminate that for what seemed like all the right reasons. That was, until the computers took over and now dominate trading. Keep in mind, people only complain and cry foul on big down days. They love the computers on big up days.

On a closing basis, this correction is now approaching 19% which puts it in line with 2018 and 2011. Those declines lasted 108 and 65 days respectively. The current one is 14 days old. 2018’s correction was fully recovered in roughly four months. 2011 took five months.

Monday’s decline saw widespread panic on almost every indicator and metric I use. As I mentioned in yesterday’s post, it was downright ugly at the open. For a brief 15 minute period, the stock market was “limit down”, meaning it was down 7% and no trades could take place at lower prices for 15 minutes. That type of “circuit breaker” was put in place after the 1987 crash from President Reagan’s working group on capital markets, more affectionately known as the Plunge Protection Team (PPT), something I find preposterous. Where was the PPT during the 2000-2002 and 2007-2009 bear markets?

Anyway, on Monday, once stocks reopened from their 15 minute timeout, they began to stabilize as water always finds its level. By the end of the day, stocks closed basically where they opened. As ugly and difficult as the day was for investors, that was more than just a moral victory. I think there is a decent to good chance that we either saw a short-term bottom or we will with one more decline this morning.There are just too many historic extremes for selling to continue unabated.

If I had to offer one indication that something was beginning to change, it came from the Treasury bond market which has been rallying at strongest pace of all-time. Stocks have been held captive by this. At its low point yesterday, the yield on the 10 Year Note was just under 0.40%. That is per year! In other words, if you gave the government your money for 10 years, you would earn 0.40% in interest each year. That’s it. Talk about panic and fear.

In the chart below, on the far right, you can see what is a long red candle. That means the instrument began the day near its high and closed near its low. Remember, this instrument is the long-term bond which has been moving exact opposite to stocks. With stocks closing down 2000 points, I would have expected bonds to hold their own and close relatively well, not at the bottom of their daily range like they did. Again, even though stocks closed down 2000 points, the bears could not make any headway during the day. And bonds finally got sold which is a very early and preliminary sign some of the pressure is starting to abate.

This is anything but the “all clear”. It’s just a building block along with so many other indicators I watch that say stocks are in the bottoming zone. With stock futures up strongly in the pre-market as I finally finish this update, the bulls really need to make some noise and not let the bears push stocks back down into the close. If we see upside follow through during the day that lasts into the close, another “Turnaround Tuesday” could be in the cards.

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UGLY Open Ahead

Stocks are set to plummet at the open as crude oil collapsed overnight. The revisiting of the February 28 low is here and we need to see if divergences develop to indicate a successful retest and the next step in the bottoming process. Trading today and over the next few days is going to be frenetic. I imagine enormous intra-day moves with many bouts of panic selling and margin calls.

This correction continues to set precedents for its speed and depth. I have heard from many people asking if a long-term bear market has begun. Based on history, long-term bear markets do not begin with bang like we have seen over the past few weeks. While I absolutely do not believe this is anything like 2007-2009, even then, there were rolling 10%+ declines and rallies along the way.

Let’s say I am wrong.

Even then, stocks are still supposed to entering a bottoming period this month with a strong rally into summer before rolling over again. It’s that rally, just like every other rally from a 10%+ decline since the bull market began in 2009, that should indicate whether there is more downside ahead. In all of the previous 8 corrections since 2009, the rally indicated bull market staying power. We will see this time around as well after stocks have a chance to calm down from panic levels.

I will have more in a larger update tomorrow.

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Internal Bottom, More Downside Left, Dow 30K and Powell’s Blunder

On Monday, I spent a good deal of time publishing 9th Correction of the Bull Market – Dow 30,000 Coming in Q3. I think I did a pretty good job of putting the correction into proper context against the 8 other corrections during this bull market. So far, last Friday certainly has all the makings of the internal or momentum low I usually discuss during corrections. I will spare you and not post a deluge of charts, but here are some indicators that screamed.

