The Shakedown 3-15-20


LAST WEEK, S&P 500 (-9.46%):

Monday: -7.60%

Tuesday: +4.94%

Wednesday: -4.89%

Thursday: -9.51%

Friday: +9.29%

To illustrate how volatile of times we're dealing with, we had the largest single day gain since the 2008 Financial Crisis Friday -- and still closed the week down nearly 10%. While Friday's bounce was great to see, I would be hard pressed to say 'the bottom is in.' These type of days are simply characteristics of a bear market. 

In the 20 best daily returns in history, with Friday being #10, 70% are lower 100 days later and the average decline going forward is 18%.

(Charts Below)

The last time we saw a day like Friday -- in 2008 when the US Government announced TARP to stabilize the country's financial system and restore economic growth during the financial crisis --  we didn't see the bottom for another 3 months.

We can look at the 1987 playbook, "Black Friday," where we saw stocks drop 25% in a single session. We were quickly able to rally off those lows as we rose 15% in the following 2 days. We returned to those Black Friday lows the following week. We then rose 15% from there and returned to those Black Friday lows once again 6 weeks later.

What both of these crises illustrate is that during these times of massive uncertainty, the only thing certain is volatility. We can definitely continue to have pockets of rallies from here and quickly be back at lows a few sessions later. 


In an UNPRECEDENTED move, the Federal Reserve just slashed interest rates a full point, the closest to 0 since the Financial Crisis. They also announced a massive $700B purchase schedule of assets, better known as Quantitative Easing (QE).

How did markets respond to this huge news? By immediately tanking as markets continue to panic, going limit down and halting at 5%.  

The biggest banks in the US (JPM, BAC, C, MS, WFC and GS) all suspended stock buybacks in order to utilize that capital to help the maximum amount of small businesses during this panicked time. 

With businesses, schools and arenas suddenly closing across the US, and Europe getting closer and closer to full containment, we are due to see a great economic impact to Q1 and Q2 earnings as we are experiencing a true Black Swan event in the market.

What a time to be alive. 

I'll be back in the saddle this week navigating the markets with you guys. We have to continue to remain flexible and I personally will continue to operate on the shortened time frame. You almost have to do the opposite in times like this when volatility is so high. You have to look to buy stocks on the rebound when they look the worst, and look to take profit when they're beginning to look good --- not looking to buy them when they're looking good as in 'Trending' times.

PS - I cannot stress enough that if you are trading right now, you should be ridiculously small right now. The moves are fast and violent so small size can still yield some great trades in this volatile environment. Most importantly, there is no need to kill it when the market is this bipolar. 

Earnings season winding down a bit

Much less concerned with individual earnings names in times like this. Just looking for best in breed stocks when they're reclaiming levels. 

From a trading standpoint, with massive closure of businesses, you don't want to be buying any retailers right now that are sure to be getting crushed in the weeks to come. Seamless Food Delivery Service announced dine-in eating was down 75% and OpenTable restaurant reservations were down 46% Year over Year on March 14th (Saturday) showcasing the self-quarantining going on.

Wholesellers like Costco (COST)  & BJ's (BJRI) along with Consumer Staples (KR, WMT, GIS) are all great Corona plays. Biotechs are generally good in these environments as there's a greater investment into medicines and research during these times. Lastly, online applications that become especially important with "Social Distancing" such as Zoom Video are theoretically some stocks to gravitate to right now.

ZM Long

I have got to be honest, I don't love much in either direction, long or short, heading into the week. However, I really like the idea of this ZM long. I was mad I missed it the first time but it has pulled in enough for a re-entry given how circumstances have changed. 

New York City schools just announced Sunday night that they would be closed the next FIVE WEEKS. This is a trend that will likely begin to happen nationwide, as businesses are sure to follow.

The first thing I did upon hearing this news was call my NYC teacher friend up to find out the deal. Do they just have off during these 5 weeks? NOPE. Not a second. They are being forced to video conference for their kids Monday-Friday mostly during regular school hours.

What teleconferencing service are they using you ask?

Oh, Zoom Video of course.

CEO Eric Yuan is doing all the right things by giving out his technology for free in this trying time, while also maximizing the tech's visibility to potential future consumers. Unlimited free video service and meeting minutes for all as Coronavirus persists.

A great feature of this recent IPO is that it has not been added to any indexes of ETFs so the market can absolutely tank and this can theoretically not be held down by an ETF association.

I know the technical trigger in this instance would be the 114 resistance level, but if this gives an intraday flag at some point this week I would be much more willing to scalp using those levels rather than waiting for resistance (when you're probably too late at a time like this).

Trigger: $114/intraday flag

Stop: Low of day

Target: $124-142+

Hope to see you in the chat Monday!

Watchlist coming in the following email.

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