Whoa! That was the fastest 10% broader market dip in history. Volatility hasn’t spiked this high since the financial crisis in 2008. And bonds! What’s going on there? The 10 Year is now under 1%, yielding .767%! It was almost 2% at the beginning of the year. It’s dropping faster than a cruise line ticket to anywhere. And oil! It’s rolling over like a loose tumbleweed down Main Street in West Texas. That bubbling crude wouldn’t buy a hillbilly a Beverly Hills parking spot at these prices.
At least I got the oil call right. Ugh! This whole sell off thing has just come out of nowhere. I see the word “unprecedented” a lot in my weekend reading. I certainly never saw it coming. I expected a good 1,000 point dump but nothing like we have seen. I’m still trying to make sense of it. Maybe it’s just all nonsense.
The abrupt flight to bonds must be fear of the unknown consequences of this virus spreading. Certainly, there are already hits to the economy and supply chain evidenced by no Charmin toilet paper or Ketel One vodka at Costco today. What’s up with the hoarding people? And, speaking of vodka, who named this thing the coronavirus? I would be pretty pissed off if I owned BUD, which owns Corona. In fact, I am pissed off. Look at this chart of Anheuser-Busch I drew in November 2018.
Anheuser-Busch InBev (BUD)
If the virus disappeared today and we could buy toilet paper and vodka again what would happen? Let the good times roll baby. Would the market go right back to where it was? Would interest rates drift higher? Would cruise ships and airplanes get back to business? With enough vodka and toilet paper I suppose I wouldn’t give a rat’s arse but…
I think so. The broader market needed a dip not a dump. The dip got hijacked by the virus plunge propagators and created a fear (unfounded or not) that dumped the markets way past where they would have gone without the pandemic fears. Same thing with interest rates and oil. Way overdone in my opinion. Cycle disruption at it’s finest.
Take away the virus (or virus scare) and this does not happen. Take away some of the unknowns associated with the virus (scare) and the markets should stabilize. Take away the fear and stocks should resume their expansion. The virus should prove out, when all is said and done, to be a massive disruptive delay in the expansion.
Unfortunately, we aren’t quite there yet and the unknowns are still lurking out there.
Broader Market Review
The Dow, S&P 500 Index and Nasdaq all closed the week slightly higher than the previous week. Volatility and trading range remain high and wide but the broad market proxies like DIA, SPY and QQQ managed to close the week with a higher low and a slight gain. Kind of like whipped cream on dog poop. It could be worse.
How much worse?
The two strongest support levels on the Dow are currently 24,250 and 21,000. If we break 24,250 on a weekly close we are likely going to 21,000 which is the primary ascending support from the bottom in 2009 that has been a consistent, rising floor for the market during the corrective periods of 2011, 2015 and 2018. I don’t know if we are going that deep but those are the levels that should provide a floor if current levels give way.
If the Dow does get down near 21,000 that would be a screaming buy; a screaming buy for most anything. I still like 24,250 as a floor but I’m not adding anything until we get some stability. We would have to get some really bad news to get down to 21,000 but we can’t rule out anything at this point. If you’ve got dry powder watch for these long and strong support levels.
This sell off occurred so fast there was really no avoiding it except panic selling which I try not to engage in. At this point I am in sit back and watch mode. I may do some hedging with some inverse instruments like SH, PSQ, SDOW or SQQQ if things start to deteriorate below 24,250 as there really isn’t much support between 24,250 and 21,000; it’s no man’s land.
We are looking for the Dow to stay above the blue circle. If it starts closing below the blue circle it is likely to default down to the green circle. If it gets down to the green circle that is where the bottom should be. Hopefully, we won’t have to go all the way down there because that’s a long way from where we are now and I’m out of vodka and toilet paper.
Dow Jones Industrials (DJ-30)
PS..Tesla Inc (TSLA) is starting to look interesting..