Why the Stock Market Bottomed on Friday

Put/call ratios which widespread negativity, the exact opposite of the greed they showed for all of 2020 into the peak. Percentage of stocks above their 10, 50 and 200 day moving averages all plummeted to levels seen near lows. Down volume and stocks going down surged to 90% on two occasions. McClellan Oscillator, an indicator of stocks going up and down, saw one its lowest readings ever recorded. Only October 19, 1987 and August 11, 2011 were lower. Number of stocks making new 52 week lows spiked to more than 950.

Price sees its fastest move from an all-time high to a correction as well as four-month low. All (almost) assets collapse with U.S. stocks like gold, oil and emerging markets. Volatility as measured by the popular VIX soared to nearly 50, a level which always comes near bottoms in a bull market. Volume in ETFs which profit when stocks go down exploded higher as did volume in the most popular conventional ETFs, like SPY and QQQ.

Believe it or not, there is a lot more. So many things were lining up for a bottom coming. It was easy to know the market was close to a low in time as I wrote, but where in price was a different matter.

Lots of folks asked me why I wasn’t more concerned. First, I am always worried. That’s one of the things my clients pay me to do, their worrying. The big picture things I hold so importantly did not scream catastrophe at the stock market’s all-time highs. One of them is the behavior of the credit markets which usually sniff out recession coming long before stocks do. All year, those markets have been tight and while they loosened a bit during the decline, it was nowhere near the levels that would cause me to say something serious is in front of us. Additionally, the canaries in the coal mine I mention so often were not sufficiently dying at the peak to forecast the end of the bull market.

As stocks began to recover on Friday and several times this week, we have seen clear and present institutional buying in and around the 3000 level on the S&P 500 which usually offers intermediate-term ammunition, even if stocks breach that level.

Here is What to Expect

With the short, sharp plunge we saw last week, I expect a few things to happen. We should hear that corporate insiders bought their own stock like Jamie Dimon so perfectly did in December 2018. That usually clues the market in that there’s real value in a company if an insider puts their own money to work. In other words, it’s a sign of confidence. Companies should increase their share buyback programs which create a steady demand for a company’s stock each and everyday.

Assuming the internal or momentum bottom was last Friday which I believe it was, the playbook calls for stocks to regain somewhere between half and two thirds of what was lost. On the Dow, that’s 27110 to 27700. On the S&P 500, that’s 3125 to 3190. From there, it gets trickier. Rather than post all 9 charts again, please refer to Monday’s post for more information.

The vast majority of the time stocks will then decline again to revisit the internal or momentum low, sometimes staying above it like we saw in early 2018, 2016 and 2015 or fully breaching it for a short spell like we saw in 2010, 2011 and 2012. In rare cases like 2014 and late 2018, the initial bottom was the internal or momentum low and the final low. December 2018 as I wrote in Q1 2018 was the most unusual bottom I have seen in my 31 year career. When I look at our investment models, they usually turn positive around the internal or momentum lows. 2011 was the definite exception as they did not start ringing the bell until the second bottom was being hammered in.

My forecast remains unchanged. I am looking for all-time highs in Q3 with the Dow hitting 30,000. It’s that expected rally which I will be watching more closely than any since the bull market began 11 years ago. That next rally to new highs will have the highest potential of failing and possibly rolling over into a 20%+ decline that doesn’t quickly recover like the others have.

Lots of people want to know when all will be clear. When will the green light come? From a stock market perspective, you can follow the playbook I just offered. However, the real confirmation will be when we see awful economic reports, but stocks don’t go down. Companies announce bad earnings or warn and their stock doesn’t decline. Finally, at the end of the crisis we should see the stock market go up in the face of bad headlines regarding the virus. When those things all happen, we will know that the market has priced in the worst and that scenario isn’t going to happen. That’s what happened during Q1 2009.

