Use These Rips to Your Advantage

Tuesday, 3 March 2020
Adelaide, Australia
By Bernd Struben

  • Markets
  • The stimulus is on our doorstep

This is how markets react in the face of uncertainty.’

Exponential Stock Investor’s Ryan Dinse

Judging by global stock indices, all is well in the world. Except perhaps in Germany, where the DAX slid 0.3% lower yesterday (overnight our time).

The Dow led the charge, closing up a whopping 5.1%. The rally recouped almost half the Dow’s losses from the last 30 days.

Even France’s CAC 40 gained 0.4%. Who cares that the Louvre, the world’s most popular museum, shuttered its doors against the spreading coronavirus. Surely that’s not a harbinger of things to come.

At time of writing, Aussie and Asian stocks are following the lead higher. In intraday trading the ASX 200 is up 1.32%.

And futures markets are pointing to another day of gains — albeit far smaller — in US and European markets today (again overnight for us).

Investors who sold at the tail end of last week’s panic may be kicking themselves today. Though those who sold at the beginning of the week that saw 10% or more cut from markets should still be feeling alright.

Now common wisdom has it you shouldn’t try predicting day to day market moves. Those moves are determined by the decisions of millions of investors across the globe. Decisions often clouded by competing doses of fear and greed.

While we stand behind that common wisdom, it doesn’t stop us from polishing our crystal balls and casting our chicken bones in hopes of getting you on the right side of the market action.

Yesterday, for example, I told you:

Many of our editors are predicting a bounce, at least in the short term. Which would make now a poor time to lighten your stock holdings…

Don’t bolt for the exit in a panic. But do study your options carefully.

And here’s Greg Canavan, from this morning’s Rum Rebellion:

Today’s bounce was to be expected. The market needs to restore some balance over the coming days.

From there, it’s wait and see.’

In times of wild uncertainty, such as these, Greg’s ‘wait and see’ advice is one to take on board.

That doesn’t mean doing nothing. Rather you should act on what you see happening. Not what you fear…or hope…may happen.

If you’re looking at bargain hunting, most of our editors advise caution. Unless you believe you’ve identified a specific stock that could boom regardless of how the pandemic plays out.

(Ryan Dinse believes he may have found just such an outlier. Details here.)

More, after the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 1,293.96 points, or 5.09%.

The S&P 500 closed up 136.01 points, or 4.60%.

In Europe the Euro Stoxx 50 index closed up 9.34 points, or 0.28%. Meanwhile, the FTSE 100 gained 1.13%, and Germany’s DAX closed down 32.48 points, or 0.27%.

In Asian markets Japan’s Nikkei 225 is up 53.03 points, or 0.25%. China’s CSI 300 is up 1.27%.

The S&P/ASX 200 is up 84.48 points, or 1.32%.

West Texas Intermediate crude oil is US$48.02 per barrel. Brent crude is US$51.90 per barrel.

Turning to gold, the yellow metal is trading for US$1,589.80 (AU$2,433.86) per troy ounce. Silver is US$16.79 (AU$25.70) per troy ounce.

One bitcoin is worth US$8,909.60. That’s up 4.5% since this time yesterday, adding weight to those who say bitcoin’s price is correlated to the wider market. Meaning when markets rise bitcoin’s price tends to rise. And when markets fall bitcoin often falls too.

(For an in depth look into bitcoin and all things crypto, check out this exclusive interview with crypto expert, Sam Volkering.)

The Aussie dollar is worth 65.32 US cents.

The stimulus is on our doorstep

Outside of a few targeted stock punts, Exponential Stock Investor’s lead analyst, Lachy Tierney, says now is the time for patience:

Give it some time before you go long and don’t get caught in the fleeting rallies.

What you are looking for is a meaningful trend reversal. Something that lasts months, not weeks.

You can expect governments to do all they can to halt the economic decay this disease may cause. That means stimulus.

The way I read these chicken bones, the current rally isn’t signalling any meaningful trend reversal. In fact, I doubt the current stock buying spree will make it to the end of this week. Let alone run for months.

If the rally sputters, though, it won’t be for lack of effort from the world’s central bankers.

The stimulus is on our doorstep.

This afternoon the Reserve Bank of Australia (RBA) cut the cash rate from its historic low 0.75% to a new record low 0.50%.

RBA Governor Philip Lowe noted, ‘The coronavirus outbreak overseas is having a significant effect on the Australian economy.

And he hinted at more stimulus to come.

Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be… The board is prepared to ease monetary policy further to support the Australian economy.

The RBA is in good company.

The Bank of Canada is widely expected to cut tomorrow. And consensus is building that the US Fed will lop not just 0.25% off its cash rate this month, but a full 0.50%.

On Friday Fed Chair Jerome Powell assured investors the world’s most watched central banks was prepared to ‘act as appropriate’.

Bank of Japan Governor Haruhiko Kuroda is also on board. Yesterday he stated, ‘The BOJ will monitor developments carefully, and strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases.

Then there’s the European Central Bank’s (ECB) new president, Christine Lagarde. Speaking in Frankfurt she said (as quoted by Reuters):

The coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets. The ECB is closely monitoring developments and their implications for the economy. We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks.

China has already opened up its own stimulus taps, with more likely to follow.

To make sure they’re reading from the same script, the Group of Seven finance ministers and central bankers are getting together today. Over the phone, mind you. Travelling and meeting in person may be getting a bit too dicey.

So we know the fuel firing the global market rallies.

Investors have long been conditioned with the old ‘bad news is good news’ mantra. When markets are facing headwinds (Brexit, trade wars, attacks in the Strait of Hormuz…) we can count on lower interest rates and QE from the central bankers to buoy share prices.

But is fallout from a global pandemic — if indeed that’s what we’re in for — really something you can throw money at to make it go away?

Lower interest rates — and even billions of dollars in QE and government spending — won’t reopen the Louvre. Or the countless other public venues already closed or likely to close over the coming weeks. Yes, even here in Oz.

Lower interest rates won’t end travel restrictions that are likely to be extended to far more nations as the virus spreads. They won’t get people booking into hotels, shopping malls or even out to restaurants.

And more easy money won’t open up the shuttered factories in China.

The world’s central bankers are doing what they can. And what we expected. But until there’s a viable vaccine for COVID-19 — or it is somehow brought under control through quarantines — company earnings are going to come under extreme pressure. And we’re likely to see more wild rides — both down and up — in the stock market.

So what to do with the current rally?

If you were caught out in a bit of a panic last week, you should use any market moves higher to re-evaluate your equity exposure,’ Ryan Dinse tells us. Adding, ‘Use the rips to your advantage.’

Did you miss this?

Yesterday we featured a free stock trading video from trading veteran Murray Dawes.

In it he looks at whether we’re really on the edge of a historic market crash scenario, or whether markets will manage to rally.

He’s got a unique method of determining this. And he points out the key levels above and below the market to keep your eye on.

After such a huge swoon in markets, there will be plenty of people who are long and wrong and waiting to get out of positions on a squeeze higher,’ he notes.

That spells plenty of resistance for the rally currently underway.

If you missed it, you can view the video — which includes the target levels to watch closely — right here.

Cheers,
Bernd