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Weighing The Week Ahead: Heeding The Message Of The Markets

Jeff Miller profile picture
Jeff Miller


  • Economic news has been good, but no one cares.  We have a big week for fresh data, but few will care about that either.
  • We'll get Super Tuesday election results, but probably little market reaction. The continuing focus will be on the spread of SARS-CoV-2 and the strong reaction in financial markets.
  • I have downgraded my market view and reduced position size to reflect increased risk.
  • I analyze the science, the market mechanics, the economics, the psychology, the earnings effects, and the sources.  Since we are not experts in all of this we must seek the best experts.
  • I share my own stock moves and offer some general thoughts about what readers might do.

We have a big economic calendar featuring employment news and the latest ISM survey. In normal times, observers would be parsing the data to adjust their economic and earnings expectations. Next week few will care. The market ignored last week’s reports and there is no reason to expect a change to “old news.” Instead, the punditry will be asking:

Should investors heed the message of the markets?

And expect plenty of variation in just what that message might be!

Last Week Recap

My last installment of WTWA, I expected attention to the wisdom of Mr. Buffett, highlighting his annual letter to investors. That prediction was accurate (barely) until markets opened Monday morning. The coronavirus spread beyond China, mentioned in last week’s “worry” list, became the most important story and lasted all week. We might remember, however, that Mr. B does not pay attention to the (hypothetical) market message.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version, an excellent combination of key variables.

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Let’s take a look at where this stands in the history of drawdowns in the current market rally.

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And where we stand in the long-term.

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The market lost 11.5% for the week, much of it during overnight activity. The trading range during market hours was 14.1% and 16.9% if measured from the prior weekly close. Many observers were surprised by the late rebound on Friday. In times of worldwide risks, traders often are cautious in front of the weekend. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market

This article was written by

Jeff Miller profile picture
Seeking Alpha mourns the passing of Jeff Miller, on May 7, 2021. During his time at Seeking Alpha, Jeff attracted a following of close to 40,000 readers and published more than 1,500 articles. He was a portfolio manager at Incline Investment Advisors, LLC. Jeff also was President of NewArc Investments, Inc., and served as a university professor.....................................................................................................................................Jeff is Portfolio Manager for Incline Investment Advisors, LLC.,manager of both individual and institutional investments. A registered investment advisor, he was formerly President of NewArc Investments, Inc. Jeff is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. Jeff began in the financial business as Research Director for a trading firm at the Chicago Board Options Exchange. He investigated anomalies in the standard option pricing models, taught classes for beginning options traders, and developed new forecasting techniques. In 1991 he established a general research consultancy, working with professional traders at all of the Chicago financial exchanges. In 1998 he started NewArc Investments, Inc. Jeff has a commitment to the specific needs of individual investors. It is not a one-size-fits all approach, but one that emphasizes the unique circumstances of each client. Jeff also serves on the board of a small technology company. He occasionally serves as an expert witness in legal cases involving financial markets and hedging.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (161)

I am so glad I didn't fall for the extreme hype from the DNC media complex. Otherwise I would have been short today, like 99% of those with TDS.
@Mike Stone

Good to know. Daily market fluctuations determine who is right in the political ideology battle. Very constructive advice. Thanks for the tip. Will invest accordingly.
I appreciate your interesting thoughts and clear writing. Thanks for educating me every week.

For whatever it’s worth, here’s my way of dealing with the market:

I keep a watchlist of companies with wide moats, stellar management and sterling balance sheets (APPL, BRK.b, COST, MA, V). When one of these stocks declines 10-14% from its all-time high, I buy 1 “unit” of that stock (equal to 5% of my annual investment allocation). When it declines 15-19%, I buy an additional unit, and so on, until I purchase either a max of 5 units of that stock per year, or deplete my 20 units. This mechanical process allows me to follow Buffett’s strategy of being “greedy when others are fearful” and vice versa.

Uninvested cash rolls over to the next year. My holding period is “forever” unless the investment rationale changes.

Your strategy is interesting, but a bit puzzling to me.

You seem to have three sets of rules:

One tells you which companies have wide moats, stellar managements, and sterling balance sheets.

A second set tells you how much money you should invest in stocks each year, and

A third tells you when, and how much, should go into each qualifying stock each year, so that you only buy low, or lower.

