The S&P 500 is indicated lower by nearly 3% several hours before the open. There are a number of catalysts for the weakness, with the most significant being the projection that the coronavirus will likely lead to over 100,000 deaths in the U.S. There is hope that social distancing and other efforts will suppress this number, but not even the experts can be certain what will happen.
Another reason for the weakness on Wednesday morning is the anticipation of what will be some horrendous economic reports. Weekly unemployment claims will be reported tomorrow and will most likely be over 5 million. The ADP employment report for March will be released this morning and provide some insight into what may come.
An additional factor at work this morning is the technical pattern. While many market players were hoping that a V-shaped bounce was underway, it now looks much more like a routine countertrend rally that is starting to fail. While this may not lead to a full retest of the recent lows, it looks like there is a bull trap that will lead to additional downside as recent buyers look for a way to escape some of their impulsive buys.
The best way to deal with this market right now is to cultivate great patience. There is a natural inclination to keep trying to predict when the worst will be over, but that obsessive focus leads to poor decision making. It just isn't the correct question to ask.
Predicting the exact market low is just a contest or a game. It doesn't produce the best strategy for controlling risk and producing future profits. Trying to guess the exact low increases your risk of buying at the wrong time. There is no way to know how much further the market may drop from here.
The best way to reduce risk is to wait for positive price action. It is easy to be fooled by countertrend rallies like we just had, but when support levels are retested, significant resistance overcome and there is sufficient time to digest the reality of what is occurring, then we can develop strategies that better control the risk of loss if we are wrong.
The best advice I can give right now is to stop worrying that you will miss out on great bargains and stay patient. When the market recovers, it will take many weeks and months and the buying opportunities will be overwhelming. The only compelling reason to buy right now is impatience.
My game plan remains the same. I'm trading the indices in very short timeframes and will forego doing much stock picking until the volatility slows and charts are less correlated. There are plenty of stocks that I look forward to buying at some point, but my patience is providing me with a strategic advantage that others squander as they rush to buy in a bear market.
If you have patience and cash, you should be very optimistic about the opportunities that lie ahead. Don't let an obsession with predicting a market low distract you from controlling risk.