It’s important to understand what’s happening in the market through Price Action concepts, illustrations and stories. It helps build your conviction in the concepts, and also uncover new opportunities.
- The market takes the Stairs Up but prefers Elevator on the way down
- S&P 500 is coming down fast and it has already erased 3 months of gains in just 3 days.
- Will bulls come in and buy the market near 50 week moving average which is 100 points lower than current levels? It depends on what’s driving the markets lower
- Fact: The “regular” flu kills only about 0.13% of those that catch it, but the SARS had death rates of 9.6%. Coronavirus has death rate of 2.3%
- Why the market is so nervous about the virus that’s less lethal than SARS?: When SARS hit the Chinese economy in 2003, China accounted for just 4.2% of the world economy. Today, it makes up 16.3%.
- Fear Index VIX has surged. Volatility typically rises when stocks pullback, so owning volatility ETFs VXX is seen as a type of market insurance.
- Market hates uncertainty and the coronavirus is the ultimate uncertainty in that no one knows how badly it will impact the global economy
- When you are bullish, you buy SPY ETF. But what about ETF for bearish environment? It’s called SPXS. It’s like inverse of SPY
- When people are scared they rush to Govt bonds, and yields fall. No wonder TLT Govt Bond ETF has done so well in CY2020
- Coronavirus Impact: (1) The US 10 Year Bond Yield has come down to 1.34%. (2) Collapse in Oil prices. Is this good news for consumers?
- Here’s one stock that’s trying to deal with Coronavirus: Moderna MRNA. The company has shipped experimental coronavirus vaccine to the National Institutes of Health for human trials
- Alpha Pro Tech has become a play on Coronavirus scare. The company makes facemask and yesterday traders went wild after CDC warning
- Coronovirus outbreak is going to help companies that provide tools to help employees work from home: Zoom Video ZM, provider of video conferencing software.
- US economy continues to be strong atleast the data points: U.S. companies’ borrowings for capital investments surged about 28% in January from a year earlier
- Three stocks that will bounce the hardest whenever the recovery comes: (1) AMD; (2) Roku and (3) PLUG.
- Simple Trading Rule: You buy a stock with an assumption that it will rally. if it sells off the next day below the support, then dump it without thinking. Example: Blackberry
- Do not close your eyes when you see a violent sell off. Focus on the rules and price action. Keep doing the right thing even if that means letting the stocks go if they hit stop loss. You can always jump back in
- Make no mistake, the market is worried about Bernie Sanders nomination. Medicare for All rhetoric is going to hit healthcare insurance stocks like United Health UNH.
- It would be wise to stay away from Health Insurance companies for now: Centene Corp. CNC, CVS Health Corp. CVS, Cigna Corp. CI, Humana HUM, Molina Healthcare MOH, and Anthem ANTM
- Value is no safety. Ford sinks to 10 year lows
- Slowdown in Global economy will happen and hence stay away from Metals, Steel and Oil stocks
- The most surprising thing that happened yesterday: Traders liquidating Gold mining stocks. NUGT is leveraged ETF on Gold mining
- Long term Investing? Disney has come down a lot and stands at important support on a day when its most successful CEO steps down
- This too will pass. All you need to do is make sure you can survive this by not doing stupid things.
- Trading gives you an incredibly intense feeling of what life is all about.― Paul Tudor Jones.
If you think this selloff is because of coronavirus, there will be a tradable bottom soon.
If you think this selloff is also because of Bernie's ascendancy, there is no bottom in sight.
— Jared Dillian (@dailydirtnap) February 25, 2020
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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