Market Analysis


No market video this weekend as my wife has threatened to quarantine me to the woodshed if I put the time into a producing a video. No, she’s right, time to decompress. It’s been a very intense few weeks and the weeks will continue to be intense going forward.

But in lieu of the video this weekend I wanted to offer some quick thoughts and a few charts. Some risk considerations, but also some potential positives.

This is no longer about bulls and bears, this is now about our way of life. I don’t want to sound hyperbole here, but we still don’t know how any of this will unfold. We can all rightfully hope that all the drastic measures we now seen undertaken will get this virus under control and hopefully in a few weeks things can return to normal. It’s an absolute human tragedy that is unfolding in places such as Italy and each death is a travesty. And we don’t know how long or deep this will go. Nobody does.

This new virus has caught the world by surprise. Is it a one off that science will manage to control, or are we looking at a paradigm shift here? A virus that, like the flu, will now be around and mutating each year, but unlike the flu is much more aggressive, deadly and more difficult to combat? We can’t know yet, the prospects are daunting and humanity will have to adjust big time if this is the case.

While we all may live in our own insulated bubbles of perception, things certainly hit home for me when I drove through the small town we live nearby last night and found it shut down and deserted. No humans, no cars. Ghost town. UK schools are looking to shut down until September at least. For many families this already is a paradigm shift.

And the fear is suddenly palpable. Stores that were still fully stocked last week were suddenly void of any supplies.

My experience in the UK in past 24 hours:

No, things are real and people are hurting big time. Just in our local circle of friends here one person has already lost their business, another one is about to, others are feeling the pressure big time. We live in the country side and so we are very insulated from it all, but nobody can escape this. We have one neighbor only, a real estate developer with a multitude of projects in the pipeline, and he suddenly came by asking me to buy some land off of him including part of a forest he owns and I was glad to be in a position to help him out. Like many he sees all his projects freezing up with no visibility going forward.

So things are real, they are immediate and very urgent. Governments have no choice but to launch the greatest bailouts and stimulus packages of our lifetimes. Again. The ultimate consequences are neither here nor there for the moment and I highlighted some of them in the Big Picture.

We’ll get through this ultimately, but it won’t be easy and the immediate concern is a complete collapse of the economic and financial backbone of our way of life.

This week the Fed introduced new panic measures every single day. From rate cuts to zero, to daily trillion dollar repos, to a whole heap of measures none of which arrested the selling as markets closed at the low of the week. Liquidations, funds blowing up, enormous damage done to portfolios around the world with far reaching consequences.

While I personally don’t mind arrogant and complacent bulls to get a bit of a spanking after years of excess I also don’t want to see millions get absolutely wiped out and devastated by all this. We’ve already had this in 2008. My worry is simply that the excess of the past 10 years has left us all vulnerable. Central banks too scared to normalize are impotent now, and the ill conceived tax cut of 2017 has not only resulted in exacerbated valuations, but has also robbed us of a potential big stimulus weapon for a rebound.

The US will introduce a massive stimulus program in short order. I don’t know what they are still waiting for, but it seems to me they have perhaps only hours or days left before things get really gnarly.

Indeed, looking at charts we have arrived at a key pivot point. Instead of overwhelming you with a bunch of charts I just want to focus on a few key ones.

The broader $NYSE index is a fascinating one to look at. Why? Because it contains over 2,000 stocks and gives you a better sense what’s going on in the overall economy.

And the message is one of an utter and complete collapse:

Four years of buying wiped out, dropping even far below the US election of 2016 and now sitting at the 2016 lows.

The MACD showing how absolutely vertical the collapse has been.

Here’s the larger time frame to gain an appreciation of what an utter shock to the system this is:


Now let’s put this all in a historic context.

On twitter this week I highlighted that $NYSE has reached a key support zone:

And indeed we got a big rally off of this support zone during the week. Even on Friday morning before market open $ES rallied all the way above 2,500 before collapsing again:

So yes, incredible chop in this market, but big tradable moves off of technical support and into resistance offering something for both active bulls and bears.

Now look where we closed on Friday:

Right above this support zone and the support zone being defined by the previous pivot lows going back years as well as the descending trend line of the larger infamous megaphone (I’ll get to that further below).

But it’s not only these two areas of support that define this price level on $NYSE. No, there are two additional key technical reasons why this zone is critical, this one term monthly chart highlights them:

The support trend line dating all the way to 1974 as well as the .382 fib dating from that time.

The combination of these 4 factors offer amazing technical confluence. Knowing this market is massively oversold it lends credence to the historical & technical arguments I made this week for a month end rally still to emerge. After all the financial system has a lot at stake to try to minimize the damage of an absolutely disastrous quarter.

But that only works if the liquidations can be brought under control and that the measures introduced show effect. Much is riding on the stimulus package the US aims to introduce by Monday. The combination of all these efforts and historic oversold readings have the potential to create a vacuum sucking rally of epic proportions once the supply of liquidations runs its course and now under invested asset managers seek to re-enter this market.

But besides support having held on $NYSE on Friday there’s also technical trouble brewing.

