Coronavirus Is Still The Lead Story

Coronavirus really put it on the markets Friday.  A brutal all-day selloff was only slowed by bulls rallying the last 15min of the day in a futile effort to make January end as a net gain.  Unfortunately, markets still closed lower for the month.  On the day the SPY lost 1.81%, the DIA lost 2.12%, and even the QQQ (buoyed by a massive AMZN earnings beat) lost 1.59%.  In the process, the SPY held support, but the DIA gave up the 50sma and a potential support level.  Obviously, the VXX spiked to a still-low 16.27

Over the weekend, the death toll from the virus topped 360, with well over 17,000 confirmed cases in China alone.  In response, China has extended the Lunar New Year shutdown (holiday) across at least 24 provinces (which account for 80% of the Chinese GDP) until at least Feb. 10 (some until Feb. 14).  They also said the holiday may be extended again if deemed appropriate. 

In potentially good news, Thailand reported good results using a mixture of two antiviral drugs.  The success saw a significant improvement in the condition within 48hr after treatment.  However, this success was on a single patient.  So, it is way too early to claim a solid treatment has been found.  Still, this is promising news.

For now, China has announced a range of measures to help businesses hit hard by the virus.  In addition, the People’s Bank of China said the equivalent of a $173 billion (including $21 billion today alone) extra liquidity will be injected into their markets using the same repo mechanism the Fed uses to pump money into US Markets.  This was intended as an emergency backstop as the Chinese stock market reopened for the first time since January 23.  Nonetheless, Chinese markets still gapped down almost 9% at its open.  (Bear in mind that in addition to virus fears, Chinese markets have been closed for 10 days and have not had a chance to adjust.  So, gap moves on the first day back from the Lunar New Year holiday are typical…just not this severe.)

Overnight, Asian markets took the weekend virus news hard with red across the board.  The only possible bright spot is that Hong Kong got back to the green side of flat.  However, China’s first day back to trading ended down 8%.  In Europe, markets are mixed, but mostly green at this point.  As of 7:45 am, U.S. futures are pointing to a half percent gap higher after Friday’s beating. 

Monday’s major economic news is limited to Jan. Mfg. PMI (9:45 am) and ISM Mfg. PMI (10 am).  And while earnings do resume this week, today is a light day.  Among the major names reporting before the bell are AMG, CHKP, and SYY.  After the close ARE, GOOG, GOOGL, HIG, LEG, and NXPI all report.

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The bulls seem to be trying to find support this morning.  However, the bears have the momentum and nothing has changed for the better on the coronavirus story.  Be careful trading either direction as it’s likely to be a volatile day.

Keep in mind that nobody ever went broke taking profits (small or not) and reducing risk. Above all, wait for the trade to come to you...plan your trade and trade your plan.

Ed

Swing Trade Ideas for your consideration and watchlist: VXX, SDOW, TZA, KKR, LABD, GDOT, SHAK, GWRE, CTXS, PRGO. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.

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