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SPY Crashes And Is Looking For A Bottom

Mar. 02, 2020 11:25 AM ETSPDR® S&P 500 ETF Trust (SPY)37 Comments


  • COVID-19 is causing global economic disruptions.
  • It is 20 times more lethal than the common flu.
  • That could mean one million deaths.
  • Japan has already closed schools for a month.
  • China took draconian measures to limit the spread.
  • Looking for a helping hand in the market? Members of Daily Index Beaters get exclusive ideas and guidance to navigate any climate. Get started today »

The Index (NYSEARCA:SPY) has just crashed 11.16% in a week, on enormous volume, indicating the economic fear that the novel coronavirus, COVID-19, will disrupt our consumer driven economy. More important is the possible, tragic loss of life, estimated to be twenty times that of the normal flu, or ~one million deaths among the very vulnerable. Companies like 3M Co. (MMM) are ramping up to war-like production measures to manufacture masks and respirators. This is a public health war on a deadly virus that will kill at a rate of ~2% or 20 times the normal flu rate.

Here is the weekly chart for the SPY showing the enormous volume and the 11.16% drop in price. You can see price slicing through the horizontal lines of price support like a knife cutting through butter. In a market crash, there are no support levels on the way down, until the market decides to stop dropping. As you can see that happened at $286, the low for the week, and the SPY bounced up to close at $296. It is trying to move back to that key support level at $300 that it violated. However, I expect it will keep testing $286 to see if it continues to hold. After all, this is only the first week of this market correction. As the bad news on the Coronavirus continues to come in, like waves constantly breaking on the beach, I expect to see erosion of that $286 line in the sand.

Spy weekly

You can see on the Stochastic Signal, Full STO, at the bottom of the chart, has bearishly broken below the 80 line. Look at the previous times this has happened. It will not reverse in the near term, but instead it warns us of lower price levels to come. Retail investors are notorious for selling at the very bottom. Obviously, the

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This article was written by

Tom Lloyd profile picture

Tom Lloyd holds an MBA in Accounting from St. John's University, where he also taught courses on stock market mechanics. Prior to his time as an educator, Tom served as a Wall Street professional, marketing fundamental, quant, and technical research to professional portfolio managers. He is also the author of the book "Successful Stock Signals for Traders and Portfolio Managers.”

Tom leads the investing group Daily Index Beaters where he strives to help his group beat the indexes by sharing a range of reports focused on what smart money and insiders are trading. His Stocks In Demand signal combines both fundamental and technical analysis to help inform both short-term trade and long-term investment ideas. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (37)

When using a single media source to determine true statistics one may get monkey hammered due to their bias.
Here is something to consider, roughly 150,000 people die in China EVERY DAY! Adding a few hundred would change death statistics very little.
Fear SELLS and the media has its pipeline full of fear.
And lots of morons are buying.
Tom Lloyd profile picture
We are using two sources- 1) CDC 2)CNN and 2 sources on CNN
but or sell spy ?
SPAC-ey McSpacface profile picture
It's not 20x more deadly than the common flu. STAY in your lane, and do not comment on healthcare issues. Moreover, do not believe the Chinese dataset which is clearly undercounting COVID cases, which artificially inflates the death rate. Look to South Korea instead, which has far greater transparancy & a better healthcare system than China. The S.K. death rate from COVID seems to be roughly .3%, which is only about 3x the death rate of influenza.
Tom Lloyd profile picture
No you are wrong. Read my post.
Tom Lloyd profile picture
Dr. Sanjay Gupta, CNN’s medical correspondent just posted the “moderate” case for this virus
38 million need care
1 million hospitalized
200,000 to intensive care
He also interviewed an expert who said the fatality rate range was 1% to 2.5%, that is 10 times to 25 times worse than the normal flu. The normal flu kills about 50,000. Therefore 10 times is 500,000 dead. OR 25 times is 1,250,000.
He also gave the worst case scenario, but I won’t scare you with that one.
I think the comments here reflect that the market has not priced in these statistics and therefore will go lower if and when the above bad news becomes real news. Let’s hope these statistics are wrong and people take measures to avoid the coronavirus.
SPAC-ey McSpacface profile picture
Dr. Sanjay Gupta works for CNN, which is fear-mongering COVID 24/7 on its' airwaves.
zito profile picture
The New England journal of medicine published an article that stated the death rate appears to be under 1% and only slightly higher than normal flu.
Who do you believe?
Tom Lloyd profile picture
The CDC works for the government. There rate is 1.4% which means 14 times the regular flu %.
racerkeith profile picture
"It is 20 times more lethal than the common flu."