The Fed to the Rescue

Yesterday, the FOMC made an emergency rate cut of 1/2% at 10am. When I first saw the headline waiting to join FOX61’s morning show, I thought it was fake news. What knucklehead would cut interest rates during the trading day? And after a 1300 single day rally in the Dow? I thought Jay Powell should don some makeup and put on a red nose and wig. The Fed had all weekend to meet and perhaps coordinate with other central banks around the globe. After all, stocks had just collapsed from an all-time high to a four month low in record fashion along with correcting in only 6 days.

How could the Fed not cut rates on Sunday night if they were in such a hurry?

From my seat, Powell just continued to erode whatever credibility was left. If they couldn’t cut rates on the heels of one of the worst weeks ever before the stock market opened, why wait until a 1300 point rally? Why not then just sit tight until the stock market declines again, if it does.

Here is what I said to Investment News yesterday.

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9th Correction of the Bull Market – Dow 30,000 Coming in Q3

Before I begin the update as planned, I want to repeat what I have said to folks who have called and emailed. I think the bull market remains alive. I think Dow 30,000 will be hit during the summer. That anticipated rally may be the one that signals a new bear market. I think this week will be up for the stock market. It is quite possible that Friday’s low was the internal or momentum low from which the first real bounce of significance will begin. That bounce could regain as much as 50% of what was lost. Volatility will remain sky high.

It is often said that the stock market takes the stairs to the top and the elevator to the bottom. This has never been accurate than the last 7 days as stocks have gone from an all-time high to what the media deems as correction territory, down 10%+, in just 6 days, a record. That is also an all-time high to a four-month low in one week. Last week, I wrote about the gap of recognition and that was certainly confirmed as the “AH HA” moment.

The speed and depth of the decline has truly been historic, something that seems to be more and more commonplace in the age of exchange traded funds (ETFs) and supercomputers accounting for the vast majority of trading activity in the stock market. I remember writing similar notes in December 2018 during that decline for the ages. Markets definitely evolve and it has been very evident during this bull market. Once corrections start, they are mostly linear affairs, rather than the three steps down, one step up of yesteryear.

This decline seems to have impacted people more than previous ones because of its speed and impact on the population’s health. People seem much more unnerved now than during the Ebola correction of 2014. Lots of folks asking me if the stock market is going down 50% like 2008 or if it will ever recover. I feel confident that this is in no way a repeat of the 2007-2009 financial crisis. Banks are sitting on more than $2 trillion and it’s really, really difficult to have a moderate or serious recession with banks having more capital than at any time in history. I also feel confident that stocks will recover from this correction and right now, my best estimate is sometime in Q3 which is subject to change when I get a little more information. Anyway, I found this video to be really helpful regarding the virus and its spread.

Over the weekend, I took so many notes of things I wanted to share which were relevant that I will probably break them up into a few updates. Regarding Corona or COVID-19, as investors, I feel confident in saying that the while the headlines are likely to get much worse, especially in the U.S., at some point the markets will have priced in the worst case scenario. I imagine we will see headlines of widespread contraction of the virus and death but stocks will have stopped going down. Then, we will likely see stocks ignore or even rally on Corona headlines. That’s not a today reaction but I do think it’s something to look for later this month or in April.

Let’s put this correction into context. Since the bull market began in 2009, and we can certainly argue whether new bull markets began in October 2011 and December 2018, there have been 8 previous declines of at least 10% from intra-day high to intra-day low which I will post below. You can see the year, the depth of decline and the duration from high to low. I also added enough chart space so you can see how long it took for stocks to recover with the exception of 2015 because that rolled into the 2016 decline.

So far, this correction is nothing we haven’t seen before. The worst of it appears to be over, but that doesn’t mean we have seen the lowest of low prices. That more complex scenario would see a rally sooner than later with stocks rolling over again in late March or early April to the final low before the real rally to Dow 30,000 begins.

As I mention every single time there is a stock market decline, whether we planned for it or not, were successful or not, use the correction to take your own temperature on your risk tolerance and investing objectives. If you are watching the market trade all day because you are worried, that’s not healthy. I watch it every day anyway so that would be two people both watching the same thing and only one of us gets paid to do that.

