February 28, 2020
Reading The Markets Premium Content:
It was billed as the rematch of the century, with the Market and the current FOMC administration facing off for the second time in less than two years. The first time these two heavyweights met was during December 2018 in Las Vegas, NV. It was a grueling fight, going 20 rounds, with the Market finally winning via knockout. However, the rematch didn’t last nearly as long.
The rematch this time took place in the Markets backyard, New York City, already the FOMC was at a disadvantage. The crowd was contentious, chanting for the Market. After all, the Market was on a tear, looking lean and healthy, and the heavyweight Champ. Meanwhile, the FOMC, just off a victory of reflating the balance sheet, had the wind at its back too and wanted revenge on the Market for taking away its title as the Champ previously.
The fight started slow with a series of back and forth jabs during the first two rounds. But then in the third round, the FOMC struck hard, with the first hard blow sending the Market to its knees. The FOMC turned to the crowd, with their hands held high, taunting them, and screaming “you want rate cuts,” “you want rate cuts,” and turned to the Market, pointing “you’re not getting them.”
After three more rounds of the FOMC pounding on the Market, suddenly, it stumbled, and the Market got in a clean body shot, stunning the FOMC, and that ignited the crowd, bringing it to its feet. The FOMC never recovered, and in an instant, the tide turned. The Market went on a tear, and by the 16th round, the FOMC could take no more, standing in their corner dazed and confused, the referee called a TKO. It was over—the Market defeated the FOMC for the second time, in what could be their last major face-off for some time.
It was really that simple, folks. The Market was pricing in two rate cuts in 2020; the Fed minutes made it clear that wasn’t going to happen. The next day vice-chairman Clarida reiterated that message, and the Market let loose. Today the Fed caved and gave its passphrase for rate cuts: “will act as appropriate,” which in the past has served as the code word for a 25 bps cuts.
Time of Day
Now I know some you will say, but the market rally didn’t last follow the statement. Well, look at the time of day the statement was issued, 2:30 PM, thirty minutes before the most brutal time of the trading. This is when liquations and traders try to meet margin requirements, selling everything not nailed to the floor. But by days end, it was a different story with the S&P 500 rising out of the abyss by more than 2.5% or a stunning 75 points in 15 minutes. 15 minutes, that is unreal. It was like all the sellers had evaporated.
Interestingly, today was an amazing day from so many perspectives. The unruly open, the massive spike in volatility, the wild close. But the one thing I’ll bet a lot of people didn’t notice was the importance of today’s low on the S&P 500 of 2855.84. Why is that amazing? Well, because, by chance, of course, it was almost precisely the low on October 3 of 2855.94, which, of course, was the very start of the massive uptrend that we have been tracking. Premium content – Bottom Or Not The Coincidence Seems To Be More Than Chance
But not only that, of course, by chance, I checked to see what the market was trading around on its current year p/e multiple around October 3. At that point, it was at about 18.5 times current-year earnings estimates. Assuming no earnings growth in 2020, well, the S&P 500 was back to trading around 18.3. Chance? Probably not.
Meanwhile the VIX hit nearly 50.
The number of stocks above their 50 moving average, well, hit almost 0, at 1.7%.
Anyway, I honestly do not believe it is a coincidence that the market was starting to worry about corona on the same day that Clarida and the Fed minutes on the previous day indicated no more rate cut. I also do not think that it is a coincidence that on the same day of what I believe to be a market bottom was when the Fed “hinted” at a rate cut.
Yeah, today felt like a bottom to me in a lot of ways that the other didn’t. It had that big rush higher at the end of the day, as if all the sellers had been washed out.
Plus, I don’t think it is a coincidence that we stopped falling at the October 3 lows or that valuations fell back to no growth 2019 levels. Does that mean we rocket higher from here? No. It means that the market will now work to form a floor around this of 2,855 area, and I honestly do not think we go below that level of 2,855.
Yeah, I know you will say well this guy is crying wolf because he said the region around 3110 could be the bottom. You are right; I did say that I said could be around the bottom. It wasn’t the bottom, but it did serve as a pausing point. However, by the afternoon of February 26, it became apparent to me that if it wasn’t the bottom, and we had much further to fall, and we did by another 8.5% to today’s low. Premium content – The Sell-Off Is Either Ending Or It’s About To Get A Whole Lot Worse – Free verison – Either Stocks Are Forming A Bottom Or Heading To The Abyss
So that is what I think, that’s how I feel. Will I be right? I have no clue, so take it for what its worth. It is not up to me or you, it is up to the market, and as we know, it is the heavyweight champ for a reason, because it is impossible to beat.
That’s all I got for a Friday night after a brutal week.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.