This report is a follow-up to my February 21 and February 28 reports which can be read here and here. For those who started following my work recently, I recommend reading those reports in order to better understand how we got here.
Standard disclaimer for new readers, please note: email replies containing charts, market history and thoughtful analysis are always welcome. Any material discussing current events or theories of how the world should work will be spam-filtered and not read. Also a warning: anyone sending inappropriate or disrespectful feedback will be permanently blocked. Lastly, (1) anyone who fails to understand the time frames being discussed in this report should stop reading (and shouldn’t be trading in the first place) and (2) anyone who trades based on any information contained herein is fully responsible for their own decisions.
SUMMARY
- This is now the fastest, most compressed 20-25% drop from all-time highs in U.S. Stock Market market history.
- Extreme and historic oversold signals are being generated across nearly all core datasets I run & monitor – many signals now match and some even exceed the most extreme Selling Panics in nearly a century of Stock Market history.
- Based on prior historic signals, there is a chance (no guarantee) markets bottom and reverse in the next few days (possibly even today, per critical chart levels being tested which might trigger a reaction) – but as always, need to monitor for price to confirm the turn.
- Despite the global carnage, leading U.S. Stocks (particularly Big Tech, Semis and Software) have held relatively well and against all odds, and their continued leadership will be key if markets have any chance to repair the damage and re-establish the foundation for a recovery rally.
- In my personal view, the panic narrative has now reached unsustainable levels, the combination of incremental positive news in China/Asia and global coordinated government, civilian and private sector response is converging extremely rapidly, and any marginal improvement in U.S. communications (currently and deservedly valued at zero) could be enough to trigger a historic rally that recovers base case 62% of the full decline to date.
- Such a retracement could represent one of the sharpest 15-20% recovery rallies of all time. Again, no guarantees.
- Monitor day by day for a potential major reaction with high priority.
This is where the S&P stands in the overnight session:
The overnight low so far was 2589.50 (ESM0)
The 50% retracement of the 2016-2020 rally is 2600
The blue channel support is 2620.75
ZOOM: A PERFECT ABC PROJECTION FROM THE HIGH IS 2586.75 (three points under the overnight low)
For students of market history, here are some of the other historic EQUAL-LEG DECLINES I experienced, and traded, in real-time:
For students of market history, there are countless others and not enough room or time to show them all here today. For instance the last two drops of the 2008 Bear Market. Or the May 2019 correction. History will determine if this will be another awe-inspiring example of market symmetry. Humans may be disorderly and irrational, but markets are fabulously precise (for the few who choose to listen).
Further, S&P futures also touched the 200-WEEK moving average in the overnight session:
COMPLETE HISTORY 1931-2020: S&P 200WMA tests after making an all-time high
(Note: the start of the 200wma calculation was in 1931)
1957
1962
1966 AND 1968
1969
1973
1982
1987
1990
2001
2008
2018
Two cases almost fit the requirements and warrant inclusion:
2011 (did not start from an all-time high, but bottomed at 200wma)
2016 (started from all-time high but never reached the 200wma, bottoming slightly higher)
Panic is everywhere. For instance, here are Global Emerging Markets Flows – with a new all-time record selling panic. Worse than 2008 when the world nearly ended. Worse than the 2011 EU Crash. Worse than the 2013 EM/Commodities/Bond Crash. Worse than the 2016 EM/Oil Crash. Anyone who says this panic is different (1) wasn’t around before this, or (2) didn’t learn anything from history.
Real life is scary right now. But it’s not hopeless. There are things we can do to protect ourselves and our families, to at the very least significantly reduce our exposure to the spreading risks. This is also true in markets, where the noise level is off the charts. Currently, consisting of a toxic barrage of infinite negative extrapolation – and the usual cheap marketers touting their one-hit-wonder “Short calls” and selling subscriptions to the “coming crash”.
This is just like the euphoric highs in February but in reverse, and I’ll pass. There is still room to bet on humanity, even though we don’t behave very well in large groups. There are still those who can think individually and rationally, and it won’t take much to turn things around and get us through this. At the extreme highs and lows, I will always believe that calm and reason will ultimately prevail. I’ll always bet on humanity, even though human nature never changes.
Thanks for reading.
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