If you are unnerved by the correction, then I would suggest reassessing your risk tolerance and making a change on the next rally rather than into the teeth of a decline. If you feel really comfortable and want to add more money or risk, I also suggest revisiting your risk tolerance, but taking action right here and now. For me, I am using this decline as an opportunity to begin adding my 2020 money for my retirement account although with adding more risk to my kids’ college funds.

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Coronavirus & Stock Market Playbook

As I mentioned the other day, I have been reading an incredible amount, just like many of you, about the Coronavirus. I even pestered a relative at the CDC as well as my friend who runs a research lab at Yale for their opinions. Interestingly, the professionals are a whole lot less alarmed than the masses. The two I annoyed both texted me science articles of why Corona is just another in a long line of bad viruses to be spread around the globe. And they both thought there would be more in the coming years.

Shortly, I will be flying internationally and then to California and I don’t feel overly concerned about my health and well being. Perhaps I am being complacent or just stupid. Coincidentally, we just updated our wills this week, having absolutely nothing to do with Corona. It was just time, and the need to make sure my kids vie for most favorite child status. Of course, I am kidding. My wife doesn’t like when I talk about my mortality. After all, the day before I was hit by that silver maple tree last May, I was reviewing my emergency business succession plans with great friend, Sam Jones. And then Teri had to call Sam from the ER to let him know what happened. As you would imagine, Sam thought she was kidding.

People at Risk

Anyway, I found the chart below interesting from LPL’s Ryan Detrick. As the experts have been telling us, the virus is most dangerous to those with compromised immune systems, including older people, smokers, diabetics, etc. If you believe the stats, while the virus has higher mortality rates than influenza and SARS, it’s still in the low single digits and that may be overstated.

I found this wonderful post on Twitter with comments from Professor John M. Nicholls, department of pathology at the University of Hong Kong. There is so much hysteria surrounding this because of the speed of the outbreak and difficulty in detecting it. Even our own officials are contributing. But Spanish Flu? Really???

EVERYONE should read it and judge for yourself. https://twitter.com/saxena_puru/status/1227065623139606533

When I read Professor Nicholls and get laughed at from the experts whom I know, I almost feel silly having discussions about “what if” with my wife if the virus doesn’t die out by the summer. But just like I try to do with our clients’ portfolios, there is always a point where action needs to be considered or taken. I just prefer it from strength instead of weakness.

From All-Time Highs to Three Month Lows in One Week

And that’s a good segue to the financial markets which have been under tremendous attack for the past 6 trading days. Just last week, stocks were making all-time highs. In just 6 trading days, stocks are making three month lows and down 10%. As recently as last week and for all of 2020, there has been a dearth of reasons why stocks could go down more than 5% as all of the big picture concerns had been eradicated.

Of course, we have seen market sentiment go from overly bullish in November, to giddy in December to exuberant and greedy in 2020. As I have said in the media and written about many times, markets with that kind of sentiment backdrop that just keep grinding higher and higher each and every week eventually get punished with a short, sharp and sometimes terrifying elevator shaft drop that usually scares all of the Johnny Come Latelys out of stocks and back to bonds or cash. The problem is that greed is not a good timing tool to forecast an imminent decline, just like valuation isn’t. Investors can get greedier and greedier just like stocks can and do get more and more expensive until here is always a catalyst to change course.

An issue for me this time, which is why I didn’t start pounding the table that a large decline lay ahead, was that the market’s foundation was fairly stable and arguably strong. I will be emailing part I of Canaries in the Coal Mine shortly, when market volatility calms a bit. The key takeaway will be that the while the bull market is wounded, it nevertheless remains alive and poised for Dow 30,000 before the election. That’s a big statement to make amidst a panic crash.

Carnage and Escape

To get a feel for the carnage on Monday and Tuesday which was extreme, only 10% of stocks traded higher on each day, meaning 90% went down on back to back days. As you might expect, 90% of the volume on each day was in stocks going lower. That just doesn’t happen very often and never so close to all-time highs. Really, the only way it could have happened was with the historic level of euphoria in stocks as everyone went all in.

