Market Minute – Market Volatility Update

The stock market continues to sell off on what would appear to be virus scares with a new catalyst provided by the oil markets. I believe both are overdone.

  • This reminds me of an extended version of 1987 Black Monday. Once it bottomed the market recovered all of the losses in 2 months.
  • Oil shocks are nothing new but lower interest rates and oil prices are actually a big plus for the economy.
  • Assuming the Fed wakes up (I believe we will hear from them today), the move higher could be very strong.
  • Bottoms are normally put in on Mondays. I’m wondering if this will be that Monday.
  • Portfolio damage should be reasonable. As of Friday’s close our Trending Value Growth portfolio was down 2.14% so far in 2020. Our fixed income and alternatives strategy are up (except for MMCAP). Obviously today it will be more but not at all something we can’t get back.
  • If we don’t see rebounding by the end of day tomorrow, we’ll raise a lot more cash and still be ready for when this settles out.

Oil prices plunged after OPEC’s failed to strike a deal with its allies regarding production cuts causing Saudi Arabia to slash its regulated prices, leading to fears of an all-out oil price war. On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. I’m wondering if OPEC leaders will come to an agreement early this week on Oil production.

The Federal Reserve cut the Fed Funds rate a half percent last week in an emergency move.  They are scheduled to have their normal scheduled meeting in a couple of weeks, it is expected they would cut again then. They will be making an announcement today, which could have some extreme measures to support markets.

Technical Observations

  • Selling pressure like we’ve seen is generally capitulation and usually not the time to sell. No professional money manager will sell into a Monday selloff like this.
  • This type of Monday selling has happened 11 times since 1987. 6 of those were the bottoms, and for the other 5 the bottoms came quickly.

The US economy was picking up going into this scare and we expect the fed to take extreme measures to settle this down. On the other hand, the opportunity to deploy the cash we have and re-deploy the money we have in the gold space will be excellent. We just have to wait for the signals now.

Download PDF – Market Minute – March 9 2020

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