Morning Comment: Panic At Your Own Risk

  • Are “the authorities” causing a panic?
  • The reaction is so much different that it was after 9/11.
  • Despite turning bearish earlier than most, we’re actually not as bearish as a lot of people this morning.
  • Signs of capitulation and the use of a bazooka are usually not times when you want to get short.
  • This decline in risk assets might be a prolonged one, but it won’t come in a straight line.
  • Support levels to be watching this week.

Are “the authorities” causing a panic?

You knew that after we took so many victory laps, it was only a matter of time before we made a bad call. Saying that investors should not “sell the next bounce” on Friday isn’t looking so good this morning (after Friday’s bounce of almost 10%). That said, we’re a long way from 4:00 and the closing bell….and as we also said in our weekend piece, “anything could happen on Monday.”

Well, “anything” IS happening this morning…as the words and actions out of the authorities is creating something of a panic in the markets. The Fed raised a big question in investors’ minds. By cutting 100 basis points instead of 50…and by not waiting for their next meeting (which had been scheduled for just 72 hours before they made their announcement)…they raised the question, “What does the Fed know that the rest of us don’t know.” In other words, they just told investors that the situation is even more serious than they realized.

The other move over the weekend that is inciting at least some panic in investors’ minds was a comment made by the government’s top infectious disease expert. Dr. Anthony Fauci said over the weekend that the U.S. should consider a 14-day national shut-down. In an economy that is 70% dependent on the consumer, a national shut-down goes a long way towards shutting down the U.S. economy as a whole. So it’s no wonder that the futures are down-limit this morning!

We are NOT saying that these actions by the Fed and the comments from Dr. Fauci were the wrong ones. We’re merely stating that these developments ARE causing the volatility in the market place to remain high. In fact, they might even accelerate that volatility (and cause a little bit of panic).

The reaction is so much different that it was after 9/11.

It’s weird…in the immediate aftermath of 9/11…the “non-financial” authorities told us that we (as Americans) were not going to change the way we did things. Yes, we would all take some EXTRAORDINARY precautions, but we would go on with our lives the way we had always gone about them. This time around, these non-financial authorities are telling us to change everything…and it’s reeking havoc on the economy……We just wonder if there is some sort of middle ground…..Of course, we’re not doctors, so maybe these extreme measures are exactly what is needed.

Despite turning bearish earlier than most, we’re actually not as bearish as a lot of people this morning.

Either way, as bad as things look this morning…and despite what we just said about a potential panic move in the markets…we’re actually not as bearish as a lot of people are this morning. This is ironic…because back in January and the first several weeks of February, we turned much more cautious than on the stock market than most strategists. We urged investors to raise cash because the coronavirus would almost certainly have a serious impact on the stock market. We said that those who had some cash on the sidelines…AND had a plan in place in advance…would be able to better weather the storm if investors began to panic and the baby was thrown-out with the bathwater. Well, that IS how things have played out, but we wonder if at least SOME of the panic has ALREADY worked through the market place.

As we highlighted late last week (and over the weekend), there were some definitive signs of capitulation on several days last week. We won’t bore you by regurgitating the specifics…except to say that the extreme levels of volume, breadth, new 52 week lows and sentiment were the kinds that we generally see at bottoms (at least short-term ones). Of course, this does not mean that we’re about to see the ultimate low for this decline. If we are truly entering a bear market, it will stay down for a while…and we will see several STRONG bounces along the way. In our minds, we seem to be setting up for that kind of bounce right now. A bounce that lasts for more than just one day.

Signs of capitulation and the use of a bazooka are usually not times when you want to get short.

When you get the kinds of extremes we’ve been highlighting…at the same time that global central banks are shooting a bazooka…and when the fiscal authorities will have no choice but to step to the plate with more stimulus…it’s usually not a good time to short risk assets and/or start loading up on “safety” assets. The time for that was two months ago! Therefore, we believe that the bears need to be VERY careful this week. Panic usually doesn’t last very long…and there is no question that the monetary and fiscal authorities are finally doing what they can to try to stabilize the situation……Yes, there are reasons to think that we’re merely at the beginning of a prolonged period of volatility in the market place. We’re particularly concerned about the credit markets. However, “prolonged periods of volatility” always include some strong (and extended) bounces along the way.

Support levels to be watching this week.

As for the support levels to be watching this morning (and watching later this week if we’re wrong…and the stock market does indeed fall out of bed immediately)…are the same ones we mentioned over the weekend. (However, we will add one more level.) To review…the first support level is 2500. That’s the lows from last week…and where the trend-line from 2009 comes-in. Below that, we have the December 2018 lows of 2350. A break below THAT level would be quite negative indeed……..The next level (the new one to highlight) is the 2000 level. No, we’re not just saying that because Goldman lowered their target to that level over the weekend. It’s also the 50% retracement level of the entire bull market from the 2009 financial crisis lows. (Actually, it’s really at 2031, but 2000 works.)……..We’ll actually add one more. The 1829 level is the lows from 2016…the lows from the crude oil crash of 2014 to early 2016. (Three S&P 500 charts attached below.)

Hold on to your hats, it’s going to be a wild week!

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Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Mar 16, 2020 — 7:03 AM
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