How to Keep Your Head in Unparalleled Times
Monday, 23 March 2020
By Bernd Struben
- Enjoy life!
- Property crash ahead?
- Important video update
- Nothing Can Stop It
‘I’d prefer to increase cash levels and lower risk while uncertainty is so high so that I am not reacting to high volatility with everyone else.’
Murray Dawes, Port Phillip Insider, 31 January
If you’re reading this from the isolation of your own home, good on you.
That praise comes straight from the top.
On Sunday, Prime Minister Scott Morrison lauded those among us not flouting the new social distancing and isolation rules.
‘I want to thank all of those Australians who are doing the right thing. Those Australians who are engaging in self isolation,’ the PM told the nation.
Morrison made it clear that it’s past time for everyone to take the pandemic deadly seriously. That Australia, like much of the world, is essentially on a war footing.
Listening to him speak, I couldn’t help recall the days following the 9/11 terror attacks in 2001.
Now, you’ve probably read your fair share of pundits trying to compare the fallout from the coronavirus to the September 11 attacks. Not to mention the GFC, the dotcom bubble, or the 1929 market crash that foreshadowed the Great Depression.
But the truth is that what we’re seeing now is nothing like any of these events. In the modern world with our modern markets this near global shutdown is the definition of unprecedented.
Take the 9/11 attacks. They rocked the US. And the shockwaves were felt around the world. They also led to the US’ longest ever war, killing hundreds of thousands. A war that continues to simmer today.
But the market’s reaction — seemingly massive at the time — pales in comparison to what we’ve seen over the past month. And what may still lie ahead in the coming months.
Following the attacks on the Pentagon and the Twin Towers, the New York Stock Exchange closed until 17 September. Investopedia tells us that was its longest shutdown since 1933.
When trading resumed, the markets promptly tanked.
The S&P 500 lost 7.1% on the first day. At the time this was its biggest one-day loss in history. (You need only look back to last week’s performance to see how that record’s fallen.) By the end of the first week of trading the market was down over 14%.
But then the panic selling began to subside.
The US and its allies continued to mourn the tragic loss of life. And civil liberties across the Western world took a blow as domestic security measures were ramped up. But life, for the vast majority of people, quickly returned to near normal.
Barring the rapid rollout of a coronavirus cure or vaccine (worth a prayer, that), this won’t be the case today.
More, after the markets…
Over the weekend, the Dow Jones Industrial Average closed down 913.21 points, or 4.55%.
The S&P 500 closed down 104.47 points, or 4.34%.
The Euro Stoxx 50 Index closed up 94.42 points, or 3.85%. Meanwhile, the FTSE 100 gained 0.76%, and Germany’s DAX closed up 318.52 points, or 3.70%.
In Asian markets Japan’s Nikkei 225 is up 325.42 points, or 1.97%. China’s CSI 300 is down 1.89%.
The S&P/ASX 200 is down 252.23 points, or 5.24%.
West Texas Intermediate crude oil is US$21.22. Brent crude is US$24.83 per barrel.
Turning to gold, the yellow metal is trading for US$1,493.50 (AU$2,592.43) per troy ounce. Silver is US$12.44 (AU$21.59) per troy ounce.
One bitcoin is worth US$5,972.11.
The Aussie dollar is worth 57.61 US cents.
You may remember President George Bush’s response shortly after the 9/11 attacks.
He said people should ‘go shopping for their families’, not stay huddled home in fear. And he encouraged traveling, saying, ‘Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed.’
This time around Disney World is closed. And rather than encouraging us to go shopping, Morrison is applauding ‘Australians who are engaging in self isolation.’
The second order effects of these pandemic containment efforts are still filtering through the markets. Uncertainty abounds.
For now, the sellers still look to far outnumber the bargain hunters.
At time of writing the ASX 200 is down 5.2%. That puts it down 36.1% over the past month.
Yes, that’s still significantly less than the 54% peak to trough crash endured during the GFC. But that loss occurred over some 18 months, from October 2017 through March 2009.
Losses from this pandemic fallout have been much more rapid.
And futures indicate another savage day in US markets today (overnight our time). After falling 4.3% on Friday, the S&P futures opened at limit down (–5%) this morning.
How bad could the selling get?
Pretty bad, says Murray Dawes.
Here’s the email he sent around to our editors earlier today:
‘I am pretty concerned about tonight in the States. The 2018 low has given away in S&P 500 and we’ve [futures] opened limit down through it this morning. There is a chance the market crashes 20% tonight and everyone gets sent home early.’
But then Murray is quick to remind us that the virus, and the extraordinary steps being taken to fight it, ‘is definitely a black swan event and we don’t know how it is going to evolve’.
One thing is certain…
This is not the kind of market you want to trade on a whim or a hunch.
