A day after a landmark selloff, the President proposes a tax cut to help with the impacts of the virus attempting to stabilize a very nervous market.  I think it’s safe to say the immediate economic impacts of the outbreak are substantial, but with the spread, in just the beginning stages here in the US, the path forward will be challenging to navigate.  Though a relief rally is overdue, we must remember that a retest of market lows is very common, so trade must prepare for the wild volatility to continue in the coming day and weeks.

Asain markets bounced back overnight in a very turbulent session closing in the green across the board.  European markets are also in bounce mode this morning, trying to recover about 3% of yesterday’s punishing selloff.  Ahead of earnings and a light day on the economic calendar US futures point to gap up of nearly 1000 points in reaction to the proposed tax cut.  Expect fast and volatile price action.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have about 100 companies reporting quarterly results.  Notable reports include CASY, SOHU, SFIX, & MTN.

Top Stories

After the biggest one day point drop in Dow history with the market grappling with a more than 20% plunge in oil prices and a spreading outbreak, futures point to a substantial bounce.  Shortly after the bell, the President proposed a payroll tax cut to help stimulate the economy, and China injected a 4 billion aid package to support markets.  With the indexes down about 19% from last month’s record highs, we are nearing official bear market territory still facing a long road ahead of outbreak impacts.

With the outbreak in Italy continuing to spread rapidly, the government extended its lockdown to the entire country.  The first country to take such extreme measures to battle the epidemic as their death toll jumps over 450.  South Korea’s infected tops 7500 as the nation extends school and universities closures another 2-weeks.  As numbers continue to grow here in the US, nervous consumers continue to stock up on food, paper products, and cleaning supplies expecting to stay home for extended periods. The economic impacts worldwide attributed to this outbreak will be substantial, and many are now suggesting a recession is all but inevitable. 

Today is another big primary day as Birnie Sanders and Joe Biden battle for delegates across several states.  If one candidate happens to make a clean sweep, the Democratic Party may finally have a clear front runner in the 2020 race for the Presidency.  A market reaction to the results is possible, so say on your toes.

Technically

The charts are an absolute mess due to the sharpness of the selloff.  In the short-term, we are very oversold with the DIA and SPY well below their 500-day averages.  The proposed tax cut has inspired the bulls to bounce back hard this morning, pointing to a 1000-point gap up as this very wild price action continues to challenge traders.  While a relief rally would be very welcome, we must keep in mind that market lows are often retested after a period of relief.  While yesterday appeared to be a capitulation selloff, we should plan for the possibility of more virus inspired bearish moves in the days ahead.  If we rally, keep an eye on crucial price and moving average resistance levels for clues.  Expect the extreme volatility to continue with substantial intra-day whips and significant overnight reversals to test the risk tolerance of all traders.

Trade Wisely,

Doug