Coughs and Sneezes Spread Diseases
That was a universal government poster campaign slogan when I was in short trousers. Back then, the danger was from contagious germs of usually ‘foreign’ origin. Of course, the exact parallel is to today. But today’s pandemic is one in a long list of viral attacks on the human race. I am surprised we are not seeing a similar campaign to fight the coronavirus.
So, stock indexes have bounced – precisely where I forecast they would. VIP Traders Club members have taken major profits on their shorts near the lows on Monday.
Burning Question: Is this a Dead Cat Bounce or the resumption of the manic bull market of 2009 – 2019?
One of the standout features of the crash to Monday’s lows is the persistent buying of the dip especially by retail traders/investors. Here is the astonishing COT of the emini S&P (the most heavily traded index by traders large and small)
Note the non-reportables (small traders) increased their longs (by almost 40% in the week!) much more than their shorts as the market crashed. They remain almost 2/1 long despite the 30% decline. What touching faith in the old Buy The Dip mentality!
The hedge funds (non-commercials) did succumb to the mass selling a tad but actually reduced shorts as well. All this is telling me there has been no panic selling – that phase is to come.
Of course, one of the ‘excuses’ for the rally is the ‘good’ news out of Wuhan where they are re-opening the economy and travel is now permitted in and out (and within). That’s what the conventional pundits believe since they still adhere to the false principle that it is the news that drives the mood that drives the markets.
In my view, they have the cart before the horse. It is the improvement in sentiment (hope the end is near?) that has brought these news events about. In fact, I forecast the lows before they happened. Most other pundits cannot do that. They react after the event with their rationalisations for moves that have already taken place. How can anyone trade on that basis? Of course, you can’t.
A trader needs to see the road ahead, not forever look in the rear-view mirror if they want to be safe – and prosper – in the markets.
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Some thoughts about the effect of the pandemic on markets
Let’s examine some facts. The coronavirus has killed very few people so far (less than 1% of identified infected). The number of tested positive almost certainly underestimates the true numbers infected (a moving target anyway).
Also, most of the deaths (in Europe at least) are skewed towards elderly men who are overweight or obese and with existing conditions. Who knows if many of these people would have died from their existing conditions soon anyway? That means the deaths directly attributable to the coronavirus is almost certainly smaller that what the data says.
So what I am toying with is this: Is the social and economic and market turmoil over the top in comparison with the actual threat to humanity in terms of potential fatalities? Several medical experts have suggested this. Here are a few here.
While that may be the case, it is irrelevant to my work as a market analyst! You see, the conventional ’cause’ of a market crash is always a symptom of a larger impulse in a change in mood. So it doesn’t matter how dangerous the virus is. It is the unconscious change in mood from positive to negative that has brought the social and market turmoil about. And that’s why traders who focus on the progress of the virus to glean any market moving information is looking in the wrong place.
That’s why the extensive MSM virus coverage is not helpful from a trading perspective. It is best to avoid it.
Before January, the mood was super-bullish and financial speculation was rampant. Now, the social need is to reduce speculating on financial markets and to conserve resources.
2019 was the final year of manic speculation in assets. Valuation of stocks went sky-high. So did property prices with average house price in London/average London wage reaching 15 – 20 multiples – a record. Many were paying 50% and more of take-home pay just to keep a (very small) roof over their heads.
But the killer point is the wave patterns – stock indexes had reached fifth wave terminations at many degrees of scale. Fifth waves are always and everywhere ending waves. Thus, markets in early 2020 were ripe and totally teed up for a ‘shock’ to the system. And that shock came in the form of the most deadly kind – a massive invasion of fear. And that fear manifested in the form of the virus (which may be relatively benign anyway).
And that came right on the heels of the most complacent markets in history. And that’s why the market crashes have been so swift and severe.
But investors are still buying the dips (see COT chart above). Old habits die hard. I am taking that as a very bearish signal.
Central banks and governments to the rescue!
Just as a great chasm was (again) opening up in the markets on Monday, the cavalry are appearing over the hills! Gigantic ‘stimulus’ (aka bail-outs) are coming to companies and citizens alike (it was the too-big-to-fail banks the last time). So history doesn’t repeat but it does rhyme.
So will we see a repeat of March 2009 where a “V” shaped recovery got under way leading to new ATHs?
There is wild talk of introducing a ‘universal income’ for all citizens regardless of doing anything for it except to have a pulse. In fact, Alaska has such a programme, although the annual oil ‘dividend’ has never exceeded $2,000 – and with oil prices on the floor, that ‘divi’ is about to shrink even further this year.
As I write Thursday morning, the US Senate has just passed a $2 Trillion support package. On Monday last week, I forecast a low on Monday (got) and a likely two- four day relief rally to Tues – Thurs. And true to form, is the relief rally producing a classic Buy the Rumour, Sell the News event? We shall soon see.
Remember, Fear Beats Money. No amount of government/central bank largesse can turn the tide of consumer retrenchment and a growing need to conserve what they have. Staying at home for most of the population will ensure that. Anyone ‘self-isolating’ will focus first on adequate food supplies. Will they be in the mood to load up with luxuries such as new clothes?
Also, when we get the all-clear, will we feel safe eating out in droves again when fears of a second wave hits? And how about foreign holidays? Will we be so keen to take them to a country where the virus may still lurk (social media will go wild on this one).
One final word on the pandemic: This is the perfect excuse for governments to impose more and more control over their citizens ‘for their own good’. But remember, there is nothing so permanent as a ‘temporary’ government programme. The income tax was pushed through as a ‘temporary’ measure to pay for the latest war!
Apple retreats, as forecast
Way back last year, Apple was riding high. It was one of the ‘never sell’ shares that were heavily promoted by the usual hucksters (aka MSM pundits). It had a growing mountain of cash much of it used to buy back its own shares to keep the ATHs coming thick and fast. It kept coming out with blockbuster products and was a paragon of innovation. What was there not to like? Everybody lusted after its products (expect android fans, of course).
But I had a different take – there was plenty not to like. The main thing was the supremely confident bulls. At no point last year did I spot a bearish article – and that was a huge red flag. The shares had gained a very impressive – and unsustainable – 140% last year in a manic exponential curve. The only question for me was when the bubble would burst.
But burst it did – and PRO SHARES members got on board early. In the space of a few weeks, the shares crashed by 35% to Monday’s low at the $210 region. That’s when members took some profit – and a very large one at that.
The move lower seems to be a series of 1-2s and if so, I project a break of the wave 4 low at $140 in due course.
So did I know a virus would wipe out so much value in such a short time? Of course not. All I knew back in early February was that odds heavily favoured a trend change of some size after wave 5 had completed. I let the market do its work of confirming my forecast and I remain happy to have produced some major profits for my members.