If you are planning on buying or selling stocks in the days and weeks ahead, you need a plan. Which is precisely why Murray Dawes and Port Phillip Publishing veteran Simon Munton worked overtime to give you the ‘Metronomic Trading Workshop’.
The workshop walks you through Murray’s personal trading system — 20 years in the making — which is specifically designed to trade highly volatile stocks. And it’s free for all our paying subscribers, like you, to attend.
The four-day online training seminar commenced on Saturday. Part three was published earlier today, and it all wraps up tomorrow.
However, if you haven’t signed up yet there’s still time to watch all four sessions. We’ll keep them available online, but only until this coming Friday.
To access the complete ‘Metronomic Trading Workshop’ series (part four coming tomorrow), we just need your email address to send the link to.
Property crash ahead?
There is no shortage of worry about the fate of Australia’s property markets.
As with the share markets, uncertainty rules the day.
Well, for most of us.
US futurist Harry Dent doesn’t leave much ambiguity with his forecast. Here’s an excerpt from last week’s Boom & Bust Letter:
‘Stocks are leading this crash, but believe me real estate will follow and Australia is still the second most overvalued country in the world only second to China your largest trading partner. Your country has 67% of consumer net worth in real estate vs. 30% in the US…. do the math!
‘Nobody has studied these rare debt and financial asset bubble bursts more than I have. They have a pretty clear pattern that most will be confused by. The last one was 1929 -1932. This will be the greatest crash we face of our lifetimes… and most important, the investment opportunity of a lifetime. Imagine buying the best companies in the world 80%+ off, and the best real estate 50%+ on sale.’
Over at Cycles, Trends & Forecasts (published by our friends at Fat Tail Media), editor Catherine Cashmore has a different take. With REITs taking a battering these past weeks, she believes some great opportunities are on the horizon.
I’ll keep you in the loop with where she sees those opportunities over the coming weeks.
Important video update
By now you should be well familiar with Murray Dawes.
A veteran of the Sydney Futures Exchange, going back to the early 1990s, Murray now spearheads our premium trading service, Pivot Trader.
Murray’s trading system can help take the emotion out of your buy and sell decisions. And it can help make price action more predictable. Not 100% foreseeable! But enough that his trades in 2019, many in volatile stocks, scored an 84% success rate.
Of course, the current market situation is drastically different from 2019. Which is why, in today’s video, he explores the possibility of a full on crash in US market overnight.
You can scroll down to watch that now.
That’s all for me for today.
Stay safe and healthy. And know that this too shall pass.
[Murray warned traders about the potential for volatility to explode in early March. Click on the picture to see where Murray thinks markets could head next and how he plans to trade it.]
If you would like to learn more about the theory behind my approach to analysing markets then please sign up to the Metronomic Trading Workshop, where you will have free access to four videos.
You will learn all about how I find great trading opportunities using the widening distribution and buy and sell pivots. You will learn how and why they form and how I use these technical indicators to create a strong risk management process for my trading.
You will only have access to the videos until Friday, so be sure to sign up now by following this link.
The daily deaths in Italy as a result of the coronavirus continue to increase. While this is the case, the world will continue to take fright and shut down all non-essential services in an attempt to slow the virus.
It feels like the situation is now going nuclear.
I have personally decided to isolate myself as much as possible due to the fact I have asthma. I know how bad I get with a flu, so I have no interest in finding out whether I will survive the coronavirus or not.
Forget fundamental and technical analysis. This is now about survival.
The volatility is now at a level where the market could be up or down 20% from where we are now in a matter of days.
I have zero interest in sticking my neck out to make wild predictions about what is going to unfold.
The S&P 500 has now fallen below the key 2018 lows and is selling off hard in the overnight markets. Prices are trading at 2,193, down 95 points or 4.1% as I write this. If prices don’t get back above the 2018 low of 2,316 soon, there is a chance we could see selling accelerate.
The midpoint of the whole rally since 2009 is just above 2,000. That’s about 9% below where we are now. The rate it’s falling we could see those levels being tested tonight.
You’d want to see big support there, because if 2,000 can’t hold, it is difficult to work out exactly where it will stop.
My trading process involves waiting for concrete signs of a shift in momentum before I am willing to consider a trade. The S&P 500 has been falling at such a rapid pace that there have been no daily buy pivots at all since the serious selling began at the start of March.
That means my trading model is doing its job. It is telling me that I have to wait.
I am intrigued to see what happens tonight in US equities because the situation is so explosive I wouldn’t be surprised to wake up tomorrow to a market down 20%. But as I said above, if a final bout of capitulation occurs, we could see an absolutely vicious bounce.
Short-term traders should tread very carefully and if anything should be trading only options so you can limit your downside.
Editor, Pivot Trader