What escaped the wrath? Certainly not gold as many pundits predicted. Gold had been very strong since early February, but began to look tired. On Twitter, I shared that I expected gold to see a short-term peak Monday morning. The sector has been down since.

Normally, during periods of market stress, the U.S. dollar acts as a safe haven investment. But not this time as the greenback has gone down over the past week and the yen and euro have rallied. along with U.S treasury instruments which see economic weakness and a potential Fed rate cut coming.

What’s going on today “feels” a whole lot more unnerving that the Fed being too restrictive or a war in the Middle East or China slowing. This market correction is based on a health crisis that can impact more than just our investments. However, I am anything but a scientist, let alone an epidemiologist, and regardless of the reason, markets trade between fear and greed. Human behavior hasn’t changed in generations and it’s not changing now. The markets don’t know Coronavirus from Corona beer and nor do they care. They are trading lower on extreme fear which will eventually lead to an extreme bottom and strong rally. In fact, I believe we will see fresh, all-time highs by summer. That forecast is predicated on the virus slowing and then dying out as the weather in the northern hemisphere warms.

9/11

This correction looks a lot like what we saw post 9/11 when the media had a constant barrage of scary headlines that it was unsafe to travel and the whole world would tailspin into a deep recession. Of course, it didn’t and the recession was mild, barely noticeable by people outside the travel and hospitality industry. In the here and now, Corona could certainly end up being that very mild recession I have been forecasting. However, the origin would be from not being able to get supply rather than the usual  plunge in demand. I can’t find another instance in the past 100 years.

Market Playbook

The market is pricing in some very nasty Q1 and Q2 earnings reports and economic numbers. We will start to hear from thousands of companies warning of this very shortly. I sense that the stock market will begin to hammer out its internal or momentum low in the coming few days. From there, a strong bounce should follow with perhaps another bout of selling later in March or April, something we did not see post 9/11. After that, new highs are in order for summer. While volatility should continue to run high, I think the market is in the worst of it right now. Again, crash mode usually means that the market is close to a low in time, but price is another story. That’s the playbook.

Market declines are always a good time to take your temperature on risk tolerance and investing objectives, something we have been doing with clients for a few months. If the volatility is too much for you to comfortably handle, then perhaps your risk tolerance and investing objectives should be taken down a notch or so.

 

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Putting 1000 Points into Perspective & Selling Gold

Stocks are set for a feeble bounce at the open today after a 1000 point drubbing to begin the new week. 1000 Dow points today equals roughly 3.5%. While Monday was the third largest point decline in history, it only ranked as 254th of all declines since 1896 according to my friend Ryan Detrick from LPL. Since 1950 there have been 103 3%+ declines in the stock market.The crash of 1987 was 22.5% in one day. Today, that would have equaled 6500 Dow points! It’s all about the law of large numbers.

After a massacre like we saw on Monday, I would have much preferred another ugly down opening than a feeble bounce like looks to be the case. Another big red open would caused more panic, probably cleaned out short-term sellers and then allowed the market to attempt to stabilize and begin to repair. Unless we see a massive snapback today, I think the decline will continue in the short-term and the bottoming process will take more time to develop.

On Twitter yesterday, I opined that gold looked to be peaking at the open and that was confirmed, at least for me, during the day. I felt even more comfortable when I saw gold pundits in the media all recommend buying the metal. Below is a chart of gold. You tell me. Would you rather be a seller or buyer yesterday?

People always assume that I was swamped on days like Monday. The truth is usually the opposite. If I wasn’t smart enough or our models didn’t position ahead of the decline, it’s highly unlikely that I would be doing any selling, except for things like gold and gold stocks which had gone vertical and warranted a sale. On the buy side, if the decline was longer in the tooth, I would have used the down open to buy 1/2 the position I wanted to own and then look to the close to add the other half.

