Has The U.S. Economy Plunged Into A Depression?

Has The U.S. Economy Plunged Into A Depression?

“Face reality, and that means admitting that “the U.S. economy has plunged into a depression.”

This is already the worst economic downturn that America has experienced since the Great Depression of the 1930s, and we are right in the middle of the largest spike in unemployment in all of U.S. history by a very wide margin.

Of course, it was fear of COVID-19 that burst our economic bubble, and fear of this virus is going to be with us for a very long time to come.  So we need to brace ourselves for an extended economic crisis, and at this point, even Time Magazine is openly referring to this new downturn as an “economic depression”.

Needless to say, there will be a tremendous amount of debate about how deep it will eventually become, but everyone should be able to agree that our nation hasn’t seen anything like this since before World War II.

In order to prove my point, let me share the following 10 numbers with you…

#1 According to a study that was just released by the National Bureau of Economic Research, more than 100,000 U.S. businesses have already permanently shut down during this pandemic, and that represents millions of jobs that are never coming back.

#2 The Federal Reserve Bank of Atlanta is now projecting that U.S. GDP will shrink by 42.8 percent during the second quarter…

“A new GDP forecast from the Federal Reserve Bank of Atlanta for the three months through June estimates an unprecedented drop of 42.8 percent. The bank describes the data as a “nowcast” or real-time, compared with the official government report of GDP, which is dated. The first-quarter preliminary data, which showed a 4.8 percent dip, included a limited period of impact from COVID-19.”

#3 On Friday we learned that U.S. retail sales were down 16.4 percent during the month of April, and that is a new all-time record.

#4 U.S. factory output was down 13.7 percent last month, and that was the worst number ever recorded for that category.

#5 U.S. industrial production fell 11.2 percent last month, and that represented the worst number in 101 years.

#6 On Thursday, we learned that the number of Americans that have filed initial claims for unemployment benefits during this pandemic has risen by another 2.9 million, and that brings the grand total for this entire crisis to 36.5 million.  To put that number in perspective, at the lowest point of the Great Depression of the 1930s only about 15 million Americans were unemployed.

#7 According to the Federal Reserve Bank of Chicago, the real rate of unemployment in the U.S. is now 30.7 percent.

#8 According to a survey Fed officials just conducted, almost 40 percent of Americans with a household income of less than $40,000 a year say that they have lost a job during this crisis.

#9 One study has concluded that 42 percent of the job losses during this pandemic will end up being permanent.

#10 According to a professor of economics at Columbia University, the U.S. homeless population could rise by up to 45 percent by the end of this calendar year.

We have never seen economic numbers this horrifying, and more awful economic numbers are coming in the months ahead.

At this point, things are so bad that even Fed Chair Jerome Powell is openly admitting that he doesn’t really know how long this new economic downturn will last…

“This economy will recover…We’ll get through this. It may take a while. It may take a period of time. It could stretch through the end of next year,” Powell said during a rare televised interview that aired on “60 Minutes” Sunday night. “We really don’t know. We hope that it will be shorter than that, but no one really knows.”

In the months ahead, there are a few sectors that you will want to keep a particularly close eye on, and one of them is the commercial real estate market.  The following comes from Zero Hedge

“Fast forward to today, coronavirus outbreak, and the ensuing lockdown, has essentially frozen the commercial real estate market. Buildings that were once used for restaurants, offices, hotels, spas, and or anything else that is classified non-essential have seen soaring vacancies.

This is single handily sending the commercial property market into chaos. As vacancies soar, tremendous downward pressure is being put on almost every asset class tied to commercial real estate.

The latest TREPP remittance data compiled by Morgan Stanley showed a quarter of all commercial mortgage-backed securities (CMBS) could be on the verge of default.”

I am personally convinced that we are on the precipice of the greatest commercial real estate implosion in American history.

As the dominoes tumble, it is going to send wave after wave of devastation through the financial industry, and it is going to make the subprime mortgage meltdown of 2008 look like child’s play.

But at least bankruptcy lawyers will have plenty of work.  Last week we learned that J.C. Penney filed for Chapter 11 bankruptcy protection, and of course the bankruptcies that we have seen so far will just be the tip of the iceberg.

I think that politicians all over America are going to deeply regret overreacting to COVID-19, because nobody is going to be able to put the pieces back together now that our economic bubble has burst.

