When the market stops going down on bad news, it is often a signal that the market may be nearing a low. Despite the main headline from the World Health Organisation (WHO) stating that new cases of COVID-19 are "increasing dramatically", the market is in fact rallying today having held around 2450 throughout this week. This will no doubt be welcomed by investors, who should be further encouraged by the fact that the S&P 500 futures avoided triggering any volatility halts overnight, as has become commonplace in recent weeks. But will this moment of relative calm last? Let's take a look through some of the charts for perspective...
First of all, here’s the headline from the WHO which was/is the most-read story on the Bloomberg terminal today, and will no doubt be repeated on the evening news. It shows how the number of cases has doubled from 100,000 in just 12 days, having taken a number of months to reach the March 6th level.
"New Cases Increasing Dramatically, WHO Says"
Yet new cases in Asia are slowing, with China reporting no new cases in Wuhan yesterday following some six weeks of imposed isolation.
The situation in Italy remains extremely serious though, with the number of confirmed deaths from the virus exceeding those in China - remarkable given the relative size of each population.
This chart shows a heatmap for the daily (per cent) change in coronavirus cases. The biggest gainers are highlighted in light grey. As you can see, China now appears black on a relative scale compared to the U.S., Northern Europe, and Australia, for example. (Note: Although at 41,035 reported cases, the data for Italy may be pending as no change is displayed. Presumably, this is also the case for the likes of Spain, France, etc.).
So despite the scary headlines today from the WHO, perhaps the market is beginning to look beyond this and is instead finding hope in the ‘recovery’ (or ‘containment’) seen in China. Corporate insiders have been big buyers of their own shares, which suggests confidence in current valuations and prospective business.
Other large investors including Warren Buffett and Carl Icahn have been adding to select positions in large sizes.
Looking to the broader market, at the time of writing the S&P 500 futures are up almost 100 points and have managed to hold the December 2018 low which was tested earlier this week.
Whether or not you believe this will last, there have been pockets of relative strength in which we have identified some of the recent winners. Earlier in the year, we featured Amazon (AMZN) in our Trading Club video analysis and showed how our Company Checklist produced a positive score for the online retailer. Here you can see the relative strength (outperformance) of this idea compared to the S&P 500 (green line), with the rising ratio (purple line) at the bottom.
And names associated with the online retail giant are showing similar relative strength, further confirming our thesis. Here’s a snippet from a Bloomberg news article on UPS...
"Shares of United Parcel Service Inc. have held their own in the past month as other transportation companies plunged amid the global coronavirus pandemic that’s brought daily life to a screeching halt. UPS has been bolstered by its deep ties to Amazon.com Inc.
“UPS is participating in the e-commerce ‘boom’ as people don’t go to stores and stay home and order online,” Cowen analyst Helane Becker said in an interview. According to Cowen’s estimates, about 14% of UPS’s volume is Amazon-related versus none at all at FedEx. “In fact, we believe that most of the volume FedEx rejected is being flown by UPS,” Becker said."
We are due to update our Monthly Report next week, but for the time being our Equities Checklist supports the potential for a bounce with a score of +2.
Although the fundamental case is improving, in a volatile market your entries and exits are all the more vital and it pays to identify areas of support and resistance and have the discipline to stick to them. For the time being, I am remaining patient for one last push lower towards 2050, in order to enter with a higher probability setup. This may prove to be greedy and may see me miss out on the rally, but experience tells me that it more often pays to be patient than it does chasing the market.
Time will tell how this all plays out, but what’s clear is that things are becoming far more complicated in markets and it has never been more important to trade with a proven process. Recognising this as professional investors, we provide our Checklists for a range of markets at the Trading Club and update them for our members on a monthly basis with video updates each week tracking the evolution in markets.
If you would like to join us for our full analysis including new insights each week or learn from the ground up with online tuition from Lex in our Million Dollar Traders online course, then seize our genuine discounted offers right now and level up your financial acumen which is clearly a much-needed skill in 2020!
I will, of course, continue to keep Trading Club members updated in our weekly videos as this evolves, and maybe, just maybe, we could finally see a recovery in equities.
Have a great weekend, stay safe, and stay home. We can all help to slow down the spread of coronavirus. Online education offers amazing opportunities to level up our skills and can certainly save us from boredom! I also look forward to seeing you join us at the Academy!
James Helliwell | Chief Investment Strategist
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