Stock Market Analysis - 3/18/2020
The past few days since the last analysis I've made has been stunning and literally historic. As the coronavirus continues to threaten the American economy, POTUS and the Federal Reserve has made multiple attempts to shore up the economy is the face of a possible recession. The Federal Reserve for example has cut federal rates to nearly 0% as well as promised billions in money market purchases in order to keep interest rates low. POTUS has been focusing on emergency funding for small businesses, airlines, energy, and for the average American. All this "good" news and the stock market is still selling off! It seems nothing the feds and POTUS does will prevent the inevitable selloff.
As a stock market participant, you should not be despairing. Regardless of the catalyst, bear markets are essential for a healthy market. The recent bull market has been running for the past 11 years while the average bull market duration is only 3-4 years. Bear markets allow a lot of the dirt (AKA bubbles) to clear out and for new major trends and stock market leaders to emerge. The most lucrative bull trends will arise after the dust of the bear market clears. Be patient and a lot of money can be made.
SPY: SPY is in a clear downtrend with lower highs and lower lows. We are still below a declining 5DMA and the decline seems to be accelerating. A short term bounce seems imminent. SPY recent undercut the December 2018 lows but closed above it. I expect SPY to start relaxing and consolidating down here. However this is not to say the bottom is in as the downtrend is still valid.
QQQ: We are seeing some major relative strength in QQQ as QQQ has not undercut the December 2018 lows as other indexes have. Like SPY, QQQ is still in a clear downtrend below a declining 5DMA. The downtrend seems orderly and has no signs of stopping yet.
IWM: The weakness in IWM has been stellar as the downtrend continues. The downtrend has been very orderly but seems extended. A short term bounce or consolidation seems imminent.
VIX: Although VIX continues to climb, the increase as of late has been slowing down. This is a very good sign as we may start to see "normal" volatility in the future. I believe when we start to see VIX and the market decline concurrently, we can start to look for a bottom. For now, VIX continues to be at 52 week highs and circuit breaker halts are the new normal everyday.
Overall, now is not the time to put on new long or short positions. We are currently overextended on the bear side and the market is still in a clear downtrend on the bull side. The best course of action is to stay on the sidelines and watch. On a side note, Coronavirus related stocks such as GILD, APT, APHI, COST, WMT, CODX and more are exceptions to this rule. These stocks are likely to move regardless of market movement due to hype and speculation surrounding these stocks.
As a stock market participant, you should not be despairing. Regardless of the catalyst, bear markets are essential for a healthy market. The recent bull market has been running for the past 11 years while the average bull market duration is only 3-4 years. Bear markets allow a lot of the dirt (AKA bubbles) to clear out and for new major trends and stock market leaders to emerge. The most lucrative bull trends will arise after the dust of the bear market clears. Be patient and a lot of money can be made.
SPY: SPY is in a clear downtrend with lower highs and lower lows. We are still below a declining 5DMA and the decline seems to be accelerating. A short term bounce seems imminent. SPY recent undercut the December 2018 lows but closed above it. I expect SPY to start relaxing and consolidating down here. However this is not to say the bottom is in as the downtrend is still valid.
QQQ: We are seeing some major relative strength in QQQ as QQQ has not undercut the December 2018 lows as other indexes have. Like SPY, QQQ is still in a clear downtrend below a declining 5DMA. The downtrend seems orderly and has no signs of stopping yet.
IWM: The weakness in IWM has been stellar as the downtrend continues. The downtrend has been very orderly but seems extended. A short term bounce or consolidation seems imminent.
VIX: Although VIX continues to climb, the increase as of late has been slowing down. This is a very good sign as we may start to see "normal" volatility in the future. I believe when we start to see VIX and the market decline concurrently, we can start to look for a bottom. For now, VIX continues to be at 52 week highs and circuit breaker halts are the new normal everyday.
Overall, now is not the time to put on new long or short positions. We are currently overextended on the bear side and the market is still in a clear downtrend on the bull side. The best course of action is to stay on the sidelines and watch. On a side note, Coronavirus related stocks such as GILD, APT, APHI, COST, WMT, CODX and more are exceptions to this rule. These stocks are likely to move regardless of market movement due to hype and speculation surrounding these stocks.
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