Special Bulletin: March 17, 2020

The Crash of 2020: A Classic 1-2 Punch

A “1-2 punch” is a common idiom in the US and other countries that means a decisive blow that is initiated quickly and requires two consecutive attacks. The first blow, the “1”, leaves the opponent vulnerable enough to finish the opponent on “2”, except it must be quick and decisive. Source quora.com

The American stock market, better said the US economy, has just experienced a debilitating 1-2 punch. And in our opinion, the coronavirus is NOT one of the 2 punches. 

The first punch was the surprise decision by Saudi Arabia to flood the world with cheap oil, after Russia’s refusal to be an OPEC team player. (Imagine that: Russia behind something negative for the US.) This event has undercut (and will likely decimate) the US oil production efforts and has sent bankers, traders and frackers into a panicked frenzy. Their woes, which will no doubt be made public soon, will likely have a negative impact on the whole country. Some areas more than others.

Obviously Covid-19 is a serious threat and a negative catalyst. But the unprecedented response to it has been the real 2nd blow. In essence, the intentional shutting down of the social (and financial!) activities of a massive consumer-driven, economic machine is the knock-out punch. Let’s call it an “intentional recession.” The hit to the US economy will likely be staggering.

Fortunately, President Trump and his administration, the Fed, and the Treasury Dept. are announcing and executing colossal measures meant to soften the blows and to hasten an end to the all-but-guaranteed looming recession. Maybe even Congress will get in on the act. Nancy? Mitch?

After a one day bounce on March 10th, the Covid-19 bear market picked up right where it left off and promptly crashed yesterday. The Dow Jones Industrial average recorded its first 3000 point loss (well, almost) and made history with the 3rd largest one-day percentage loss in the past 100 years. (FYI: 1987 & 1929 were #1 & #2.)

Our Current Market Outlook remains “Market in a Correction” with a “red” light. One of our Core Four indicators is green reflecting the severely oversold condition of stocks. The Put/Call Ratio remains historically high, yet every bounce thus far has been violently sold into by investors. It is important to pay attention to what that action is saying. At some point a significant bounce will develop, it even happened in ’87  & ’29, but the conditions for a new “bull” market are nowhere in sight for now.

The money market/fixed income levels in our 5 strategies were at 76%, 78%, 83%, 91% and 92% as of today’s close. Praise the Lord! 

The technical damage sustained over the past month will take time to repair, yet conditions are such that a new rally attempt could develop at any time. The strong action today (+1,000) amounts to “day 1” of a new rally attempt. Watch for a follow-through day (as defined by I.B.D.) ideally between days 4 -10 of a rally attempt to signal a possible new uptrend may emerge. Keep in mind, not all “F-T days” produce a sustained rally, especially early in a bear market.

Remain hopeful, and be sober minded. The bible tells us in Proverbs 16:20, “He who gives attention to the word will find good, and blessed is he who trusts in the Lord.”

What’s an investor to do now? Pray for wisdom. Investors should be mostly in cash and be waiting for a “confirmed” rally to develop. Study the quality of every bounce to discern what the footprints of big money are saying. Keep and regularly update a watchlist of top sectors, mutual funds and stocks as you await the next stock market uptrend.

Have a Triumphant day! ®