Special Bulletin: February 25, 2020 (2:30pm update)

Market correction has taken hold. Will the virus cause a recession? 

As a result of today’s action, our Current Market Outlook has been changed to “Market in a Correction” with a “red” light. Our Core Four has moved to a red signal with 3 red, 1 yellow, and no green. (See above) 

The stock markets long-term uptrend is under assault. Massive selling pressure has continued in the three major indexes today and each has sunk further under their 50 day moving averages. The “negative double cross” on the S&P500 and the Nasdaq that we wrote about yesterday has made itself felt.

Money is continuing to pour into treasuries causing another all-time low in the interest rate on the 30 year bond. That is a fear trade, but also footprints of big money. Fortunately, we recognized that negative action last week and in response we began raising cash (to between 30 to 60%) in our various equity strategies.

Yesterday we wrote, “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).” The third possible outcome happened (Underlined emphasis added). Unfortunately, the Put/Call ratio is not yet showing the typical readings associated with a near-term bottom, which means there may still be lower prices ahead.

What might investors do now? Expect an oversold rally (bounce) this week. Study the quality of the internals during that bounce to discern the footprints of big money as a clue to the markets longer term outcome. Watch for a surprise move by the Fed (a positive catalyst), or an announcement that the coronavirus is now spreading across North America (a negative catalyst), or other similar dramatic news to create the next powerful move.

Have a Triumphant day! ®