Who remembers the Batman and Robin fight scenes from the late 60s and early 70s? BANG! POW! BOOM! SMASH! KLONK! KAPOW! KRAACK! OUCH! (click here to see what I’m talking about)
That is what it was like yesterday as global markets came to terms with the latest news concerning the coronavirus. Markets got crushed, with Asian the market lower by 3+%, European markets lower by 4+% and US markets ending the day lower by 3+%. It was ugly for sure, and the bulk of the losses coming in the first minutes following the 9:30 am opening bell. Yes, that’s right… the bell rang and the Dow dropped 590 pts on the opening trade and when all the Dow 30 stocks opened – the index dropped an additional 407 pts for a total loss of 997 pts before the clock struck 9:31 am. All very dramatic for sure – but also – all very clear about how the markets trade today and how the technology allows for “all of this efficiency” in pricing!
With the opening trades, the Dow plunged thru both its 50 DMA and 100 DMA trend lines while the S&P and Nasdaq breached their 50 day and the Russell piercing it’s 50-day landing directly on its 100 day moving average but not piercing it. The tone was ugly, but in reality, it was NOT panicky at all, in fact – there were more people supporting the move for a couple of reasons! It took the fluff out, it gave people an opportunity to buy stocks on sale and as usual is most likely an overreaction – as the pendulum always swings too far left on the way down – just as it swings too far right on the way up. It’s just another day in the markets. By the end of the day, the Dow closed almost on its low – 1,013 pts or 3.56%, the S&P lost 111 pts or 3.35%, the Nasdaq gave up 335 pts or 3.7% and the Russell giving up 50 pts or 3.01%.
As expected the winners were – treasuries, bonds, gold and other precious metals as the implication continues to be that the virus will upend and disrupt the global economy. Losers included almost everything else. Travel, leisure, technology, energy, airlines, health insurers, industrials, financials were all taking it on the chin as the algos had a field day. Which is exactly the point – the algos are not as smart as they think they are. They typically overreact, create havoc, cause untold damage as they do what they are programmed to do – with little to NO regard of market consequences. Broken trend lines create more havoc especially when they are broken with such force as yesterday. Algos that operate on “technical trendline analysis” go into overdrive once those trend lines are broken (in either direction). The Dow and Russell are perfect examples… As it was clear that the 50 DMA was about to be broken – the algos responded by selling more, forcing a breach of the 100 DMA – which caused even more selling before many long term investors (think humans) started to see real value in some of the names that were getting crushed. Both the S&P and Nasdaq breached their 50 DMAs struggled to hold on but both closed below those the trend lines – typically – not a real positive. And so we’ll see.
The other story that needed to be resolved is the unfolding Democratic drama taking place on the world stage. Bernie was reveling in his latest surge in the polls, only to shoot himself in the foot on a Sunday night 60-mins appearance, where he apparently praised the Castro administration for all of the “good work” suggesting that his “literacy programs” surely must make up for all of the “other programs” he installed to control and indoctrinate the population. Cuban Americans are outraged – as they should be – and other Americans are outraged, as we should be. It will be interesting to see how this plays out tonight in the CBS/Congressional Black Caucus Institute Democratic debate. You have to believe that Lizzy, Mikey, Amy, Petey and Tommy are all gunning for Bernie to explain just what he meant by his recent praises of communism in Cuba and how and why that even relates to life in America. (Hint: It doesn’t – but is clearly one of the biggest concerns for the DNC of a Sanders candidacy). As he shouted on Saturday: “The Republican establishment is getting worried and the Democratic establishment is getting worried. They can’t stop us.” Oh Boy…
So overnight, global markets continue to be under pressure as virus cases continue to spread and increase outside of Asia, with more countries imposing travel restrictions upon their citizens. Japan which was closed on Monday, reopened today and fell by more than 3% as they played catchup with the other major market centers. The news is all about the virus. No one is paying much attention to any of the macro data. Cases in South Korea, Italy and Iran continue to increase – as China instructs people to get back to work!
By the end of the day, Japan ended lower by 3.3%, Hong Kong +0.27%, China -0.22%, and the ASX was down 1.6%.
European markets are all lower again today – after attempting to rally (any guesses?). The WHO (World Health Org) did send a mission to Italy today to help “support Italian authorities in understanding the situation” citing concerns over the outbreak! A spokesman for the WHO did have this to say:
“While limited local person to person transmission of COVID19 in countries outside of China was expected, the rapid increase in reported cases in Italy over the past two days is of concern.”
Really? Do you think? And they refuse to call it a pandemic. Why? Because they don’t want to create panic! (Laughable).
