| TAOST Wrap Week Ended Friday 20 March 2020 |
| Just think... "The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism."
-- Sir John Templeton |
| | Greetings Traders:
Sir John Templeton is right about 1 thing... the best time to buy IS when there's maximum pessimism... The only problem is knowing exactly when that is.
Quite a bit to cover this week, so let's get right to it shall we?
The markets experienced their worst week since October 2008, selling off sharply on Friday after New York Governor Andrew Cuomo ordered the state’s entire workforce stay home, following California’s statewide “shelter at home’ order issued on Thursday - similar to orders we’ve seen in France, Germany, Austria, Spain Italy and others. It's hard to mention all the records that have been broken, but to name a few; - the Dow had its worst day since 1987 on Monday,
- the energy sector hit its lowest level since 2003 as the price of oil collapsed, and
- the weekly volume on the NYSE hit an all-time high.
The COVID-19 virus paralyzed entire countries in Europe, while quickly spreading on the East Coast of the US as well, and the pandemic led to panic across credit and currency markets, propelling the dollar to an all-time high against a long list of currencies. The unprecedented response - over $5 trillion in liquidity injections, asset purchases, and fiscal stimulus from global central banks and governments -slowed down the freefall in risk assets a bit, but the uncertainty regarding the economic impact of the pandemic remains quite high.
These are extraordinary times for sure and not to be taken likely given the health risks associated with this coronavirus. It’s one thing to manage around the surge in market volatility, but a much bigger concern when people’s lives are at stake. So please take heed and be safe.
It’s hard to tell how long this pandemic will last, but one thing that is certain, in order to stop it from spreading we have had to radically change almost everything we do: how we work, date, exercise, socialize, shop, manage our health, educate our children, take care of family members. And unfortunately, this has put a strain not only in our lives personally, but in the lives of everyone around the globe - physically, mentally and economically.
Governments and corporations, are working hard to try and ease some of these burdens and have announced several economic packages (see below), manufacturing companies are working to redesign their plants to produce medical equipment and supplies, and others are providing bonuses where they can. We still have a lot more to do, but it’s great to see everyone trying to do what they can to help fight this crisis.
A projected $255 billion decline in travel spending - transportation, lodging, retail, attractions and restaurants - will cost the U.S. economy $809 million and 4.6 million travel-related jobs, according the the U.S. Travel Association.
And a recent WSJ poll found that some 18% of adults (in the U.S.) reported that they had been laid off or that their work hours had been cut and that 25% of those making less than $50,000 a year had been laid off or seen reduced hours. Which was reflected in this weeks initial claims release as the number of Americans applying for first-time unemployment benefits jumped by 70,000 to 281,000, marking the fourth-biggest weekly increase on record going back to 1967.
I know it’s been a tough and challenging environment for everyone, but please remain positive and safe. I am confident we will get through this and become stronger as a result. To that end, I'm contemplating doing a FB Live in the next couple of days to provide details on what I think is the best strategy/strategies for this kind of environment. If you're interested, just reply to this email and let me know. |
| Select Index, ETF & Stock Results From Friday 20 March 2020 |
| Friday's results... but pretty representative of the week.
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| | | The Markets In Sum
For the week, the Dow dropped 17%, the S&P lost 15% and Nasdaq gave up more than 12%. The S&P 500 swung 4% or more in either direction for seven consecutive sessions, topping the previous record of six days set in November 1929... and there's a pretty good chance we're not done yet.
S&P 500 -14.98%, Nasdaq -12.64%
Economic Releases The key economic releases have already started to reflect the impact of the pandemic with a lot of forward-looking measures missing even the most pessimistic expectations. The outlook for the manufacturing sector deteriorated the most, with the Philly Fed Index suffering one of its worst monthly losses ever, hitting an eight-year-low, and with the Empire State Manufacturing Index also plunging below zero. The retail sales report was also disappointing, as was the number of building permits. A huge jump in the number of new jobless claims was probably the biggest negative "surprise" for traders and investors. JPMorgan is expecting is expecting a second quarter contraction of -14% in the U.S. and -22% in the Eurozone. Goldman Sachs expects even steeper declines in Q2, forecasting a -24% contraction in the U.S., which would mark the largest quarterly drop in GDP on record. The global picture was not pretty either, as some of the "soft" sentiment measures crashed to record lows in Europe amid nationwide lockdowns.