Sadly, very few people understood how shaky our debt-fueled economic “boom” was, and ultimately it didn’t take that much to push us into a new economic depression.

And now every additional crisis that comes along is just going to escalate our economic troubles.  This is going to be one very long nightmare, and there will be no waking up from it any time soon.

Even before COVID-19 came along, homelessness had become a massive problem in many of our major cities, and now tent cities are rapidly multiplying in size.

There is going to be so much economic pain in the months ahead, and it could have all been avoided if we had made much different choices as a nation.

But we didn’t, and so now we all get to pay the price.

Mr. Snyder wrote this article and I respect his opinion. I am not taking issue with his story, but he is a respected conservative voice in a world of noise.

So, I ask you, what if he is correct in his judgment and collapse is coming sooner than later?

Are you prepared for what is going to happen to your retirement and investment account values?

Are you sheltered from those accounts declining 40%? 50%, 60%, or more.

The Wealth Preserver Membership can protect your account from any stock market collapse. Please know that until it does collapse, your investments continue to grow as usual. 

6 MUST FILL TRADING GAPS

6 MUST FILL TRADING GAPS

The last time I wrote about 6 Must Fill Trading Gaps was at the end of March, however our members were getting notifications in 2019 and into (01/3102/24, 2/28, and 3/02)  regarding Gaps and the potential consequences of ignoring them.

We all know what happens to the market if we ignore upside gaps…THE GAPS FILL TO THE DOWNSIDE.

The recent crash closed all the gaps dating back through 2018 before we started are ascent again.

I have been listening to the talking heads on Fox Business, CNN, Bloomberg, Yahoo Finance, and many others. The all ask if this rally is just a long journey back up to eventual new highs. Plain and simple, their answers must be scripted. I personally know 2 of them and they are intelligent and practiced and know that 91% of all Gaps fill.

These well trained “guru’s” can easily look to their charts and know whats coming.

If you have downloaded and read our Gaps guide, then you know the 6 Must Fill Trading Gaps are going to eventually close and are already prepared for it.

I was having a nice cold Bud chatting socially with my next door neighbor and he asked me when to expect the Gaps to fill. My answer is always the same so brace for it. “I have no clue.”

What is more important is the recognition that dating all the way back to 2018 all the gains you made were gone in a matter of a few weeks. Now that it has risen 50% from the bottom of the current decline, are you ready to fill those gaps near the bottom?

If you are not ready for a retest, then grab a self paying subscription, or a bottle of Rolaids because it is coming. At a rate higher than 91%, the Green Gaps in the chart above will refill which means the market is coming back down.

History proves it. 

If this is even remotely close to the typical decline dating back to the 1600’s, its best to avoid the declining and simply jump back in close to the bottom.

Why Mark Mobius says the stock market hasn’t seen an ‘absolute bottom’ yet

Why Mark Mobius says the stock market hasn’t seen an ‘absolute bottom’ yet

Emerging-markets investing pioneer Mark Mobius made those remarks Tuesday in an interview with CNBC, putting him in the investing camp that expects an inevitable cascade of brutal economic data and corporate earnings hasn’t been fully discounted by investors.

Mobius, who founded Mobius Capital Partners in 2018 after a three-decade run at Franklin Templeton Investments, said corporate earnings would be “pretty bad” and that while some bargains have emerged, investors should keep some cash ready to deploy in the event of a further market downturn.

U.S. stocks hit all-time highs in February, then plunged into a bear market as the global spread of COVID-19 forced the U.S. and countries around the world to largely lock down their economies in an effort to contain the outbreak. Stocks have taken back a large chunk of lost ground since March 23, however, with recent gains tied to expectations the pandemic is near its peak, turning attention to efforts to reopen economies.

Market bulls have argued that the unprecedented nature of the shock and the massive response from the Federal Reserve, other central banks, and governments have rendered most comparisons to past bear markets debatable.

Others have cautioned that stocks are largely sticking to the bear market script.

“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” he said. “We might see a double bottom.”

Is The Dead Cat Bounce Over?

Is The Dead Cat Bounce Over?

March 2020 saw one of the quickest bear markets in history as coronavirus shook the world and the S&P 500 dropped 34% in about five weeks.

Since then, the market has reversed and rallied about 24% from its low meaning it’s now down only 19% from the February peak.

The market is now trading at the same level it did in June 2019 despite all the carnage surrounding COVID-19. It’s also approaching a key resistance area around $2800.

