Bear Market Trap!
Circuit breaker limits today
Level 1 – S&P must fall 7% – 177.90 pts
Level 2 – S&P must fall 13% – 330.39 pts
Level 3 – S&P must fall 20% –508.29 pts.
So was it a bear market trap, that 4000 pt move higher last week? Stock futures were down in pre-market trading on Friday morning, after having seen the markets surge in the prior four days. The algos took some money off the table, especially as it was Friday. The weekend was upon us (so much could happen) and the House was expected to pass the vote on the $2 trillion rescue package. So, the idea that we would see some profit taking should not have surprised anybody. So the roller coaster ride continued, as the country deals with the effects of “Rona” and the economic tsunami that has arrived on our doorstep. Businesses are all closing down across the country and the rise in cases and deaths a daily headline – the angst and nervousness of what’s next builds. Skype, Zoom, Team Viewer and FaceTime have become the new and preferred ways of interacting with our colleagues and our families, as we all adjust to the new normal.
Stocks ended up dropping on Friday after that furious and seemingly out of control rally that saw the indexes surge by 20% began to fail. The expectation of the massive government spending program and unlimited Federal reserve support program being completely ignored. Expectations of very weak earnings and a very weak global economy – no matter how much stimulus governments around the world provide – weighed on the algos, and the collapse of oil only amplified the negative mood. By the end of the day – the Dow gave back 915 pts or 4.5%, the S&P fell by 88 pts or 3.3%, the Nasdaq lost 295 pts or 3.79% and the Russell gave back 48 pts or 4.09%.
The VIX – fear index – which traded as high as 85.47 on Mar. 18, fell to a low of 36.24 on the 24th – as the excitement built over the massive support and stimulus program being discussed. By Friday – the VIX had surged again and ended the week at 66.05 as many expect the volatility to stick around for a while as the news continues to paint a picture of nervousness leaving investors scrambling for something to hold onto and in fact – the VIX is up again as the week begins.
The epicenter is now firmly here in the states – with both coasts – NY and Seattle, at the center of the storm as the virus washes over the rest of the country. While Europe continues to be a hotbed of disease – reports that deaths in Italy are falling are positive. We can feel the virus make its way across the Atlantic. Whole nations continuing to close borders and access to their countries – airlines slashing the number of international flights in a bid to halt the spread and or re-introduction of the virus into countries that have already lived through the epidemic and talk of curtailing domestic travel hitting the airlines further as everyone attempts to stop the bleed.
Oil continues to plummet – as the Saudis and the Russians refuse to come to the table to discuss production limits, flooding the market with oil at a time when institutional demand is collapsing. Overnight we saw plunge again – falling as much as 7% or $1.58 to a low of $19.95/barrel as the crisis continues and the price war continues. In fact – it is now demand destruction that we are witnessing coupled with massive oversupply (prior to the crisis – the talk was more about oversupply rather than demand destruction) – and with nether side (Saudis or Russians) willing to come to the table. Even at the urging of Washington – the bottom continues to fall out. Now some are suggesting that it is because both of those countries are trying to kill off the US oil shale industry (and they are) – as they attempt to take back control of the oil markets – and with demand forecasts plunging by 20% year over year. The assumption is that massive production cuts across the board – by ALL producers is what is necessary to stabilize prices. And this too will change the face of the oil industry for years to come.
Three Levels of Uncertainty:
How does the virus progress – is there a “curve” that suggests timing? Are markets comfortable around 6 – 7 weeks of a shutdown? Next is the public health policy response and how long will it take for health officials to get this under control and finally is the economic response and how fast this massive global response will filter thru the system. Will it filter through the system as intended? These are all relevant questions and the answers remain opaque – and that will continue to cause the markets to remain volatile and anxious. Remember – the market can deal with bad news – but what it has trouble with is – UNCERTAIN news and right now we are in the middle of massive uncertainty.
Overnight – markets began the week in negative territory – Australia which has been bucking the trend daily – was up while others are down and down while others are up – once again moved in the opposite direction – closing up 7% on Monday – after having closed down 7% on Friday. The rest of the Asian markets all lower as investors continue to assess the impact of “Rona.”
By the end of the day – Japan lost 1.57%, Hong Kong gave back 1.32%, and China lost 1%.
In European trading – markets there are following in lockstep – lower as the morning turns to afternoon but rallying off the early lows and investors continue to deal with the fallout. Some Eurozone economic data was released but is doing little to stop the selling. The focus remains on the damage that is being inflicted across the region – and that is true in all parts of the world.
FTSE -0.92%, CAC 40 -0.98%, DAX -0.41%, EUROSTOXX -0.67%, SPAIN –1.57% AND ITALY -0.46%.
US futures have been ALL OVER the place overnight, Down triple digits, up double digits. As of 6:15 am – Dow futures are down 61 pts, S&Ps are flat, Nasdaq is up 9 pts and the Russell is up 2 pts. Technically the market is broken – massive violations of support levels that need to be repaired. What we want to see is the market settle down – we want to see smaller more concentrated daily moves – rather than the big up followed by the big down days that continue to cause nervousness and volatility. Until that happens expect the price swings to intensify. But it does feel like we are closer to a bottom than not. The lows around 2200 witnessed in mid-March do feel like a bottom to me. Now that being said – the rally that took us back to 2500 is sure to come under pressure in the days ahead and a retest of 2200 should not be unexpected. As we move thru the next couple of weeks – hopefully the broader picture will become a bit clearer. The focus will return to the economics and the markets will be able to focus on the future.
Trump took to the airwaves last night – extending the nationwide shutdown to April 30th versus his expected mid-April date range. Dr. Fauci telling us that we could see more than 200k deaths here in the US before this is over. 10 year Treasuries move higher sending yields to 0.637% while 30 yrs are now yielding 1.24%.
Over the weekend – Abbot labs (ABT) announces that they have developed a test that gives you a result in 5 minutes (versus the 2 or 3 days required now) – and this is being celebrated. The FDA has granted emergency use authorization for authorized labs and patient centers – ABT is quote up $10/share in pre-mkt trading.
Take good care.
This recipe comes to me from the Puglia region of Italy. This is the region that represents the heel of the boot – halfway up the calf. It is on the Eastern coast of Italy on the Adriatic Sea. Lucera – is an ancient city – one that is full of wonder and historical significance.
Today I serve up this incredible Risotto dish. For this you will need: Vialone Nano Rice – similar to Carnaroli but produces a creamier delicious risotto, Fresh Monte Veronese cheese – this cheese is made from cow’s milk and is produced in Northern part of Verona. It is thought to be one of the great cheeses of the Lessini mountains.
For this you need: Finely chopped onion, butter, beef bone marrow, extra virgin olive oil, beef stock and a 1/2 bottle of Amarone della Valpolicella.
Begin by heating up the Amarone – do not boil – just slowly heat it.
Bring the beef stock to a boil and then turn to simmer.
In a separate saucepan, heat the butter, bone marrow and a bit of olive oil, sauté the onion. When the onion gets golden brown, add rice, stir and toast over the heat for several minutes. Season with s&p. Slowly add the Amarone – stirring all the time as you add allowing it to absorb in the rice.
To complete – add the hot beef stock one ladle at a time. As it is absorbed add another ladle always stirring with a wooden spoon. Taste and adjust seasoning. Cook until the rice has absorbed all of the broth and the grain retains it texture – do not cook so much that you make it mushy. Turn off the heat; add a dollop of butter and the grated Monte Veronese cheese.
Serve immediately in warmed bowls. It doesn’t get any better than this!