The Technical Picture
As you'll see from many of the charts below, the technical picture remains clearly bearish across the board with all of the key trend indicators flashing red in the wake of the crash. Should the uncertainty regarding the likely timeline of the pandemic decline, we could see a quick recovery in stocks. The S&P 500, the Nasdaq, and the Dow are now all well below their declining 50-day averages, and the benchmarks are also all below their 200-day moving averages [not to mention multiple Death Crosses]. Small-caps remained relatively weak overall and despite the strong bounce in the Russell 2000 on Thursday, the index closed the week below both its short-and long-term moving averages (near its lowest level since 2016). The Volatility Index (VIX) got close to its all-time high this week, briefly topping 85, its highest level since 2008, and the "gauge" finished the week near the still extremely high 70 level.
Market internals deteriorated further due to the extremely bearish days, but there were notable positive divergences in some of the key breadth measures, which could hint at a possible short-term bottom. See below. Short interest increased substantially yet again, as the most-shorted issues started to lag the broader market due to the increasing solvency-related fears.
Next week will be relatively calm week in terms of economic releases, but stocks are unlikely to settle down since the COVID-19 crisis is expected to deepen before improving in Europe and the U.S. alike. The Markit manufacturing and Services PMI’s are scheduled for Tuesday, together with new home sales and the Richmond Manufacturing Index. The Housing Price Index and the durable goods report will come out on Wednesday, while the final GDP print and the Core PCE Price Index will be out on Thursday and Friday, respectively. Apart from the stock market itself, investors will closely watch the developments in credit and currency markets, as this week’s moves suggest that the financial system is under a lot of stress, and global central banks might need to do even more to normalize market conditions.
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| | | The S&P500 suffered a dramatic fall last week, gapping down on Monday before nearly testing support at the red horizontal line. |
| | | A death cross is a technical indicator that traders use in an attempt to predict bearish market momentum. A death cross is a breakout pattern that forms when a security's short-term moving average falling below its long-term moving average. The most commonly used averages are the 50 and 200 exponential moving averages. All but 1 of the indices below experienced Death Crosses this week.
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| | | | | RUA -- Russell 3000 Index |
| | IXIC -- Nasdaq Composite Index |
| | Interestingly [though not surprisingly], the Nasdaq Composite Index has yet to experience the Death Cross... for now. |
| | | CNN Investor Sentiment [Fear & Greed Index] |
| Prices moved even lower this week, so this gauge remains oversold. Continue holding on to those buy tickets... but get your list(s) ready.
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| | | Again, this indicator can hit lower levels and hang out for a bit as it did in 2018 [twice] before making its way out of that ditch.
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| | | The VIX hit an all time high [certainly since it was adjusted in the early 90s]... like the indicators above, it's hard to imagine the VIX holding out at any kind of extreme for too long. Just as I've often said, stock prices hate extremes... so too do the indicators which derive their behavior therefrom.
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| | | The TRIN is a short-term trading tool that measures volatility in the stock market. TRIN represents the relationship between advancing and declining issues by measuring their volume flow. Because of how it's calculated, a rising TRIN depicts a weak market and a falling TRIN suggests a strong market.
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| | Total Advances/Declines Volume Difference Weekly |
| | | 52 Week Overall Highs Weekly |
| More of the same... but telling.
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| | 52 Week Overall Lows Weekly |
| This suggests there may be even more downside given we haven't seen the same highs as 2018 in this indicator.
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| | % Stocks Above 200 Day Moving Average Weekly |
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| Of course this indicator would get crushed...
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| | | - 45 signed a $100B coronavirus relief bill and Congress turned its focus to broader economic stimulus, weighing a fiscal package of more than $1T that includes "helicopter cash" for Americans. Treasury Secretary Steven Mnuchin also said corporations would be able to defer tax payments of up to $10M, while individuals could defer up to $1M in payments to the IRS. Adding to the sentiment, the Fed announced reopened crisis-era commercial paper and money market funding facilities and increased access to dollars to global central banks grappling with liquidity shortages. This is the problem folks... if the banking system seizes up, the down slope so far is gonna look flat by comparison.
- The ECB launched a €750B bond-buying program to stop a pandemic-induced financial rout shredding the eurozone's economy, bringing this year's planned purchases to €1.1T (the new round alone is worth 6% of the bloc's GDP). Australia made a historic foray into quantitative easing, while the BOJ offered to buy as much as ¥1.3T ($12B) of its government bonds. Fiscally, governments around the world during the week pledged, or said they were considering, as much as $3T in support.
- Most economists expect a “major recession,” according to a survey by the Universicty of Chicago. A new forecast from Goldman Sachs expects zero G.D.P. growth in the U.S. in the first quarter, and a steep 5 percent drop in the second. UniCredit reckons that the eurozone economy will shrink 0.2 percent in the first quarter and around 1 percent in the second.
- IHS Markit says U.S. crude oil production could drop by 2 million to 4 million barrels per day over the next 18 months, depending on how things play out. If there's a "prolonged demand decline," global oil demand could be 5 million barrels per day lower in 2020 than 2019 on a year-over-year basis. This is why CVX and XOM look like waterfalls of late.