Although there are some positive signals for bulls we think the market could move back towards its recent lows short-term. A bear put spread gives a good opportunity to play this view.

Relief Rallies Are Common In Bear Markets

The recent rally is encouraging for bulls but if we look back at previous market crashes it’s obvious to see that relief rallies are a common occurrence in bear markets. They have been called Dead Cat Bounces.

During the 2008 crash, there were two relief rallies of over 15% before the March 2009 low.

During the dotcom crash, stocks rallied more than 15% three times before the market finally bottomed. 

And during the 1973-74 bear market there were three relief rallies of over 10% which preceded a long period of choppy trading.

Meanwhile, during the Great Depression, there were numerous relief rallies and it took the market 26 years to regain it’s all-time high.

It’s worth noting that the 1987 and 2011 bear markets saw no relief rallies but remember that neither of these bear markets actually coincided with an economic recession.

At this point, not only is a recession nailed on but it’s likely to be a severe recession with some saying it could be on a par with the Great Depression. 

Given this, it seems appropriate that there is more pain to come and that the stock market is not going to simply rebound in a straight line over the next few weeks and months.

How Much Should The Market Fall?

Historically, the average bear market has lasted around 22 months and the average drawdown has been -39%. 

If we are to believe that this current crisis is worse than average (which it appears to be) then the current drawdown of -19% (albeit a pullback from -34%) seems mild.

If that’s true, then the question becomes how much damage is enough?

Answers come in many different forms. None are perfect but they can all be taken into account. 

Citigroup analysts say that a good rule of thumb is for stocks to fall roughly the same as corporate earnings. They are forecasting falls in US earnings of around 50%, therefore the stock market is capable of falling by that amount as well. (FT)

Another answer is to look at the cost of the virus in terms of lost GDP. Unsurprisingly there is a wide range and a lot of uncertainty here too.

Estimates from Bloomberg put the cost at $2.7 trillion while the UN predicted only $1 trillion in a report from early March.

To put that in perspective, the 2008 crisis (which saw markets dive by 57% from their peak) is said to have cost the US about $2 trillion in lost economic output according to Moody’s Analytics. (WP).

In terms of dollar value, the coronavirus crisis could end up as costly as the 2008 crisis and some of the recent data has been right up there with the Great Depression. 

US jobless claims, for example, have been truly abysmal.

Some economists think unemployment could surge to 20% which would be much higher than in the 2008 crisis when unemployment peaked at around 10%.

Several economists are forecasting an economic contraction of between 6-8 per cent which would make it worse than the 4 per cent contraction seen in 2008/9.

However, a lot of the forecasting depends on the impact of social distancing and there is still a great deal of uncertainty.

Furthermore, putting a dollar value on the cost of a crisis is difficult when any cost necessarily depends on the reaction of the stock market resulting in a vicious cycle.

The financial crisis lingered for a long time but the coronavirus crisis could be short-lived if social distancing proves effective.

If the virus is contained effectively then it could end up costing only a fraction of the GDP that was lost in the 2008 crash.

On the other hand, if estimates do not account for second and third waves of the virus (or numerous knock-on effects caused by financial stress) then they could miss the mark.

The only data we have really seen so far are the jobs numbers. We are yet to see companies report earnings and the truth is that we are about to see a tidal wave of terrible earnings reports.

Central Banks Have Our Backs Faster This Time

That said there is still the case that central banks have moved quickly to inject stimulus into the market to avoid financial contagion. Much more quickly than they did in 2008.

This stimulus has been large and so far been effective at keeping the financial system ticking over and helping to reduce volatility in the stock market.

Health-wise, testing has been ramped up and new virus cases have definitely been flattening.

So there is definitely a case to be made for bulls that the -34% drop represents the bottom and that investors are now looking ahead towards a recovery in 2021.

However, even if the market did hit a bottom last month there are bound to be some big bumps along the way to a recovery and there is simply too much uncertainty right now to say that the damage is done.

What’s A Fair Price?

Howard Marks said in his recent memo that the market is probably fairly priced for an optimistic view of the crisis and I think that sounds about right.

In other words, if you believe that cases are coming down, the virus is on the way out and the economy can reopen in a few weeks time, then stocks are probably fairly priced.

But if you believe that the virus is not under control and the lockdown will go on longer than expected (or that there will be future waves with more lockdowns) then stocks are expensive and have some room to fall.

