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.


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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

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 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




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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