- A growing chorus of liberal and conservative economists are lining up behind a proposal published in the WSJ by Harvard professor Jason Furman, who chaired the Council of Economic Advisers (CEA) under President Obama, that calls for direct government payments to households. Furman proposes Congress pass a "one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child who meets the same criteria.” A 1 time payment of $1,000? Really?
- Perhaps the biggest risk for financial markets is the potential for wide-ranging debt defaults, particularly as companies have significantly increase their debt loads and more are rated at the bottom of the investment grade ratings scale. The world's companies are in a much worse position than they were ahead of the global financial crisis. Economists at the Institute of International Finance write, "Corporate debt is already very high relative to earnings — and earnings prospects are deteriorating: At nearly $75 trillion, the fast-growing mountain of global corporate debt (ex-financials) is around 93% of global GDP.” That's significantly higher than the level of corporate debt in the run-up to the 2008 global financial crisis (75% of GDP). Loose translation... We're screwed.
- The Fed embarked on a massive monetary stimulus campaign to cushion the U.S. economy from the coronavirus pandemic. Interest rates were slashed to near zero, while the central bank said it would buy $700B in Treasury and mortgage-backed securities. And yet the market kept falling.
- Data from China provided a first glimpse of what the coronavirus can do to an economy amid a prolonged quarantine of millions of people. Industrial output tumbled by 13.5% and total retail sales plunged by 20.5% Y/Y in January and February, according to the National Bureau of Statistics. The urban unemployment rate surged to 6.2% in February, the highest level ever reported, and fixed asset investment slumped by 24.5% (down from 5.4% in the prior period). And, by all accounts, China did a pretty good job containing the outbreak... so what does that say about US prospects? More like Italy?
- In a joint statement, the Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank pledged to use their swap line arrangements to ensure that dollars keep flowing across the globe. They added a weekly offering of the world's reserve currency over a longer maturity, and reduced the cost of the facility. Liquidity is king.
- The Federal Reserve said it would try to keep credit flowing to households and businesses by buying up commercial paper, short-term promissory notes companies use to fund themselves. At the same time, 45's administration is preparing to ask for about $850 billion in additional stimulus to support the economy, which is facing a deep downturn as businesses close as the coronavirus spreads.
- The Philippines became the first country to halt stock, bond and currency trading until further notice, in response to the coronavirus pandemic. This market is a blip in the bigger scheme of things, but still...
- U.S. airlines are seeking over $50B in financial assistance from Washington, in a potential aid package that could include government-backed loans, cash grants and other measures like tax relief. Putting it in perspective: The figure would be more than three times the size of the industry's bailout after the Sept. 11 attacks. Guess the bag fee won't quite do the work.
- If current oil-market conditions continue — oil prices hovering at or below $30 a barrel — some oil-rich nations could see their oil and gas income fall by 50% to 85% this year, the International Energy Agency and OPEC said this week in a joint statement. Good for the rest of gas guzzling world... but could lead to upheaval for oil exporting nations.
- Since August of 2017, America’s big cap companies have repurchased a staggering $1.25 trillion in shares. Was that a smart use of their money? Well, it doesn’t look like it right now, with the market having lost all its gains since then. Oops...
- Executives from companies such as Marriott and Hilton convened at the White House on Tuesday to discuss a bailout, consisting of $150B in direct aid for the hotel sector and $100B for related travel companies. They warned that half of the hotels in the country could close this year and the sudden cratering of demand would cause the loss of 4.6M jobs. My "prediction"... Big companies survive (and ultimately prosper) while smaller operations get shuttered.
- New York City restaurants are selling “dining bonds”in an attempt to offset their losses. The program, which already has more than 80 participating restaurants, is designed so that eateries can offer gift certificates—“bonds”—at a reduced price for redemption at full value on a later date. Restaurants outside New York are also eligible to participate. Innovative... But by all reports, not working well... at least not yet.
- Starting Monday, the New York Stock Exchange will shut down its trading floor and switch to operating remotely for the first time in its history, after two exchange workers were diagnosed with coronavirus. I suspect the end of the NYSE as we know it.
- Despite being the world's largest economy and having a private health care system that politicians routinely call "the best in the world," the U.S. lags badly among industrialized countries in terms of the number of doctors. The U.S. is 25th in the number of doctors among OECD countries and has the third-lowest number of doctors among countries that have 1,000 confirmed cases of COVID-19.