At this point, it’s worth remembering that the last serious pandemic we had was the Spanish Flu which lasted about 18 months from March 1918 to the summer of 1919. In that period the virus came in three waves with the second wave being the deadliest. (TIME).

It seems unlikely that this current virus is going to just blow over and things are going to go back to normal any time soon. Especially considering the poor handling that governments have shown so far. This thing could drag on for months with second and third waves.

With that being the case, I think there is a strong argument that the market will at least move back towards it’s recent low even if it doesn’t lurch too far below it.

Where Is The Risk?

In times like these I find it helps to think simply and consider ‘where is the risk’?

Is it riskier now to buy, after a 20% rally off the low, or is it riskier to short, with the possibility of a V-shaped recovery?

For me, the risk here is clearly to the downside.

With so much uncertainty about the staying power of the virus and so much bad news yet to come, it would be risky to dive into the market when it is only 19% from it’s all-time high.

Given the gravity of the current crisis and the fact sharp rallies often occur in bear markets, I’d say the chance of us moving back to the recent low is perhaps 30% to 50%.

Final Thoughts

The bottom line is that this is a nasty environment for investors with unprecedented economic shutdowns.

This rally has the hallmarks of a dead cat bounce. It is likely to be a complicated mix of short covering, mechanical buying and optimism that the Fed has everything under control.

We will recover from this crisis eventually but I think it will be a while before the Slingshot will be ready. 

Here’s When The Bear Market Rally Ends

Here’s When The Bear Market Rally Ends

This Bear Market Rally is still not complete but should be shortly and Here’s When The Bear Market Rally Ends.

We are actually still in a bear market rally with today clearly being another ‘green’ day, it is likely the rally will continue until the herd jumps in again.

It is not uncommon what-so-ever to re-touch near a 50% level during voracious bear markets, however, at this point you can actually argue the market is more over-valued now given the environment than when the Standard & Poor’s was near 3400 ironically enough.

The markets are already trying to price in a possible slowdown in the COVID-19 pandemic. But, even if the Pandemic miraculously disappeared today, the massive economic shock won’t disappear anytime soon.

Major indices all over the world have already plummeted into Bear Territories and the recent rally is simply a correction. In fact, if you look at previous bear markets, you will find plenty of temporary Bullish rallies within the larger Bearish move.

So, do not get emotionally carried away by the bull run right now. Shortly, we will be dealing with bad economic data, a bigger than 2008 recession (likel):
  • Falling Output. Less will be produced leading to lower real GDP and lower average incomes. Wages tend to rise much more slowly or not at all.
  • Unemployment. The biggest problem of a recession is a rise in cyclical unemployment. Because firms produce less, they demand fewer workers leading to a rise in unemployment.
  • Higher Government Borrowing. In a recession, government finances tend to deteriorate. People pay fewer taxes because of higher unemployment and they need to spend more on unemployment benefits. This deterioration in government finances can cause markets to be worried about levels of government borrowing leading to higher interest rate costs. This rise in bond yields may put pressure on governments to reduce budget deficits through spending cuts and tax rises. This can make the recession worse and more difficult to get out of. This was particularly a problem for many Eurozone economies in the aftermath of 2009 recession.
  • Hysteresis. This is the argument that a rise in temporary (cyclical) unemployment can translate into higher structural (long-term) unemployment. hysteresis
  • Falling asset prices. In a recession, there is less demand for buying fixed assets such as housing. Falling house prices can aggravate the fall in consumer spending and also increase bank losses. This fall in asset prices is particularly a feature of a balance sheet recession (e.g. 2009-10) recession.
  • Falling share prices. Lower profits lead to lower levels of share prices.
  • Social problems related to rising unemployment, e.g. higher rates of social exclusion.
  • Increased inequality. A recession tends to aggravate income inequality and relative poverty. In particular, unemployment (relying on unemployment benefits) is one of the largest causes of relative poverty.
  • Rise in Protectionism. In response to a global downturn, countries are often encouraged to respond with protectionist measures (e.g. raising import duties). This leads to retaliation and a general decline in trade which has adverse effects.

These factors are not at the top of the news yet cycle right now. But I assure you that when the Corona-Virus takes a back seat to the Presidential Election, the reality will set in and we will witness a new test of the bottom.

So, such rallies as the one we are seeing now will be sold aggressively and markets will plummet into fresh lows. Until a 50%-55% drop has happened, we can’t start thinking about bottom formation.