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AH HA! The Gap of Recognition? Corona Crash

Global stock markets are red and very ugly as the Coronavirus has been spreading to European countries like Italy. I think the problem is that the markets don’t know what they don’t know. In other words, there is a world of uncertainty out there and that’s unlikely to change anytime soon. As I wrote last week, the market doesn’t care until it cares and then it really cares.

Over the past two months, I have repeatedly written about bullish sentiment that became giddy, euphoric and finally greedy last month, the likes of which haven’t been seen since the Dotcom Bubble. However, historic sentiment didn’t imply an impending market peak. It rarely does. It sucks people in over and over and over again until something sparks a decline and the excuse is there for stocks to go down. When markets grind higher like we have seen since October, that first decline quickly wipes out the Johnny Come Lately investors in a severe bout of punishment, like we are seeing right now. Corona may be blamed,  but stocks were just looking for a reason to go down.

I think another issue with the virus is that there is not a chorus of scientists and experts all concluding the same thing. That group seems to be all over the map, including some who believe the virus was created in China’s bio-weapons lab in Wuhan and accidentally released. There was even an uber conspiracy theory that the “deep state democrats” created Corona and somehow shipped it to China in hopes of tanking the global economy so Trump would lose. I spent a few hours reading various science articles online to get a feel for the best and worst case scenarios.

From what I read, the best case scenario is that while the disease has spread outside of China, cases in China are declining and the mortality rate continues to be relatively low at less than 5%. As the weather warms in the northern hemisphere, similar to influenza, Corona will begin to die out much like SARS did 17 years ago. On the flip side, there are concerns abound that the virus will not die out and the spread will only get worse as it mutates. If Corona is still headlines in June, we are talking global pandemic with the associated economic, financial market and geopolitical fallout.

While stocks are down, the major indices have barely hit the 6% mark and just about erased 2020 gains. So far, it’s anything but the end of the world or even the bull market for that matter. People are actually talking about the Fed “rescuing” the markets with another rate cut next month. That’s a head shaker for me. With record low unemployment, the Fed is going to cut rates?

I understand the big picture is about Corona disrupting supply chains and causing a massive global slowdown for Q1 and Q2. And that could even be the catalyst that tips the US into the mildest of recessions, something I mentioned last week. Remember, the landscape for recession was doused with fuel when the yield curve first inverted last summer. Corona could be that spark, something I did not consider as recently as last month. FYI, after steepening the yield curve is once again inverted, meaning that short-term interest rates are higher than long-term rates which chokes off growth as banks lose the incentive to borrow short-term and lend long.

In the here and now, we have a cranky stock market which opened sharply lower, creating a gap or window on the chart below. Long time readers know that almost every single 10%+ decline is accompanied by what I call the gap of recognition. It’s the point where investors realize they either own too much or not what they really want and don’t know how to untangle their mess as stocks open down in a big way.In essence, investors have the “AH HA” moment that stocks are correcting and they’re not prepared.

By the time stocks come back up to fill that gap or close that window, the decline is long over and the market is well on its way to new highs. We will know sooner than later if today’s open was in fact that gap of recognition. The next few days will be key as there was some damage done. The problem with my gap of recognition i that there are plenty of times where it looks like something bigger is unfolding, but that gap of recognition turns out to be the beginning of the end of the decline.

For the bulls, the best scenario would be another ugly opening, followed by firming into lunch and strength into the close. On the flip side, the bears would like a higher open that fails before lunch where sellers reemerge for another wave of lower prices into the close.

Finally, as I already mentioned, the bull market ain’t over. Bull markets do not end with a giant, outside the norm, putrid day so close to all-time highs. The rally from October may have ended, or at least the steepness of the advance. We shall see shortly.

 

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Coronavirus Back on Top. Japanese Yen Causing Dislocations.

Stocks had been trading pretty much immune to the daily headlines regarding Corona even though everyone had known there would be economic impact. It’s like everything else in the markets. It doesn’t matter until it matters and then it matters in a huge way. That was best seen in 2005, 2006 and 2007 with the financial crisis. Don’t misunderstand; I am not saying that Corona is anything like the financial crisis.