- U.S. oil prices Thursday rebounded from their lowest level in 18 years with their largest one-day percentage gain on record. The drivers: The U.S. Energy Department formally requested to buy up to 30 million barrels for the Strategic Petroleum Reserve, and a Wall Street Journal report that the U.S. was considering a diplomatic push to get the Saudis to cut oil production. Good luck with that... unless Russia agrees as well.
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| TNX - 10 Year Note Interest Rate |
| Look at where the 10 Year yield was in 2008/2009... We don't have as much room with which to play.
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| | GLD - Gold Trust Gold Shares |
| I'm surprised GLD hasn't resumed its upward trek. Hanging on at a good support level.
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| | | | Still looks heavy... don't play. |
| | JNK - High Yield [Junk] Bond ETF |
| JNK is reflecting the market's feeling about high risk assets. More specifically, JNK is suggesting that some companies with high interest bonds are likely to default.
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| | BRN - Brent Crude Oil Futures |
| This chart pattern played out (and continues to play out) beautifully.
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| | | Below you'll find stocks of interest to more than a few people last week. |
| | | Hormel Foods is 1 of a very few stocks performing well because of their... products. Price spiked to a new high last week, but collapsed to fall back within the previous range of prices. On the chart -- The stock should be ok to continue moving higher... but watch last week's low as an indication to back off from longs.
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| | | | I was asked several times this week about Biotech stocks in light of all that's going on. I'll say that as a group that they're holding up pretty well all things considered. If you're looking to play the sector, I suggest you consider this etf vs. individual names as it helps avoid some of the idiosyncratic risk of names like AMGN, GILD, and REGN. On the chart -- Here I'd watch for a buy signal against support at the rising trendline with a hard stop just below $100.
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| | | The Peloton App is extending its usual 30-day free trial period to 90 days, making it easier to do workouts from home.
On the chart -- Riiiight... THAT's why they extended... |
| | | Marriott, hard hit by the virus-related drop in travel, said it will furlough tens of thousands of employees. Expect a steady stream of those kinds of announcements in the weeks to come, starting with the travel and oil industries—the first to be hit—but spreading to others.
On the chart -- I wrote about Marriott last week here... I said then [and still feel now] that Marriott will be a helluva a buy at some point... I think the closer we get to the bottom of the support box around $10, the better long-term pick up it will be. There's actually a different [though similar] stock that I'll share on the FB Live I mentioned above that could perform even better over time. |
| | | Because "ZOOM Me" is now apparently a thing in the social distancing, work from home environment... A quick look at the iPhone App Store bestsellers shows just how much life has changed: the No. 1 download in the U.S. is videoconferencing service Zoom...
On the chart -- We see the stock experienced a hyper spike last week before falling back to just spike levels. I think the stock will now proceed to grind higher with intermittent pullbacks.
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| | | | Facebook will pay a $1,000 bonus to every employee, one of the first big companies to offer workers cash to help them during the coronavirus outbreak.
On the chart -- I expect Facebook to hold around this support zone [yellow] at least for a bit. If it churns and breaks lower, it's because things have gotten MUCH worse in the world. |
| | | Amazon wants to keep up with its crush of coronavirus-related delivery orders by hiring an additional 100,000 workers throughout the United States. The company said a boost in orders is putting its operations under pressure, meaning Prime members may not get items in a two-day window as they typically do. As a result, the company is going on a hiring spree and is even offering workers an additional $2 raise per hour through April.
On the chart -- Amazon continues to hold support as people try to look into the post COVID-19 future. I think Amazon is well positioned to maintain profitability as long as delivery is still allowed. But consider the pent up demand that's likely to explode as this coronavirus subsides... That's why those who own the stock are content to hold vs. turning seller.
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| | | A quick look at the iPhone App Store bestsellers shows just how much life has changed: the No. 1 download in the U.S. is videoconferencing service Zoom, with other top apps including Google Classroom, TikTok, Netflix and Disney+.
On the chart -- Apple is delivering a beautiful long setup potentially as it drops into the buy zone created by the horizontal and rising trend lines.
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| | | A quick look at the iPhone App Store bestsellers shows just how much life has changed: the No. 1 download in the U.S. is videoconferencing service Zoom, with other top apps including Google Classroom, TikTok, Netflix and Disney+.
On the chart -- Netflix is holding up pretty well... Though not as well as others. I would feed this stock with a long handled spoon as my grandfather used to say. |
| | | A quick look at the iPhone App Store bestsellers shows just how much life has changed: the No. 1 download in the U.S. is videoconferencing service Zoom, with other top apps including Google Classroom, TikTok, Netflix and Disney+.
On the chart -- Google acts almost surprised that it's getting hit alongside other stocks.
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| | | Select Economic Announcements: |
| | | As always, make up your own mind and, more important, minimize your risk no matter what you do.
KIS,
The Trader |
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