Conservative investors should continue to follow the Wealth Preserver signals as is proven historically, the signals will protect you from every market crash that matters.

As for Daily and Weekly traders, they should follow their Wealth Maximizer and Maximizer Pro signals according to the Pro’s 5 Minute Secret.

Keep Calm And Run For The Hills

Keep Calm And Run For The Hills

As an investor, you need to Keep Calm And Run For The Hills.

Everything was a classic.

The financial industry reported that a record number of brokerage accounts were opening and new investors were running to their local discount broker to join the club. Of course, when this happens, it always happens at the end of a bull run sucking in the “average investor” who is always late!

In fact, I got the message loud and clear when a buddy, who never invested in his life asked me… “So, how do I buy shares.”

Honestly, I became a bit upset as this always tips off the professional. The know when the armature wants in, it is time to look at a market a correction or a  bear is lurking.

We all now know, the markets fell off a cliff that we call the Corona-Crash.

This is how we initially knew it was coming. But then the chart below warned of the coming collapse.  In addition, this chart helps answer the question, should you get back in now?

Let me explain…

As you can see in the Dow Jones chart, the market has taken a big swift decline down. And now with a bit of a rally, people are wanting to jump back in. Should you?

Before you jump back in, look at the lower half of the image called the Stochastic.

What you notice is that it is a supporting indicator that will help you to invest at the right time. The right time is when the Blue Stochastic RSI line is above the Red line and BOTH are below the 15 level!

Looking at the action today, you are clearly warned not to invest because its TOO LATE. Clearly, the same stochastic chart shows that the level is now above 85 and the Red Line is above the Blue line.

Once this current rise tops and your Maximizer Pro shows a sell, you will see the markets rollover into a new decline as has always occurred.

See the source image

This becomes very clear if you look back and notice the October – January 2018 market decline relative to the “greed” based stochastic. By looking at both together you can easily see when to get in and out of the market.

As for today, if your buddy asks, “Hey, which discount broker do you use?” 

Take a quick look at the stochastic charts, call your broker, keep calm and run for the hills!

A Sharp Reflex Rally

A Sharp Reflex Rally

While it is indeed a sharp “reflex rally,”  With follow through today, please remember this: “Bear Markets” are not resolved in a single Day, Week, or a Month. Most importantly, “bear markets” do not end with “consumer confidence” still very elevated. 

 

Notice that during each of the previous two bear market cycles, confidence dropped by an average of 58 points.

This past week, we saw early indications of the unemployment that is coming to America as jobless claims surged to 10 million, and unemployment in April will surge to 15-20%.

Confidence, and ultimately consumption, Which comprises 70% of GDP, will plummet as job losses mount. It is incredibly difficult to remain optimistic when you are unemployed.

No Light At The End Of The Tunnel Yet

Most importantly, as shown below, the majority of businesses will run out of money long before SBA loans, or financial assistance can be provided. This will lead to higher, and a longer-duration of unemployment.

What the cycle tells us is that jobless claims, unemployment, and economic growth are going to worsen materially over the next couple of quarters.

The problem with the current economic backdrop, and mounting job losses, is the vast majority of American’s were woefully unprepared for any disruption to their income going into recession.

Two important points:

  1. The economy will eventually recover, and life will return to normal. 
  2. The damage will take much longer to heal, and future growth will run at a lower long-term rate due to the escalation of debts and deficits. 

For investors, this means a greater range of stock market volatility and near-zero rates of return over the next decade.

The Bear Still Rules

History tells the story covering the last 8 full fledged bear markets: The should be sold into!

In other words, if you have taken the decline thus far, When you see the rally explode up, sell it and preserve as much as you can before the next dip.

On Friday, our colleague, Jeffery Marcus of TP Analytics, penned the following:

  1. When the 11-year bull market trend ended, other shorter trends were also violated.  In late February, the S&P 500 fell below its 14-month uptrend line, and in early March the 13-month uptrend line was violated.  Those breaks set in place the steep declines seen in the 2nd and 3rd weeks of March.
  2. While it may seem like an epic battle is going on around S&P 500 2500, the real problem is the downtrend forming from the 2/19 high.
  3. TPA still continues to see real long term support in the 3% range between 2110 and 2180A less likely move below that support, would leave long term support levels of the lows of 2014 and 2015.

