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Tuesday, February 25, 2020

Update 2/25

Massive selling with VIX over 30 intraday.

SPX went through the 100 SMA, but still is a ways above the 200.  Volume was up again.  This could be a short term volume climax should we bounce tomorrow.  Despite all the selling there were 50 new highs.  New lows were 360, the most since Dec. 2018.  Over 90% of the volume was on the downside.  The gap fill line is the open gap from last Oct. that kicked off this big rally.  I have always expected that gap would get filled one day.  If SPX falls through the 200 SMA in the days or weeks ahead that would be a logical next target.

Today saw a super tick distribution day.  That signal on a big down day can make a short term bottom.

Notice the mid term bull pressure lines.  After the start of the virus sell off in late Jan. distribution started up.

The red count crossed over 90.  The last time it was over 90 was Dec. 2018.

After the VIX crossed above 30 the market staged a good rally.  It sold off into the last hour, but only made a marginally lower low.  That creates a bit of a dilemma.  Was the market sold out or did the VIX 30 bring out enough dip buyers to stem the decline?  We have the conditions that often make a short term bottom with the high volume and 90% of it on the downside.  There is no doubt the market is oversold short term.  SPX has a sizable open gap up above as well.  A rally back up into that gap would not be unusual.  However, an oversold market can always become more oversold.  The proverbial falling knife.

Longer term I have no idea how this plays out.  The CDC warned today we should prepare for disruptions in the U.S.

(Bloomberg) -- The U.S. Centers for Disease Control and Prevention warned Americans to prepare for a coronavirus outbreak at home that could lead to significant disruptions of daily life, though the warnings were downplayed by the White House. Congress was told that there’s shortage of masks needed for health workers if one occurs.

Right now the global numbers are still rising.  Economically this looks like the biggest uncertainty I have ever seen in my lifetime.  The virus could wimp out in another month or two, or continue to spread around the globe for months.  The economic impact is completely unknown.  Liquidity cannot fix the economy if everybody is stuck at home afraid to go out any more than absolutely necessary.  We have no idea how long a vaccine might take or even if one is possible.  They have been working on the ebola vaccine for at least 5 years, maybe longer.  The medical community may figure out how to treat this virus to minimize its effects at some point.  That would be a big help.  There seems to be more we don't know than we do know.  Are we in for a serious global recession (big market crash) or just a blip on the radar screen (short term dip to buy)?  I don't see how the market could have enough information to properly model this situation.  Everybody is guessing.   That makes taking some money off the table a logical thing to do.  I don't think we can be sure people have finished doing that yet.

I think the best advice I can give you is to stock up on supplies so you can go a few weeks without running to the store.  I am hoping the reports of this virus being a bio weapon turn out to be wrong, but it is possible.  This virus seems hard to stop.  If one were designing a bio weapon that would be a desirable trait.  It might take an act from God to stop it in that case.



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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.