As a part time trader since 1981, and having run some predictive analysis on market behavior on the last 20 years of daily data, this move has several components to it:
- Unquantifiable and potentially large effects on the economy
potential bankruptcies from prolong supply disruptions
high debt levels in the corporate world.
slowing international trade and economies prior to the virus
Rate cuts won't help much
Trading wise
from the beginning of February,
I am long $GLD gold
I am long PUTS on the $SPY Aug 300 strike
I am long PUTS on TSLA Jan 21 $210 strike on the bankruptcy of that ponzi scheme
Long small assortment of high dividend equities, and bonds.
So, normal overbought oversold indicators are going to be less useful
The closet resemblance to this non monetary / banking crises is the 9/11 incident.
After 9/11 when the market opened on Monday, the market dropped 10% intraday,
and then rallied to close down about 5%, Tuesday was flat and the rest of the week was red. 5 day reaction and the next Monday the market reversed and continued higher
With that and the weekend news cycle, my expected market scenario is that the market may have another significant down day due to some trading houses giving margin calls and changing margin requirements, and freezing some traders. predict another 3-5% down, again it is a prediction and the future is always uncertain.
Given any significant bad news over the week, Monday could be a Black Monday crash, which happens at very oversold levels where bids disappear. A no bid market with an oversold market, which is when there are no buyers left to buy, falls dramatically. Another 5% or so gets the market close to a 20% correction, which is a bounce location worthy of a 25% portfolio position in $SPY. The predictive part comes in if Monday is a big down day, then Tuesday has a high probability of a bounce lasting the rest of the week only. (that predictive is related to option expiry cycles)
If he market gets to 30% down from high, its worthy of a 50% market position. At 50% down, its worthy of adding another 25% increase in market exposure at 75%, I am all in.
Given I own gold, and have sold most stocks a long time ago for valuation and earnings growth and market breadth issues, I have plenty of cash waiting, and one very interesting point in history:
The roaring 20's followed the 1918 Spanish flu, in combination with the technology advancement of electrification, so remember to sell high, you must not be afraid of paying taxes, and to buy low, you must not be afraid of further downside, but the future is always uncertain, sometimes more so than other times.
sportsguy