S&P 500 – Long Term

His analysis agrees with our own:

“While the technical picture of the market also suggests the recent “bear market” rally will likely fade sooner than later. Such an advance will ‘lure’ investors back into the market, thinking the ‘bear market’ is over. Importantly, despite the sizable rally, participation has remained extraordinarily weak. If the market was seeing strong buying, as suggested by the media, then we should see sizable upticks in the percent measures of advancing issues, issues at new highs, and a rising number of stocks above their 200-dma.”

On a daily basis, these measures all have room to improve in the short-term. However, the market has now confirmed longer-term technical signals suggesting the “bear market” has only just started.

There are reasons to be optimistic about the markets in the very short-term. We will get through this crisis. People will return to work. The economy will start moving forward again.

However, it won’t immediately go right back to where we were previously. We are continuing to extend the amount of time the economy will be “shut down,” which exacerbates the decline in the employment, and personal consumption data. The feedback loop from that data into corporate profits, and earnings, is going to make valuations more problematic even with low interest rates currently. 

This is NOT the time to try and “speculate” on a bottom of the market. You might get lucky, but there is very high risk you could wind up losing even more capital.

For long-term investors like our Wealth Preserver Members, just remain patient and let the market dictate when the bottom has been formed. As you can see in the image below, the InterAnalyst Green Buy signal will come as it has every other time. But it only signals when the market is on solid footing.

 
Bear markets never end with optimism, but in despair. So remain patient, it the bear will end and you will capture the slingshot move back up once the markets are on solid footing.

Although we continue to author opinion and analysis, please remember that our writings do not replace the green buy and red sell signals derived from over 140 years of market analytics. Use the Wealth Maximizer Pro to help give you daily charts and signals to help with daily market direction. Apply those to the Wealth Maximizer Weekly charts and signals to give you more confidence in the direction.

When the Wealth Preserver Monthly signal confirms both the Wealth Maximizer and Wealth Maximizer Pro memberships, you are prepared for the slingshot.

 

Members Version of A Sharp Reflex Rally

Members please login to view your market signals and read the balance of this post for entry and exit points.

 

The Virus Peak & Stock Market Bottom

The Virus Peak & Stock Market Bottom

I cannot make any claims about the virus itself and this post is the reaction of major stock markets. A good explanation I’ve found on epidemics and exponential growth is this one on YouTube which I recommend watching if you are not already up to speed.

Looking at the current situation it appears that the market has room to fall further as the economic fallout continues and the virus spreads.

If the virus starts to slow down, it won’t be long before stocks find a bottom given the huge amount of stimulus that central banks are providing.

The most important thing is that we need to see the number of new daily cases start to flatten out.

Currently the virus is spreading at an exponential rate and that is causing businesses and services around the world to enter lock-down.

That has dire consequences for company profits.

Exponential Growth

To summarize some of the information in the mentioned video above, exponential growth means that as you go from one day to the next you have to multiply by some constant.

In the case of coronavirus, daily cases have been increasing by about 1.15 to 1.25 times the previous day’s cases. This results in an exponential curve with the number of new cases increasing on a daily basis. In fact, a virus provides a textbook example of exponential growth since what causes new cases are existing cases. However, there comes a time when exponential growth has to slow down.

For example, as millions of people become sick there are fewer people that can be infected so the rate of new cases must decrease. Likewise, measures such as hand washing and limiting gatherings also have the effect of reducing the spread.

So an exponential curve will eventually level out at an inflection point and turn into what’s called a logistics curve. At this point the number of new cases each day levels out and then starts decreasing. We have already seen this happen in China and now it is happening in South Korea too.

 New cases in China leveling out. Source: John Hopkins University.

Growth Factor = No. New Cases Today / No. New Cases Yesterday

A value over 1 indicates that we are still on the exponential part of the curve and there may be higher magnitudes of new cases ahead of us. In other words the growth is not slowing down.

This is the case right now in the USA and Europe. Whereas a value of 1 means that growth is leveling out and a value under 1 means new cases are decreasing.

Taking China as an example, the coronavirus spread began at an exponential rate which has gradually leveled off thanks to drastic shutdown measures.

With new cases appearing to have peaked the country has been able to get back to work and reboot its economy. Meanwhile, the United States and Europe have only just started to see new cases increase, indicating that they are likely to be near the beginning of the exponential curve.

What does all this mean for the stock market now?

I think we need to see the growth rate of new cases in the US and Europe start to level off before we can put in a major stock market bottom. So we need to see the daily growth rate drop to one or below and then stay there, perhaps for a week or so.