Are you using that new math? Because the last I read and calculated myself this is no worse than the standard derivation of the flu. It can be very deadly if you have a compromised immune system or existing lung issues.
This statement is the kind of stupidity that drives a mania. It is not more lethal than the flu, you should retract that statement. SA should remove that from your article.
2 much QE profile picture
Here comes the Fed with another bailout attempt to prevent a natural market recession cycle.
Tom Lloyd profile picture
$SPY just gave a gift to procrastinators to sell into strength by squeezing the shorts.
Looks like a bounce today so far. Market went up, not down, during initial COVID -19 news out of Wuhan. What changed wasn’t the virus itself. It was the fear factor. Perhaps the fear factor will again abate for awhile in the anticipation of fresh stimulus.
02 Mar. 2020
20 x more lethal than flu? How calculate when incidence number is so suspect?
Tom Lloyd profile picture
Gov. Cuomo just quoted a lower rate of 1.4% or 14 times more deadly than the regular flu. Since there is no flu shot, one doctor claims we will all probably get some form of this. Obviously there will be mild cases among the healthy. Looks like seniors are very vulnerable and those with weakened immune systems.
SPAC-ey McSpacface profile picture
The death rate will be WAY lower than 1.4%. LOOK at the South Korean data. The problem is there are tons of "cases" of this that will never be reported as COVID, but it's kind of tough to "miss" a body-bag. It will take months to figure out the real deathrate, but needless to say it's being greatly overstated (irresponsibly) by the media.
Think Long Term profile picture
Poor Robinhood traders getting none of the action. Roflmao.
Orangejulius profile picture
Why do people use that awful platform? It's like forcing yourself to use a playschool laptop when a real laptop is right next to it. I gave it a try back in 2016, and once one of my trades got stuck for over an hour, I said never again and went to TDA. I've never had an outage since.
VanWelij profile picture
Because they allow level 2 option trading and margin trading with little to no capital/experience to back it up. I would assume that plays a part in its popularity among millennials.

I am a millennial as well, I think (‘86), but I prefer Thinkorswim/TDA. Robinhood to me is a breeding ground for financial irresponsibility and a new form of gambling. Just look at all the people on Twitter complaining about how they tried to buy something but now they don’t know what price they ended up buying that security for. When you ask them what their limit order was set at, they ask what that even is.
VanWelij profile picture
Where are the sources for all these death claims? Or are we using napkin math based on our limited knowledge right now?

Are we comparing flu death rates with or without the existence of vaccines? What would the mortality rate be if vaccines are available?

What is the apples to apples mortality rate in countries with proper health care?

What portion of the current death toll can be attributed to misdiagnosis in the beginning? Poor understanding of the symptoms/illness? As we gain medical knowledge about this virus, will the death toll be affected?

Slinging around fear mongering about how deadly this thing is in sensational headlines reads like “you’re definitely going to die” to the majority of the uninformed public, who then panic and do stupid things. How many people wear face masks because they think it protects them from others?

The virus isn’t nearly as deadly as the lack of knowledge and statistical analysis. We should be able to trust the media to give non-sensational facts but I’m afraid those days are gone.
evl profile picture
03 Mar. 2020
SPAC-ey McSpacface profile picture
The media is whipping people into a panic. The true COVID-19 death rate wont be anywhere near as high as 2%.
racerkeith profile picture
The actual seems to be very close to the standard annual derivation of the flu...
Why are they creating this panic it’s like the are purposely trying to bring down society with a panic
we'r the ones doing it, we humans, with our emotions and selling mostly out of fear, in part due to having 24 hours access to news. Our vision on society and the world tends to get worse the more news we consume, my opinion.
agree 100% - the media are really enjoying this story - jumping in with both feet.
It is not 20x more deadly. 40x to 160x
evl profile picture
03 Mar. 2020
good doctor?
SPAC-ey McSpacface profile picture
Did you mean eleventy-billion times more deadly?
3110 deaths so far after 2 months = 37,000 so less than the 50,000 of normal flu. Some people seem to wishing for a 1919 pandemic. I think optiontechnicalanalysis must have miiions in place on shorts.
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