The Shakedown 3/22/20

Coronapocolypse Continues

LAST WEEK, S&P 500 (-14.98%):

Monday: -11.23%

Tuesday: +5.40%

Wednesday: -5.06%

Thursday: -0.37%

Friday: -4.06%

"How dead is a cat that cannot bounce?"

Stocks dumped into the close Friday after another week of harsh selling as more states closed non-essential businesses for the next ~4-6 weeks. I was personally shocked to see the market unable to give a short term, dead cat bounce as we pierced the massive $230 support level that was formed Christmas 2018. There is a lot of information in that price action and to be frank, it ain't good. The panic is still very high and am hesitant to even predict where a 'bottom' might come in. 

I continue to expect bear market qualities of this market which can be described with harsh movements in both directions. So far we've been in a greater downtrend but have done very well scalping to the long side as we've been taking advantage of stocks making retracement moves. These trades are certainly counter-trend trades as the market is in a firm downtrend. From a technical standpoint, we can look at the 8 day simple moving avg as guiding us lower (pictured below). The first snap back move (bear market rally) occurs when that area is definitively broken. That won't mean a bottom is in, but bear market rally's are especially viscous and we can look at the 10 biggest gaining days of all time in the S&P, and they all come within bear markets. I will continue to echo the notion that while this is an insanely difficult trading environment on the day to day, there is plenty of opportunity intraday with the extended ranges in stocks.

From a trading standpoint, I'll continue the short-term intraday trades. This environment is too dangerous to hold any real size overnight right now, so sticking with the day trades has been best.

In this type of trading environment, I go into everyday asking myself 3 questions.

"If the market gaps up, I ...?"

"If the market gaps down, I....?"

"Market's flat, I.....?"

Over the weekend NY Governor Cuomo warned of 9 months before a return to normalcy, and a potential 80% infection rate among Americans, as 1/3 of all US cases now reside in New York City. US Secretary Steve Mnuchin  warned the lockdown of 80 million Americans could last for 12 weeks. Sunday night or some point Monday,  we will see some sort of signed stimulus package out of the US Government. The package is looking between $2 & $4 Trillion stimulus package with average American families of 4 being given ~$3,000 cash of helicopter money. The could be the news to give us a short term bounce, but again, this environment appears that it will last several months, your guess is as good as mine right now with the information at hand. On the bright side the Government has extended tax season until July 15 from April 15th.

The problem is much more than simply the virus itself, but the massive business closures it forces for weeks on end. We haven't seen this before. Unemployment numbers will skyrocket and output for the 2nd quarter will be about half the norm, which takes about $2.5 trillion out of the US economy during that time. The positive in that news is that we should see a swift recovery when it is all said and done, but the duration of that time is a complete guess with the lack of information surrounding the virus.

HISTORIC BEAR MARKETS

We have been spoiled the past ten years in the market as we've seen the greatest bull market run in history. Many will point to Christmas 2018's bear market that last only a few hours as an example of what to look for, but that puts in context so little in the history of bear markets. That was the only "V-bottom" bear market in history.

The chart below shows potential price points where other bear markets have lead, to get a better idea of the possibilities that lie ahead. Things can always get more stretched than anyone anticipates in these environments.

Some Earnings this Week

A common occurrence we will see going forward with earnings is companies slashing their guidance. Get used to it.

Any trades or charts mentioned have to be taken into account that these will be for short term moves only. With the current fear and panic going on in the markets, it is not wise to look for swing trades or overnight positions at this time.

DOCU Long

Docusign, DOCU is one of the rare beneficiaries of Coronavirus as its widespread application will be greater with the quarantine we're seeing across the world. Any documents being signed over the next 4-6 weeks will likely be on DOCU.

This stock has held up so well to end up closing green last week where we saw the S&P lose nearly 15%.

Similar to last week with ZM (+21.4% last week) where we will likely be playing off intraday levels to get involved with this one this week. I can't blindly put "buy through 82 and put a stop at 75. Hold until it's 100+," because we're simply not in that environment anymore. Either you're taking quick trades or you're sitting on the sidelines (or legging into long term DCA's - but that's a different conversation).

Regardless, the first price point I'm looking to buy this one is through Friday's high, $82.

Trigger: $82/intraday flag

Stop: Low of day

Target: $88-90+

Hope to see you in the chat Monday!

Watchlist coming in the following email.