The S&P 500 fell for three days in a row for the first time since it hit a low on March 23. Many market participants have been hopeful that the worst was over and the Federal Reserve and massive stimulus would fuel a V-shaped recovery.
There has been more talk about reopening the economy and Morgan Stanley (MS) has estimated that 54% of the economy will in a meaningful reopening phase by mid-May. However, the narrative shifted last week as market players became more concerned about the economic fallout that will occur. Earnings from Apple (AAPL) , Amazon (AMZN) , and a few other big-cap names also served as 'sell the news' events after the big run.
The indices probably would have seen some sort of oversold bounced this morning but Warren Buffett helped to cast some doubt on how far the market might turn. Not only did Buffett completely dump his position in airlines but he noted that he was unable to find attractive ways to put his huge cash holdings to work.
Buffett (Berkshire Hathaway (BRK.B) )faces challenges few regular investors do because of sheer size and he did sound an optimistic view about the economy and the U.S. in general, but the fact that he is raising his cash levels instead of buying is not helping the market mood this morning.
Buffett's view that airlines will not return to normal for years is a narrative that the market has been trying to avoid on a broader level. The hope has been that the recovery would be quick and easy but when someone like Buffett is skeptical it raises some serious doubts.
Technically the indices are now at a point where the V-shaped bounce issue is being strongly questioned. If support kicks in and the S&P 500 holds the 50-day simple moving average at 2758 then the V-shaped bounce will not be dead. There will be significant overhead at recent highs near 2954 but the main concern is a deeper pullback that will start many technicians wondering if a retest is likely.
At this juncture, my game plan is to maintain very high cash levels. Currently, I am around 85% cash. I see no reason to be in any rush to build longer-term positions. Some market players see big caps like Alphabet (GOOGL) and Microsoft (MSFT) as safe havens but I don't see them doing much in the near term and prefer to hold cash.
One positive right now is that there is a fair amount of active trading in more speculative stocks that benefit in some ways from the Covid-19 crisis. They can be quite volatile but there are good short term opportunities for those that are quick and nimble.
The market tried hard to ignore the economic damage that is being done but it still creates tremendous uncertainty. It is going to take some major effort to put the market back on track to the V-shaped bounce that looked possible a week ago.