For while $NYSE has held onto support $SPX lost its .382 fib support on Friday at the close as it dropped below the December 2018 lows:

It is a monthly chart and breaks such as this can be repaired by month end. But the break does imply further downside risk first and here the megaphone chart can help address some immediate downside risk areas:

Yup, ugly. Should the wheels come off Sunday night into Monday the next immediate large support zones are the 2016 summers highs and the 2015 highs around 2,200 and 2,130 which implies another 3%-7% immediate risk lower with the megaphone trend line currently sitting at 2100. While principally a 3%-7% drop may not be that dramatic it sure would feel terrible for long holders of stocks that have just seen $SPX drop 32% in 5 weeks.

Whether we get these lower risk zones I can’t say but they are clearly possible in this environment as prices move incredible fast and liquidations are still present. Such a move would also imply $NYSE breaking its confluence support zone so nothing pretty about such a move should it occur.

A broader linear chart also offers perspective about the the historic nature of these market movements over the past few months.

From bear hell to bull hell:

What were stable trends over the past 12 years were just busted in both directions.. First the Fed liquidity rally to new highs appearing to break above the long standing uptrend. Bears were besides themselves while bulls got set up for the biggest bull trap in history.

And now the historic collapse not only invalidating the break out as false but also busting the long standing support. Bulls will want to hope that this breakdown is just as fake as the break to the upside. But now they are faced with immense resistance to the upside on a future rally.

Let’s be clear here: Without a very quick and complete resolution to this virus crisis the world is in major trouble and the damage inflicted is historic.

And the fear is real. It does not help to panic but one must be cognizant of the fear. As I walked into the store today and found shelves empty I was reminded of an old joke: Two guys hike in the woods when they come across a giant grizzly bear. One of the guys suddenly sits down and takes off his hiking boots and puts on his running shoes. His friend says to him:”What are you doing? You can’t outrun a bear”. The guy putting on his running shoes replies: “I don’t need to outrun the bear, I just need to be able to outrun you”.

Looks like I was too late putting on my running shoes going to the store today.

Look. I personally don’t prescribe to fear or panic. All we can do is navigate markets by identifying key technical pivot levels, react to them and then take advantage of the incredible volatility currently running through markets. Moves that used to take weeks and months now happen in days and hours. It’s incredible. Markets will calm down again at some point, but don’t expect $VIX 11 again anytime soon. That ship has sailed. Markets will remain subject to elevated to heightened price volatility in both directions for months to come. Best get used to it and take advantage of it. Since we can’t leave our homes right now may as well.

See, there’s always a silver lining ;-).

Anyways we’ll get through this. It won’t be easy, but humanity has had to deal with far worse situations.

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22 replies »

  1. Thanks Sven, same in Michigan, live in rural farming community, local grocery store putting
    quota’s on everything, at least they are still stocked. I think fly over country will not hit as hard,
    I’m putting in a bigger garden though.

    • So, here’s a thought: rather than the entire world going into isolation – when in fact only a tiny proportion are actually at any risk – how about only the vulnerable do instead? In short, those over about 75, and anyone with a known vulnerable condition. Everyone just gets on with their lives – with very, very low risk. Surely that would be more sensible than the global insanity we are currently witnessing. The “mystery” of Italy’s high death rate is nothing of the kind – the average age of the victims is >78.

  2. I agree ….the probability here of a very sharp bear market rally is high…but it won’t last long….this bear market is only starting in my view. I think Dow below 10 K is very probable…

  3. Thnx sven, yeah it is getting very depressing. To me It’s starting to look and feel like 1929 -1932 , stocks lost something like 90pct? It’s incredibly sad what is happpening around Us, i hope they manage to find some medication to suppress it, i take a little comfort that we have tech on our side , most bio companies are probably working 24/7 looking for a soln and the virus structure is similar to things they have treated before

  4. Sven, I completely trust your technical analysis. However here in the US many parts of our country are still fairly worry-free. People are out today shopping, having their cars cleaned, and the Lowe’s parking lot is full with DIYers filling pickups. In the next 2-3 weeks, exponential growth is going to kick off and this virus is going to get a lot more personal for the southern states. I still think there is a lot of panic ahead as this becomes more personal. The news here is going to get even more negative until we reach the point of cases/deaths peaking late next month (??). Can investment really front-run public sentiment before this occurs?

  5. In the US you can get in a vehicle right now, this instant, and drive from Long Beach to Bar Harbor and everywhere in between, 3300 miles. As long as that is the case then then no fear of isolation is warranted. In a big picture sort of way but I maintain that means a lot. My only worry is the road will become dangerous. That is my biggest fear.

  6. “So yes, incredible chop in this market, but big tradable moves off of technical support and into resistance offering something for both active bulls and bears.”

    This is a liquidation, not a market. The new fundamentals have not been established as cash flows go negative. The virus could mutate and make things even worse. You can’t trade what’s completely unpredictable. I would suggest taking risk capital and going to cash. (locked in a safe in your basement along with your gold, toilette paper and a loaded 45).

