Virus Keeps Causing More Damage

The market continued its recent volatile, bearish ride Thursday.  A strong gap down punished the bulls who chased into the prior day’s rally.  However, it was also an unpredictable ride intraday.  The buyers pushed markets up off the lows at the end of the day and left us with indecisive (wicks as long or longer than the body), black candles.  On the day, the SPY fell 3.32%, the DIA was down 3.48%, and the QQQ was down 3.04%.  The VXX jumped 16%, up to 26.68.  Meanwhile, 10-year bond yields also fell to as low as 0.90% and Oil fell to $45.98/barrel (West Texas Intermediate).

As you know, coronavirus remains the main news story.  The headline virus numbers have risen to over 100,000 confirmed cases and over 3,350 deaths globally.  This includes over 15,000 cases outside China as the outbreaks in places like South Korea (6,600), Italy (3,900), Iran (4,750), Germany (550), France (425), Japan (360), and Spain (300) continue to expand.  However, in China itself, recovery is starting to get underway as it is estimated 60-65% of their workforce (nationally, but not uniformly) have returned to work this week.  As an example, 90% of Chinese Starbucks locations are open, albeit with reduced staff, hours, and reduced or eliminated seating areas.

In the US, virus cases now exist in 17 states, with 235 confirmed cases and the death toll has risen to 12.  These numbers are expected to grow as we start to see broader testing in the US.  (The Dept. of HHS expects to miss their goal of a million test kits distributed by the end of the week.  However, there are still hundreds of thousands of more tests available now than last week.)  Then again, maybe the spread of cases and deaths will just stop.  President Trump disputes C.D.C. and W.H.O. statistics.  He has a hunch that hundreds of thousands of cases simply recover on their own, without treatment, as those people just sit around or keep going to work, with only minor symptoms.

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Despite his hunch, we continue to see real impacts with a parade of closures, cancelations, and warnings.  In addition, the US is starting to see certain shortages in some areas (i.e. face masks, hand sanitizer, toilet paper, and even some drugs).  For example, the largest grocery chain (KR) is now limiting the number of cleansers, sanitary items, cold, and flu-related products any one customer can purchase.  Meanwhile, in San Francisco, one of the infected cruise liners has been refused docking rights (with 2,500 passengers still on board) and is anchored off the coast as passenger testing and negotiations are underway to decide whether the ship can dock in that city.  On the bright side of the outbreak, it appears that money (including significant foreign money) is piling into the US real estate market, as a safe haven.  This point is reinforced by announcements that large banks are now reassigning significant parts of their staff to process loan applications faster. In China, the government has invoked "force majeure" for 4,900 companies, which invalidates contracts. (If a company had a Chinese supplier or customers, they may not now.)

Last night Jamie Dimon, CEO of JPM was hospitalized and had emergency heart surgery.  He has been temporarily replaced by the company’s Co-Presidents.  Also overnight, Asian markets were deeply red Friday.  Europe is even deeper in the red, down about 3.5% across the board so far today.  As of 7:30 am, U.S. futures are still volatile, but point to a gap lower of between 2.5% and 3.25% as of now.

Friday’s major news includes Avg. Hourly Earnings, Import/Exports, Feb. Nonfarm Payrolls, and Feb. Unemployment Rate (all at 8:30 am).  There will also be half a dozen Fed speakers throughout the day.  There are no major earnings reports scheduled. 

Another gap, heavy volatility, and uncertainty is likely to reign again Friday.  Even a two-day weekend represents a lot of headline risk with a global news story like COVID-19 underway.  We could see a major increase in the spread, some kind of coordinated economic response or who knows what before the opening bell Monday.  So, if you are trading at all, my advice is to be delta-neutral before the close today.  Remember, cash is a valid position.

As Warren Buffett says, the first rule of making big money in the market is not losing big money in the market.  In comparison, the loss of a day, week or even month of trading is a small price to pay to avoid being whipsawed to death.  Successful trading means good risk management.  Trading is a business, and consistent, effective trading is the goal.  Don’t chase.  Don’t trade on emotions.  And plan every trade.

Ed

Sorry, no Trade Ideas for your watchlist and consideration today. Friday is payday. Take some profits. 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.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick... I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%.... this program is gold.

🎯 Friday 6/21/19  (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.

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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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