Once that happens I think we will see a bottom in stocks and a significant relief rally thanks to the huge amount of stimulus that is being provided by central banks.

It is because of this stimulus that we will see the slingshot. Importantly, though, I don’t think we need to see growth rates level off for the whole world.

It would be enough to see growth rates in the US and Europe start to slow for a bottom to be put in.
That’s because these areas (plus China) account for the vast majority of global GDP.

To keep on track of this I am using the coronavirus dashboard developed by John Hopkins University which seems to provide the most up to date and reliable figures that I’ve found. The dashboard provides the latest statistics on new cases which can then be used to calculate growth rates. 

For example, new cases outside China was 100.5k on Monday March 15th, higher than the previous day’s 81.7k cases and higher than the 75.1k cases on Saturday, a growth factor of 2.8.

Analyzing these numbers it doesn’t seem all that surprising that 10% drop in US stocks that day coincided with a huge daily growth rate of 2.8 times (this is for locations outside Mainland China).

Final Thoughts

Ultimately, virus growth rates and the stock market are linked and so long as the curve is exponential the markets are going to struggle.

Stock markets are likely to rally every time the virus looks to have been defeated, even when it’s not.

The data isn’t entirely accurate so there is likely to be some false starts. It’s also possible that the market will be able to lead a flattening in the virus whether it is caused by luck, government intervention or some other reason.

But eventually the market will get it right, it always does.

That being said, when stocks are up and the exponential curve has leveled off, review your Daily, then your Weekly charts with signals for Green Light Trade Signals because that will mean we are close to a bottom, or the bottom may be in!

Credit: Mr. Marwood, thank you for your research.

A 100% Legal Insider Trading System

A 100% Legal Insider Trading System

A 100% Legal Insider Trading System is legal is because directors are allowed to purchase and sell shares in their companies provided they do so in a timely manner and disclose their transactions with the SEC. It would make sense that company directors are best placed to evaluate the value of their businesses so the insider trading anomaly has been a fruitful line of inquiry for many researchers over the years.

In 1976, a paper from Finnerty concluded that increased insider purchases led to excess returns of 4.6% in the first six months while insider sales led to excess returns of -2.4%.

In more recent research from Jeng, the authors found that sales did not produce any meaningful results but insider purchases led to annual excess returns of as much as 11.2% over the S&P 500.

However, subsequent research from the Handbook of Equity Anomalies used the same methodology and produced annual returns that were nearly 7% lower between 1978-2005.

Nevertheless, the anomaly still shows grounds for development particularly in smaller cap stocks that are out of the realm of big firms.

In one study from the same book mentioned above, small cap stocks that had seen intensive insider purchases produced excess returns of around 5% in the first month, with most of those coming in the first 10 days.

This is illustrated in the following chart taken from the book:

The Insider Trading Trading Strategy

Most of the return from insider trading comes in the first 10 days. Src: The Handbook of Equity Anomalies. Wiley.

The Insider Trading Trading System & Strategy

There are a number of online resources you can use to track insider trading such as Insider Monkey and SEC filings. You can then go long small cap stocks with strong insider purchases. You need to be quick as most of the return comes in the first few days.

Have fun.

Part 2: When Will The Markets Turn Up?

Part 2: When Will The Markets Turn Up?

As I mentioned in yesterdays Bull & Bear Blog post, there was a gap to fill below yesterdays close. Today, traders put in their best efforts to close the gap, but failed to do so as you see in the chart below.

Now that it is likely to break through and fill the gap, whats next?  The indexes like to break significant corrections into 3 phases with 2 rallies before they bottom.  So, lets take a look at one example of this that could repeat now.

The image below is from the most recent correction in 2018:

That drop lasted from October – December and bounced back in January. Usually corrections of significance take back roughly -20% from the top and are not considered bear markets.

So as we can see in the top image, we have take only 9% from the top in relative terms, 11% less than in 2018.

Nonetheless, we now live in 2020 and our run up to this correction was long and strong, so we are giving back some right now with the help of the Corona-virus.  Unlike 2018 this may not bounce back quite as quick  because the virus is spreading still.

Because our Wealth Preserver signals have been so accurate at protecting against serious Bear Markets and sideways consolidating markets lets take a look at our famous question…

“If today were the last day of the month, what would be the likely signal for the S&P500, Nasdaq, Dow, and Russell 2000?”

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