For a while Thursday, the chances of a market bounce were looking pretty good. The indexes were well off the morning lows and there were some nice-looking red-to-green moves in a number of individual stocks. The market is obviously very stretched to the downside. According to Sentimentrader.com, this the fastest the S&P 500 has ever wiped out four months of gains after hitting an all-time high since 1928. The Dow Jones industrial average is down over 3,700 points since hitting an all-time just two weeks ago.
This sort of intense selling would typically lead to a very energetic bounce at some point, but the problem is that the news flow is scaring away the buyers. Today it was news that California is monitoring over 8,000 people for the virus and that there are at least 28 confirmed cases now in that state alone. What is particularly troubling is that there is shortage of test kits so there is no way to really know how well contained the problem might be.
My working thesis is that the market will be unable to find support until there are more news articles with reports of COVID-19 cases in the US. Only when we know the extent of the problem can the market fully discount for it. A lot of damage has already been priced in, but it certainly can get much worse.
This market is all about the news flow and it is not going to provide much upside opportunity until there is more clarity. Even if the news is bad at least it will be better than the current uncertainty
The good news is that some amazing opportunities are developing and there will be a substantial snap-back, but what we don't know is how much lower we can go before there is a turn.
My game plan is to continue to hold very high levels of cash, make only minor buys and trade the indexes in either direction as opportunities arise.
This market is a falling safe, and the best move is to try not to catch it.
Have a great evening. I'll see you tomorrow.