Special Bulletin: February 24, 2020 (5:30pm update)

Mauling Bears Bury Market

Today’s stock market featured additional professional selling that was almost severe enough to change our Core Four to a red signal. (See above)

As a result of Fridays action on the Core Four, our Current Market Outlook was changed to “Uptrend under Pressure” with a “yellow” light. (See 10:30 am post from earlier today)

The massive selling pressure and huge downward price gaps in the three major indexes today was disturbing. All three of the indexes also closed under their 50 day moving averages. To make technical matters worse, the S&P500 and the Nasdaq even staged a “negative double cross.”

The stock markets long-term uptrend is under its first serious attack since October. Our Core Four internal indicators are now 2 yellow, 2 red and no green. 

The continued flight into treasuries, which had already inverted the yield curve, caused an all-time low in the interest rate on the 30 year bond. ALL-TIME low! That type of action smacks of possible recession.

Food for thought: China owns about $1 Trillion worth of our US Treasuries. They are priced at their highest levels ever. (Price goes opposite yield in the bond market) So, might China dump their position (sell high) into the current massive panic demand and then have a huge amount of capital to deploy into their coronavirus ailing economy? Think of it as an economic vaccine.

The stock markets next move will be telling and critical. An immediate snap back rally at the open tomorrow (Tuesday) would be encouraging. But it would not necessarily mean the end to additional downside price discovery. A second possible sequence would be a big wash-out Tuesday morning, which would be followed by a massive upside reversal by the indexes into the close. That would be ideal. Or a third outcome would be it just keeps going lower all day and causes an immediate downgrade to red (Market in a Correction).

On a side note, the Nasdaq looks healthier than the other indexes and is testing its 50 day moving average at this point. It will be a key market “tell.” The action of true leaders always is.

What can an investor do now? Stay calm and keep praying for wisdom. Study the action of the major indexes around their 50 day moving averages the rest of the week. Keep an eye on the inverted yield curve.

Remember that bear markets develop over several weeks. Additional technical damage usually comes quickly and confirms the initial down move. Having said that, the bulls on wall Street are always eager to buy on any pull-back. It’s “put up or shut up time” for them now. The next 2 – 3 days will be very telling.

While not knowing whether the bulls or the bears will ultimately prevail in the weeks ahead, it is very likely that there will be a reflex rally soon. Studying the quality of the internals during that bounce will reveal much about the probable longer term outcome of this severe bout of selling. If it’s a poor quality bounce, then traders/investors would be wise to sell more on the next trip below the key 50 day MAV.

Have a Triumphant day! ®