Feels good to see some green. Would be even better to get some red on the Volatility Index.
As long as the VIX remains in the 70s and 80s, it is going to be difficult to get a sustained bounce, for which buyers become comfortable holding positions for anything more than a quick flip (although it will make for some huge up days).
If you manage to catch a bounce, don't let it turn into a loss. These runs make it easy to scale out of a portion of a position on the move higher. I mentioned this the other day: If you've got a name that's up a quick 15%, 25%, or even 50%, take some off.
As long as the VIX remains elevated, there should be chances to add back later. Plus, as long as you aren't selling the position entirely, you can still participate in upside.
Treasury Secretary Mnuchin said Thursday morning he anticipates the economy will be down in the second quarter (Thanks, Captain Obvious) with some pickup in the third quarter and a gigantic rebound in the fourth quarter.
That's pretty optimistic unless the administration knows something it isn't saying.
If we examine Wuhan, and Thursday's celebration there are no new cases of Covid-19, I think it's important to note the area has been on lockdown for eight weeks. Italy may be finally beginning to flatten. Also, on lockdown, fortunately for much less time than Wuhan, but several regions have been restrictive for a week to a few weeks.
In the United States, we still have thousands of people partying it up on Spring Break. Travel has definitely declined, but Costco (COST) , Target (TGT) , Walmart (WMT) , and grocery stores continue to be packed. The only behavioral change in some parts of the country exists because places have been forcibly closed, but we're nowhere near lockdown.
Although it feels like a lot has changed, it may be overly optimistic to believe the results in Wuhan or Italy or South Korea will be seen here when we're not following the same path ... yet.
So, the issue I see is if the U.S. were to need four weeks of social distancing and no lockdown, then I think this statement holds merit. If we stretch to eight weeks starting sometime soon, then Q2 will be hideous and Q3 likely a crapshoot at best. And that will require a large stimulus package to get many folks through two months.
If we go beyond eight weeks or the social distancing plus potential lockdown doesn't truly begin for several weeks, then you're making a bet (listening to Mnuchin's projection) that defies economic logic. Three plus months of virtual shutdown across the services industry will make a huge Q4 rebound virtually impossible without a massive stimulus for small businesses and individuals.
Bearish markets offer the absolute best bounces. They are rapid, can be hard to time, and scary to chase. Fear of missing out will come in big time on a day like today.
We haven't been able to put together two green days for quite some time. If we can hold today, Friday is triple witching, so expect lots of volatility early in the morning (also thanks, Captain Obvious), but don't be surprised to see continued dislocation in the options market early in the day even if the market is somewhat flat.
Between Wednesday's late push by buyers, Thursday morning's strong bounce off the lows, and some optimism Ackman's interview Wednesday put in a short-term bottom, I do think it is OK to be optimistic about the next few days. However, don't mistake the current environment as healthy or set up for a "V" bounce.
The trading opportunities are VERY short-term (a few days at most) while the investing opportunities should be viewed with the strategy of scaling entries and a long-term time horizon.
Tim Collins provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Tim Collins, Mark Sebastian, Paul Price, Doug Kass, and others.
