The Fed is giving buyers every reason to buy. Monetary stimulus. Fiscal stimulus. Both, essentially unlimited, and yet we're struggling this morning. The markets want to hear from Congress. Don't get me wrong, the Fed buying $125 billion in securities every day is huge. It should help put a bid under this market ... once we hear from Congress.
The problem, as I see it, is the action this morning is centered around the market. The monetary stimulus has been centered around banking and the high-level economy.
These are both very important items. We have to have liquidity in the system, but the everyday person doesn't see any immediate benefit. In fact, they may perceive no benefit at all outside of some confidence in their 401(k) or portfolio if it can recover some recent losses. But this is minimal at best. The individual investor wants to see Congress set aside partisan differences and come together on a plan that helps American, not one that serves a political purpose. I believe that's why we haven't seen a huge move higher yet today after the Fed announcement.
Put in the crowd that believes the market will pop higher post-Congress positive vote. Unfortunately, it seems more I know are in that camp and the market seldom rewards the obvious. Maybe that expectation is too obvious. The bigger concern shouldn't be whether we pop or not, but whether we hold the initial move. Expect a strong fade attempt whether we pop or drop post-decision, but if 2008-2009 history plays into this, the market won't make a bottom on Congressional stimulus.
My biggest concern is we have high-level government officials up for reelection this year who are more concerned with reelection than doing what is necessary both for small businesses as well as individuals. It might seem odd to say that when these are the very people who elect our officials, but big money comes first. That's how votes are won these days. Shape perception and you can shape results. The markets will fight through false perception, given enough time.
I see the push to reopen business and get the economy moving in the next two weeks as a huge roll of the dice. South Korea has demonstrated it can be done, but South Korea has a strong set of guidelines in place that we do not. The American independent spirit is both a curse and a blessing. At this point, we have too many that still don't want to be told what to do. They view working together for a common goal (social distancing to defeat the virus) as being told what to do, so they rebel. But this isn't Star Wars. This is real life.
The scientific knowledge around the virus is beyond me. I do know that shutting down the economy for 30 days will have dire consequences, especially without help for small businesses and individuals. I already have many friends suffering, but where we stand now, in a nether-void, is the worst of all worlds. Until that changes, you're relying on a government that has done little right to suddenly get it perfect. My approach has not changed. Maintain a very large percentage cash position in the trading account, implement mostly intraday scalping trades in that account, and initiate new positions in the long-term account in increments of 8%-12% of the intended full size. And don't be shy taking some long-term positions partially off the table if you catch a quick 15% to 25% bounce.
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