The 1-Minute Market Report - March 6, 2020
Summary
- The 11-year bull market that began on March 9, 2009, had, up until then, been a dip-buyer's paradise. Not any more.
- On February 19th, the ground shifted and the rally-sellers took control of the stock market.
- This market could send the dip buyers on a painful ride just as it did in 2007-2009.
What happened last week, and what it may mean for the market in 2020.
Requiem for a Dip-Buyer
That clip from Animal House captures the level of panic we're experiencing with the ever-spreading COVID-19 virus. Up until February 19th, dip-buyers believed that all was well. The 11-year bull market that began on March 9, 2009, had, up until then, been a dip-buyer's paradise. Not any more.
On February 19th, the ground shifted and the rally-sellers took control of the stock market. There has been so much damage done to the dip-buyers, to companies that depend on travel & entertainment, and to the global economy that it could take several quarters, if not years, for things to return to normal.
Chart 1. The most recent market action
This chart (Fidelity) covers the most recent month for the S&P 500 index. A couple of things to note.
On the left side of the chart, as the market was making new highs, volume was relatively low.
The daily swings from high to low were relatively small.
After the last new high (the 5th green bar), things began to go south in a hurry. The wheels came off.
Note the increasing volume on down days, and weaker volume on up days. A lack of buying conviction.
Fridays are notably more weak than other days, indicating reluctance to hold stocks over the weekend.
There have been only 4 up days in the last 15. Normally there are 9.
Conclusion: there has been a seismic shift in the market, with rally-sellers now in control.
Chart 2. Percent of stocks above their 200-Day Moving Average
For the rest of the charts, I will use StockCharts.com. I don't think this chart needs much explanation. We're approaching the level last seen in December 2018. The market was down by 19.9% at that time. Today, it's only down by 12.2%.
Chart 3. Down Volume Detrended
I like this chart because it does a good job of separating the signal from the noise. In this case, we see the spike in down volume after deducting the long-term average volume. This market event is worse than December 2018 from this vantage point.
Chart 4. Third correction in three years
If you're a dip-buyer, you probably think corrections aren't a big deal, and normally I would agree with you. But 3 corrections in 3 years is worth noting. It goes to the instability of this market. Will the current correction morph into a proper bear market? I don't know, but it could. In fact, it's more likely than not.
Final Thoughts
The dip buyers of today have shown that they are willing to step in and buy any time the market has the slightest hiccup. They don't wait for a 10% correction anymore. Until recently it was working beautifully for them, but things have changed now. This market could send the dip buyers on a painful ride just as it did in 2007-2009.
I don't know when it will start, but I have 100% confidence that it's coming.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
This article was written by
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Comments (18)
The skies above are clear again
Let us sing a song of cheer again
Happy days are here again."
Sears: $34.50... now $0.20
Gamestop: $18.70... now $3.92
JC Penney: $18.37... now $0.60
GM: $28.20... now $28.69Which stocks did you buy in 2009?