I submit that your first two sets of rules are the most important, and you say nothing about them.
James A. Kostohryz profile picture
Hey @Jeff Miller , in case you are interested, here is my take on the current situation. I have a strong counter-consensus view. Cheers! seekingalpha.com/...
Diesel profile picture
Looks like fear and panic will continue to drive markets for at least another week.
I would have preferred you chose the linear graph to reflect the rise in virus cases.
The logarithmic scale suggests too optimistic as case.
likeparty profile picture
Just go to the store and buy some extra food (canned, frozen, long shelf life) that you'd buy and eat anyway. Don't be part of the herd (should one gather), be ahead of it. We can all afford it...plus you'll eat it anyway!
Buyandhold 2012 profile picture
Should investors heed the message of the market?


No need to fall asleep at the wheel.

Altria, Exxon Mobil and Schlumberger all fell by about 20% in February.

Time to think about buying them.
The best predictor of what is likely to happen is (in my opinion) the stock market. Its prediction, obviously, is not good. So, also, the prognostication of one of my favorite economists, Ed Hyman. He thinks there will be zero earnings growth for the next two quarters.

None of this gloom is likely to affect my investing habits; cheaper is generally better for me. But I would like to see what these projections (if true) will do to my dividend income stream. That's where I live.
Haddington2 profile picture
Here is a article from the Jerusalem Post that an Israeli firm has been working with this virus for years and will have a vaccine in 90 days. We have seen this before with the Zika virus where a British firm was working with the mosquito that transmitted it and developed a process to release sterile mosquitoes that will greatly reduce the population or wipe it out in an urban area.
In the end this is going to be just a bad flu season. Next year the vaccine will take care of the problem. Buy the dip while you can. They are trying to scare you out of your money. You lose money only when you sell. Best to all.

Dear Jeff
Thank You for your effort to help people invest the way best for them in this situation - which may me very difficult.
A few comments on the virus. As mentioned, a few weeks ago in your blog, I think the most important thing now (if you take a global view) is whether the disease can be contained. Vaccines and treatment of the disease does not matter, as it will have very limited impact in the foreseeable future. I my view the possibility for containment depends on two things. 1. The nature of the virus. 2. The different governments response to the disease.
I will focus on 1 – and only speak of data as I evaluate them.
For a containment speaks:
First of all, I find that the spread to other countries, were to be expected and I am not convinced that the number of new areas affected actually increases. If You count Hubei as the centre, and count new number of areas affected in terms of cities/areas inside every country including China, then the number would probably be decreasing (situation report 41 WHO).
To me it seems like the virus behaves like many other respiratory virus when you look at the population. It rapidly affects any susceptible member of the society, and then moves on (This is why WHO always focus on new cases in one column). Like fires on the savanna taken the dry grass sparing the fresh trees.
The median incubation times and times to recovery is short. (www.worldometers.info/... )(You can always find outlayers)
It is not airborne – it is droplet borne. Lowering the risk of spread.
It seems to be more infectious when infected people are close together (Diamond Princess) – and therefore, hopefully les infectious when the density of infected people are lower (some infectious agent acts this way).
There are no human carriers or non-human reservoir of importance.
Spring is coming – most respiratory virus are most contagious in fall and winter.
Against containment speaks.
First of all the very high number of areas affected.
There is undoubtably a high number of persons infected with the virus with very few symptoms.
What to focus on:
Number of new areas.
What happens in every single area affected. Does it spread or does it die out. For now the best places to follow are areas in China, where the disease has been for a while.
Didn't you say a week or two back that almost everything looked fine and you expected the market to keep trudging forward?
AvgWeirdo profile picture
@New Adams

Mostly @Jeff Miller stresses to stay the course and stick with your long term plan in his WTWA articles which are geared towards long term investors, not short term traders.
Superman1507 profile picture
Global cases by John Hopkins CSSE: gisanddata.maps.arcgis.com/...
UncleEddie profile picture
@Jeff Miller

I appreciate the fact that you can discuss risk reduction without resorting to labels like "fear" or "panic," unlike certain other SA contributors. Like you, I practice selective risk reduction and am down 9% as compared to the S&P 14%. I keep reminding myself that it is better to lose tens of thousands of dollars in lost gains or getting whipsawed than it is to lose many hundreds of thousands of dollars in a really bad drawdown.

Dr. Fauci is extraordinarily competent and an apolitical straight shooter. All the media has to do is report what he says, and Pence needs to keep his nose out of it.