On Thursday and at least the morning on Friday, stocks are red and under pressure with the media blaming Corona. I get it. They have to blame something. I think the quiet culprit has been the Japanese Yen which has collapsed of late against the dollar as you can seen below.

Most people don’t know anything about the yen nor do they care. In the modern era, it has been a safe haven currency in times of financial stress, like 2008. For decades, there has been a common trade called the yen carry trade put on by big money more often than not. In short, investors borrow money in yen because rates were essentially 0% and then convert to another currency, usually the dollar, and invest that money in treasuries, MBS or even stocks. There is a mathematical relationship which investors use to control position size and risk. All goes swimmingly until the currency makes a huge move.

On Wednesday and Thursday, the yen made a huge move, like it has before, but the magnitude may have caused portfolio managers to take quick action without regard for price. Market dislocations catch many off guard. I am just speculating.

Anyway, stocks are clearly under pressure. All year, I have discussed the historic level of greed and euphoria in the market. Stocks only needed a spark to begin a pullback. I don’t think this will be a big one, but wiping out all of 2020’s gains would not be surprising. Mid and small caps have trailed for a long time, but they are outperforming now, including closing higher on Thursday with the market down.

Semis and tech getting hit the hardest. Lots of constructive action elsewhere. Defensive groups at or near all-time highs. Biotech looking good. Even materials look like they want to go up shortly.

It’s easy to not want to own a lot going into a weekend with Corona hanging out there. What if it doesn’t go away in the spring? What if China manufactured it in its bio-weapons lab in Wuhan? Lots of unknowns that won’t be known for a while. In a worst case scenario, this could be the catalyst that tips the globe into recession.

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Historic Greed. Media Day & Stock Picks

I am excited to co-host Yahoo Finance’s On The Move from 11:30am to 1:00pm today talking about the DNC’s debate last night, an historic level of greed in the stock market, NFL playoffs and a reveal of an upcoming ebook I am writing.

After that, I get to join my old friend, Charles Payne, on Fox Business’ Making Money at 2:00pm for a segment discussing the meteoric rise in stocks and where to put your money.

Yesterday from the office, I joined TD Ameritrade Network for a spirited market discussion along with some of my usual outside the box stock picks. I keep saying that it is getting harder and harder to find stocks that I want to buy right away since so many have rallied so much and are super extended.

When giving picks over the years, I don’t just “sell my book”, which means to throw out something you already own no matter what. I try to find something unique that’s not being discussed nor overowned and it’s at a point which makes to buy right now.

Apple isn’t a stock I typically talk about because everyone loves it and owns it. However, I did give Amazon as a buy to open 2020 as sentiment had become so negative for no good reason. I also gave an energy play which I thought would be a second half of 2020 play. That segment is HERE.

The segment from yesterday can be found below where I made my first ever marijuana pick, a sector I forecast to collapse two years ago. I also discuss biotech and 4.5% dividend yielder. All three picks look like they have the firepower for huge gains in 2020 if you can stomach the risk and they fit in your portfolio.

HERE

While On the topic of the TDA Network, here is the other segment I have done in 2020 also giving a bevy of unique stock picks including Warren Buffet’s Berkshire Hathaway, a totally unusual selection for me. There was a China play (yes, I know about Coronavirus) and an old stodgy telecom with a fat dividend that looks to have really nice upside.

HERE

Also, please know and understand that my clients may already own some or all of the securities I offer in the media and I disclose that as appropriate.

Markets are a tad more volatile of late, but the bull remains large and in charge. The historic level of greedy sentiment remains in place and in fact, emboldened by each new high after a one or two day pullback. Greed gets punished severely, sooner or later.

After making literally hundreds of upside projections in the Dow Industrials since the bull market began in 2009, the last one, 30,000, remains in place. Surprisingly, unlike the past 11 years, the computer has not spit out an “if then” next target. I guess we will see what happens at Dow 30,000. Yes, I am still bullish over the intermediate and long-term.

Tomorrow, I will be working on Canaries in the Coal Mine.

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