Latest economic data in Europe is not encouraging. Falling exports – caused German economic activity to stagnate in the final quarter of 2019. So the German economy grew by 0.6% in all of 2019 – the weakest since the Eurozone debt crisis of 2013. But I would be surprised if that piece of news is adding to the pressure as it was not unexpected at all. Beyond that, all is quiet on the western front!
FTSE -0.82%, CAC 40 -1.03%, DAX -1.04%, EUROSTOXX -1.15%, SPAIN -1.44% and ITALY -1.29%.
US futures have been all over the place, up triple digits overnight, but have now backed off a bit, yet are still showing some signs of life. Dow futures are +32 pts, S&P’s +1 pts, Nasdaq +9 pts and the Russell +4 pts, a FAR cry from the damage suffered yesterday. Be careful, some are out there saying that it will be “Take Back Tuesday” after the beating suffered yesterday…
Slow down… do your homework, look at the names you own and like, find some new names that are now in the “buy zone” and then be methodical about it. Remember, when Bloomies has a sale – people go running into the store because they are buying shoes, outfits and other clothing at 10% – 30% discounts. Think of this as a “Bloomies sale.”
Like I said yesterday on CNBC Squawk Alley: “Do not make emotional decisions.” Unless you had to sell stocks, this is a time to buy them, even if they go lower from here, because it creates more long term opportunity for people investing for the future. If you need the money tomorrow – then you shouldn’t be here in the first place! Don’t use all of your ammo. Be methodical. Happy to discuss with you.
The only economic data point today is the Richmond Fed Survey – exp of 10 – which is down from 20. Tomorrow we get New Home Sales, and the second read on fourth quarter GDP – exp of +2.1% is still good. If that’s true, the US is doing just fine. The hardest part to remember – is that the virus itself will not price stocks – it is now what the virus will do to the global economy and the impact it will have on company earnings and guidance that caused yesterday’s sell off. With no end in sight, I would expect this revaluation to continue. But that does not mean it’s the end of the world at all. It just means: Do your homework!
And in typical Donny fashion, he is now doling out investment advice via Twitter. Yesterday, he assured investors that “the coronavirus is under control in the US and the Stock Market Looks Very Good to me!” (I guess that’s a Buy recommendation – directly from the President. That’s called Jawboning isn’t it? An attempt to pressure or persuade by the force of one’s positon of authority.)
Now there was a fair amount of technical damage done yesterday. Broken trend lines at the 50 and 100 day moving avg’s (DMA) all over the place – in indexes and in individual stocks. So this needs time to repair – so proceed with caution. But like I said, it is not the end of the world at all. It is an opportunity – capisce?
The S&P ended the day at 3225 – 50 pts below its 50 DMA trend line. The Dow ended at 27,960 – below both its 50 and 100 DMA, the Nasdaq closed at 9222 – 20 pts below its 50 DMA trend line and the Russell is at 1,628 well below its 50 DMA and right on top of its 100 DMA. So the markets remain fragile – the action today should calm down a bit – but give it some time. When you have a reaction like this – it usually takes a couple of days for the markets to settle. Patience is a virtue – do not second guess yourself. Like I said yesterday:
“…last week you wanted to buy Apple at $327 – today you’ll get a chance to buy it below $300… How do like them apples?”
Oil got crushed yesterday – down 5% at one point but holding the $50 line (positive). That made sense – especially after the latest virus alerts is causing the whole demand fear conversation to take on new life. Overnight we did see it rally and then fail again as the concern has not gone away. The Saudis are considering more cuts – and we’ll find out about that in the days ahead. Either way – look for it to hold $50 – that will be the test for the next move.
Gold, which surged $40/oz. yesterday is backing off today… currently down $29 as the tone quiets a bit. I suspect it stays in the $1600/$1650 range for now.
Take good care.
Italian Style Pork Cutlets
Simple, easy and always good. This is a quick dish that you serve up with sautéed spinach or steamed broccoli and a lg green salad. Should take you no longer than 1 hr.
Preheat oven to 350 degrees.
Rinse the pork cutlet – (off the bone) and pat dry. Beat a couple of eggs and set aside. Prepare a bowl of seasoned homemade breadcrumbs. Set aside.
Melt ½ stick of butter in frying pan… Dip the pork in the egg wash and then dredge in the homemade breadcrumbs making sure to coat well on all sides. When the butter sizzles place the cutlet in the pan and brown on both sides. Remove and place in a baking dish. Deglaze the pan with white wine. Now add in some chicken broth and mix…
Pour this mixture over the cutlets – do not drown. Just bathe – and seal with tin foil. Place in oven and let bake for 40 mins – (the steam will soften the cutlets).
Remove and serve on a warmed plate. Accompany with the sautéed spinach (sauté with garlic and olive oil on the stove) season with s&p. A large green salad and you are done.