As a retired physician, here are what I consider important condensed points. Covid-19 is a new virus cross-over to the human population which is uniquely suited to cause pandemic. It is highly contagious both in the air and on fomites (things you touch). Unlike Ebola with its rapid clinical transparency and high death rate, it causes a wide spectrum of illness from sub-clinical and essentially undetectable to progressive respiratory failure with an only modest mortality rate. In other words, it leaves a large number of people alive to further spread the disease. Since it is a totally new human pathogen, mankind has virtually no herd immunity to slow its spread. And, as has been frequently stated, an effective vaccine will be a year or more away. The only certain prediction is that this disease will spread--everywhere. It will not just magically disappear and is very likely to become endemic (ie, permanent).

What the cumulative effect of this new disease will be on the world and US economies--and its duration--is anybody's guess at this time. Many consider such comments to be hype and fear mongering. Unfortunately, those people are just uninformed or willfully ignorant.
To be more specific on your last, sage point: it won't just go away because a self-anointed stable genius says so.
Thank you, doctor!
@UncleEddie - "Many consider such comments to be hype and fear mongering. Unfortunately, those people are just uninformed or willfully ignorant.' Or have a political agenda that supports the right-wing machine,
Thank You Jeff.

You are an AMAZING man with a Big Heart to help others !!!

God Bless !
We need medical opinions that are solid right now. Listen to them. The rest is noise. Not a time for investment advice, or for that matter, investing. Too much is unknown for several months to come. Not a time to invest unless you're greedy or insane.
AvgWeirdo profile picture

You may be right, I may be crazy
But it just may be a lunatic you're looking for
Turn out the light
Don't try to save me
You may be wrong for all I know
But you may be right
I lost track of how many times I read something valuable and helpful in this article. Thank you!
hawkeyec profile picture
@Jeff Miller

I agree with @rdsm, one of your very best. You always capture the realities of the math that put the lie to what the shallowest and loudest of the pundits are spewing. I was especially reminded of some important details related to indicators when you pointed out the time lags in data collection. Attitude data collected two weeks before an event is hard to blame on the event. As I was reading your description of events and reactions I couldn't help remembering Howard, Sibyl the Soothsayer and the rest of the gang in one of my favorite black comedies, "Broadcast News." They were all about, "let's figure out what the public wants to buy and sell it to them."

I have to admit that by Friday I was just twitching at all the opportunities this event has created but I place the odds of more panic selling at about the same level as a turnaround so not time. My fixed income portfolio was up for the week so that seems to be providing all the hedge I need for now, at least. I must admit, these kinds of events are invigorating. My broker agrees with you, sit tight and build your shopping list. Definitely good advice.
unclecrakr profile picture
To quote one of my favorite pundits- March 1953: Jonas Salk cures Polio with an interest rate cut and carefully crafted messaging
Illinois Bob profile picture
Thanks for the insights you provided...

I've trimmed some positions, and have been out of chip makers...
01 Mar. 2020
For those of you that are looking for a resumption of previous economic activities in areas struck hard by the virus, JAMA on Friday released a study of 4 doctors that were infected by the virus and ultimately "recovered" but were later discovered to be able to still transmit the virus...

....Four patients with COVID-19 who met criteria for hospital discharge or discontinuation of quarantine in China (absence of clinical symptoms and radiological abnormalities and 2 negative RT-PCR test results) had positive RT-PCR test results 5 to 13 days later. These findings suggest that at least a proportion of recovered patients still may be virus carriers. Although no family members were infected, all reported patients were medical professionals and took special care during home quarantine. Current criteria for hospital discharge or discontinuation of quarantine and continued patient quarantine management may need to be reevaluated....

That means that the decision to re-open an area will be much more dangerous--the people who had it can be still infectious. China can obviously lock down an area indefinitely, but what about the "catch-and-release" of ill-and-recovered dispersed populations? Hmm, Diamond Princess also had a recorded case already of this happening. Are we, as a country, ready for this?

Very hard to resolve this issue without "herd immunity" from an effective vaccine. The time to that point, if the still infectious-recovered is confirmed definitely, will result in a slower and slower economy as more bits and pieces (and people)are sidelined, along with very high social discontent on the basis of the "permanently quarantined".

So, not sure that the end of crisis is in sight and there are more surprises in store.
Those still-contaminated doctors are reminiscent of the term Typhoid Mary, back in the day, when asymptomatic people were able to unknowingly infect others. BS and panic will never get our nation through this challenge; only rational thinking, proven preventive measures, and science will do the job – and even then we could face economic disruption and fatalities.
Bremyer profile picture
Wonderful, helpful, careful analysis and advice. Thank you.
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