On Friday, concerns over coronavirus spread led to a rough day on Wall Street. The major indices all gapped lower and saw follow-through as the bears were in control most of the day. At the close, the SPY was down 1.03%, the DIA down 1.04%, and the QQQ down 1.92%. The VXX climbed on the day but closed back below 15 while the T2122 remains in the mid-range. None of the 10 sectors were in the green, but Technology, Consumer Cyclical, and Energy took by far the worst beatings. This all gave us the first Weekly black candle in the QQQ since November.
However, it is worth noting that the bulls did push markets up off the lows during the last half hour. So, the 50sma held in the DIA and potential support levels held in the SPY and QQQ. The point is that we were extended to start and due for some pullback. However, we didn’t see a lot of bulls jumping out of windows and we are still within about three percent of all-time highs.
After the close Friday, it was announced that WFC had agreed to pay $3 billion in a settlement with the Federal government to avoid criminal charges over their decade-long fraudulent sales practices. GOOGL also reached a settlement with all 50 state attorneys general to allow outside consultants to dig into Google business practices (as part of an anti-trust investigation), but force some confidentiality agreements on the consultants. This will pave the way for the antitrust investigation to proceed.
Over the weekend the coronavirus outbreak continued. The count is now at 80,000 confirmed cases and 2,600 deaths attributed to the virus. However, these numbers are suspect as China has revised the methods they use to count cases three times since the original report. In addition, both the Chinese and some other governments are still downplaying the impact. For example, at the G20 Summit, the I.M.F. said the outbreak would only trim 0.1% off their global growth forecast. China went so far as to urge businesses to reopen and ease restrictions on travel in Wuhan. (The easing of travel lasted less than three hours before they had to lock things down again.)
However, the W.H.O. is reporting an alarming jump in cases outside of China. For example, South Korea saw exponential growth in cases this weekend, with a 20-fold increase to over 750 cases and 12 deaths as of Sunday night. Iran and Italy have also seen outbreaks. The Italian outbreak (160 confirmed cases) has seen Austria close its border with Italy…and both are inside the EU. The same is true for Iran (61 cases and 12 deaths) with Turkey closing its Iranian border. Ominously, the W.H.O. says the Iranian cases are a particular concern because their cases come from different areas of Iran and all from people with no direct connections to China.
Overnight, Asian markets were red across the board, with South Korea (-3.87%) and Australia (-2.25%) taking major hits. Europe is also bright red from end to end so far, with all the major bourses down well over 3.5% at this point. As of 7:30 am, U.S. futures are also pointing toward a large gap lower of between one and two percent in the major indices.
There is no major economic news scheduled for Monday. On the earnings front, there are no major reports before the open. However, HPQ, INTU, KEYS, and OKE all report after the close.
The bears did create some follow-through on Friday, but the bulls didn’t throw in the towel. However, the spread of the virus impacts far beyond Chinese borders may finally be negativity that the bulls cannot ignore. The weekend business and especially virus news are heavily in the bear's favor. So, we remain not too far from all-time highs, but it looks like a very rocky morning coming up for the bulls.
Unless you are extremely quick, nimble and experienced, this market is not the river you should be trying to swim. Manage the trades you are in and think twice about chasing anything in such a volatile market. Use caution. Take profits and keep moving stops. Remember that sitting on your hands can sometimes be the best move you can make. Whatever you do, DO NOT CHASE and don’t lose your discipline. Our job is to just rack up consistent gains, not find winning lottery tickets.
Due to market conditions this morning, there will be no trade ideas today. Manage the trades you are in now. 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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