The Shakedown 3/29/20

Massive Retracements

LAST WEEK, S&P 500 (+11.01%):

Monday: -2.56%

Tuesday: +9.06%

Wednesday: +1.50%

Thursday: +5.84%

Friday: -2.76%

Big time bounce in stocks this week

After the fastest 30% down move from highs in the history of the stock market's existence, it's only right we got that massive retracement move as stocks inevitably bounced back. From Monday's close to Thursday's close, we saw the S&P rip over 17% and the Dow Jones actually rose over 20% in that span. These are still consistent characteristics of bear market trading. 

I want you guys to take note of sentiment during these times and the people making grandiose statements. When we were continuing the sell off Monday, and hit marks that officially put us at the fastest 30% draw down from highs in market history (including the Great Depression), the fear and doom/gloom guys were pounding their chests. S&P going to drop 75% soon. What happened? That was the best buy signal in history as it lead to the greatest 3 day up-move in market history. Not embellishing in the slightest when I say in history as in all time, these are facts. 

Bear market moves are fast, sharp, and things can greatly change in a day. As soon as we made that 3 day run, the bulls came out, pounding their chests as to be expected, only to walk into a 3% gap down Friday. When I say stay flexible in these environments, these are the type of notions I am pointing to. Don't start pounding your chest in either direction because you'll feel dumb if you're wrong. No one knows where stocks will be tomorrow let alone in a month or a year, especially as we get new virus developments seemingly hourly. FURTHER, we got potential end of quarter window dressing last week as Q2 begins Wednesday. Fund managers will undoubtedly have some disgusting Q1 numbers to show clients, so bidding up stocks into end of quarter is expected. I think April is going to be a mess. 

From a personal standpoint, I don't believe the bottom is in simply because there is still too great a disconnect between Wall St & Main St. While the Wall St pundits will talk about the stimulus package for days, I know many small business owners (restaurants/bars/retail/services barber shops/etc) who are simply getting killed in this environment, forcing them to take losses and fire employees. They depend on the weekly and monthly business to pay their rent and employee salaries, so this shut down is crushing those who are keeping it too financially tight. The government stimulus will not likely be enough for their businesses to get back to where they were in most cases, and even survive in other cases. Cheesecake Factory said they are refusing to pay their April 1st rent in their nearly 300 locations for example, they're not the only ones. Personally believe there is some collateral damage under the hood of all this, but again I'm not making any huge claims either way, just taking it one day at a time and remaining flexible in my thought process.

IN A PERFECT WORLD - the market sells off and undercuts that low from last Monday and we reverse higher and this is the low. Every single big money trader I've talked to is hoping for this scenario (which tells me the unlikelihood of it happening). In the history of bear markets, the 2018 Christmas Massacre that didn't retest the initial low that it made, was the only 'V Bottom' in bear market history. Every single other bear market --- all 25 since 1928 -- have retested that low at some point before creating a bottom. 


Friday we saw the government FINALLY get a Stimulus Package signed, after a week of back and forth partisanship while the common man struggled to keep their business afloat. 


A Quick Breakdown of the bill: 

  • Adults who made 75k and under will receive a $1,200 check along with an additional $500 for every qualifying child under 16

  • Adults with income up to 99k on their 2018 return will receive some sort of stimulus

  • $500 Billion rescue fund for struggling US Industries such as the airlines

  • $100 Billion to the Hospital Industry

  • The Unemployed will receive an extra $600 per week for up to four months on top of state unemployment benefits to make up for 100% of lost wages

  • Business get a tax credit for keeping ideld workers on their payroll during the pandemic, they would get a refund for half what the spend on wages, up to $5k per worker.

  • State and Local Governments getting $150 Billion which are bleeding tax revenue as only essential businesses remain open and unemployment claims climb by tens of thousands daily

  • Pentagon to receive $10.5 Billion for National Guard/Soldier stimulus, R&D aimed at vaccine development 

  • Employers and Self Employed Individuals get to defer the 6.2% tax they pay on wages to fund Social Security

  • $200 Million for Telemedicine -- Skype Style Health Checkups

  • $10 Billion to US Postal Service

  • Food Stamp Program $25 Billion

  • Farmer and Rancher Relief: $24 Billion

  • School Systems: $30 Billion

  • Notables: No Funding for Cruise Industry, Oil Industry and Insurers. Boeing announced they're declining the Gov'ts offer of $60B for a company stake


From a trading standpoint, I'll continue the short-term intraday trades. Knowing and understanding market levels is always a huge help in this environment. Knowing where to look for support and resistance in the indices, will help your individual stock executions 

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.....?"

Some Earnings this Week

Long Setups

Short Setups



Some of my favorite companies I am looking to buy into or add to my position for the long term if we do see another down move in stocks

GSX Long

GSX, a chinese online education company, who is also a recent issue has been holding up so well in this market turmoil. The stock is even flagging on the daily relatively tightly and is actually trading with much less volatility than the broad market as it contracts. Similar to why we loved ZM a few weeks ago, how it is not tied to any major indices and therefore not dragged up and down with market gyrations, this one can breakout no matter what the market's doing. The technical entry would be through that 44 resistance area, but I have been watching closely all last week and believe that above Friday's high through $43 is the spot to enter. That is where I will first watch for volume or an intraday flag of some sort. Relatively thin name so take that into account when sizing this position.

Trigger: $43/44

Stop: 40.89/Low of day

Target: $49-50+

Hope to see you in the chat Monday!

Watchlist coming in the following email.

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