    ETFs appear to be breaking down, and if treasury yields rise, the risk parity trade will break. No treasuries increasing in value = zero hedge for traders= no reason to trade = collapsing markets as traders are forced to sell. Not to the mention the calls for closing the markets – what happens to short hedges if you outlaw them?

    It’s too early to be talking about ‘bounces off supports’. Give it a few weeks. There will be plenty of money to make on the upside for those who still have capital.

  7. If you’re a bear be a bear. Tired of hearing about fib pivots and oversold conditions. Look at a chart back to 1980 and tell me how way oversold we are. Look at how fraudulent and corrupt our market is and tell me how oversold we are. When the djia hits 1.9K I’ll sell my 2x and 3x inverse efts. Until then party on and burn it down. Long, long, long overdue.

  8. “Without a very quick and complete resolution to this virus crisis the world is in major trouble and the damage inflicted is historic.”

    Absolutely correct Sven. The probability of a quick resolution is very low. USA now 3rd in incidence table (32,640 at 20:13 GMT) at over half Italy’s and over a third China’s. I expect USA to exceed both in the next week or so, testing has barely begun in earnest. Parts of the US health system will probably fail to cope = unable to provide appropriate care / ventilators, within 2 weeks. Then it will get worse for at least a month or two. The US health and social support systems are exquisitely designed (amongst developed nations) to fail in these circumstances.

    I’m not particularly impressed by Boris but he is doing a much better job than the absolutely pathetic US counterpart who, up until a week or so ago, seemed to be doing his best to kill as many people as possible. Now he’s just being a bumbling fool.

  9. Replies to your tweets, Sven, twitter requires a mobile phone # which I won’t give.

    “Capitalism is dead.” it should be but we haven’t worked out a viable alternative.

    “What, precisely, does one call such an economic system?” dysfunctional (except for the richest 1%).

    “What’s the point of announcing a time and then starting 30-45 min late?” to make the world revolve around you, my mother does it all the time! Besides, making it after the open means I can sell and make more profit due to Trump’s ineptness.

    “Does anyone have an exit plan for when this is over?” yes, but you won’t like it (essentially a full economic restart, destruction of existing money system, communitarianism / collectivism)

  10. It will be time soon to talk seriously about where this stops. I’ll use SPX.

    There is some chance, albeit small, that it bases around 1800 short term.. It could bounce a bit from there (maybe above 2100) but that won’t be the bottom.

    More likely it knifes through 1800, 1450-1500 is a plausible pause, then 1350-ish, then 1200-ish. I expect the psychological 1000 level will be the key resistance over the next 6 months. Breaking that likely breaks this economic paradigm, even dropping through 1800 poses some such risk. 666 is the obvious lower bound, by then it will probably be the least of our problems.

    Has that been 5 x 5% limit down overnights in the last 11 trading days? I presume that’s a record.

  11. I understand not spreading this for the sake of the vulnerable. But shutting everything down and limiting personal freedoms is more dangerous. Nothing is worth giving that up. Choice is more precious than life itself.

  12. While I understand that no one wants a market crash, it is also unreasonable to claim there is a massive, persistent bubble but we should do all we can to re-inflate it because it hurts people when it pops. The bubble will pop sooner or later and every time. If COVID is an inconvenient time and the Financial Crisis was an inconvenient time, when would a convenient moment be? Or do we just keep inflating because it would always be inconvenient.

    As for those still advocating freedom and their constitutional right to circulate, I invite you to do so but also ask that you stay away from me. If you have the right to circulate a deadly virus, then I reserve the right to shoot you on site to prevent you from spreading it.

    Trump is suggesting that the US will end the shut down because it is hurting his precious DJIA. Go ahead, but then the rest of the world will ban all travel with the US. And you should be happy with that…after all, it’s our right to ban you if it’s your right to infect yourselves.

    What is the price of an American life? The US government knows; they use it regularly even if they don’t publicize it. The value is $8 million, in case you are interested. So, if COVID infects 60% of Americans probably 4% will die (based on the already crappy US healthcare system collapsing) which means about 8 million deaths in the US. That works out to $64 trillion dollars worth of stiffs. US GDP is about $20 trillion. I leave the choice to you.

  13. Thank you for your charts and analysis. The only comment I question is “Governments have no choice but to launch the greatest bailouts and stimulus packages of our lifetimes.” Surely governments and central banks have been doing this since LTCM in 1978? How much good has it actually done except stuff us further and further into an economic/financial cul de sac in which, bloated as we are, we can no longer turn around. You may be right that because of the way politics works it is too much to expect that any leader could step in front of the herd and say “Enough is enough”. On top of that, unlike in the “Confucian cultures” where people respect authority, our leaders have lost all respect. People are not following instructions but doing what everyone else is doing i.e. hoarding. The 1% has been doing that for a long time. All that vast wealth essentially doing nothing much more than evading the taxman. Yet trillions are pulled out of thin air like magic to prop up the system and fund corporate buybacks. The system is rotten and I question whether it is really worth hanging on to.


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