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We Are Bottoming: Forget Oil, Your Shopping List Should Be About 'Bits And Boxes'

Mar. 09, 2020 11:57 AM ETAMZN, CMCSA, DIS, ETSY, META, FUN, NFLX, PINS, ROKU, SIX, SNAP, TWTR194 Comments


  • I'm seeing peak pandemic, uncertainty, fear, talk of bankruptcy, and oil crashing, which says bottom to me.
  • The market has spent the last few weeks discounting the worst assumptions. The fall today and maybe the next day or two is a swing too wide toward recession.
  • There will be no recession. We have seen this movie before, just a year ago, and it was all talk ginned up by the media and political operatives.
  • It's time to go back to watching the VIX. It's at an unsustainable level going all the way back to the financial crises. This is not the financial crises.
  • If you are contemplating wading back into the market, think of names that are not dependent on physical contact - bits and boxes to your home.

When pessimism reigns, then the market has finally discounted the worst

I'm seeing peak pandemic, uncertainty, fear, bankruptcy, and oil crashing, which says bottom to me.

The Indexes look bad, but let's focus on oil first, and that means for stocks overall

The futures were limit down all night, and this morning the indexes went down 7% at the open and trading was halted. That says there's a lot of fear out there. Once the halt was over the indexes seem to have bounced for now. The price of oil is crashing even harder than stocks, and frightening everyone even more. The cause of both crashes are being conflated with the pandemic directly, that's a natural mistake, and it will eventually be corrected by traders. What do I mean? The fact is there's a general oversupply of the commodity. The trigger was a second order derivative of a lack of energy demand from China, because of the lockdown in Central China. This will soon blow over and China’s demand will come back.

The truth is, this was a long time coming and likely to happen anyway. The US shale revolution has been muscling OPEC around and taking share from the cartel. So the curtailment of supply by OPEC and Russia to maintain the price was unsustainable anyway. Even with Libya and Venezuela not exporting, the US has been shipping 4 million barrels a day, and US production was still peaking at 13 million barrels a day. Russia was happy to go along as long as the House of Saud would cut its production.

This time the Saudis were pressing on meaningful cuts from Russia and Putin would have none of it. Now, these two oil giants are locked in a production-fueled price war. They are being described at quarreling with each other but

This article was written by

David H. Lerner profile picture

David H. Lerner is an analyst with a decade of experience utilizing his professional background in software consulting and technology to identify market trends and provide long and short trade ideas. David employs a combination of technical analysis and market psychology to capitalize on narratives for outsized returns. He also utilizes “Cash Management Discipline,” a simple trading style to hedge against the volatility of today’s market climate.

He leads the investing group Learn more .

Analyst’s Disclosure: I am/we are long ROKU. 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.

I have positions in ROKU and AMZN in CALL spreads

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 (194)

It is hard to predict when the bottom will happen. It could be NASDAQ at 1200 or 8000. Since the trend is downwards, buy puts and if you wish to buy, say BA at $100, then sell a put option.
David, we think we are going South for weeks, months, years if this virus does any more damage. The SPY drubbing is a slow and steady process and there is more selling to come. SPY @ 250 means, we are moving further South than we know. jm
Futures markets are disrupted with Treasury bid-ask at unprecedented level. This is not the garden variety buy the dip situation. Structural changes are happening driven by credit crunch from oil shock. Both supply and demand shocks. Don’t be so sanguine, use the time to do your homework and be patient as to when you get in. If you want to be extra safe, fade the rallies and reposition. Live to fight another day, than go down fighting. No need to be a hero.
@stickywicket Best post of the day!
Hearing that even after Fed stimulus, credit markets are still not functioning properly. Time to study failures in 2009.
linklinklink profile picture

1929, not 2008. 2008 was only the North American banks, now we're on an international scale.
lol this certainly didn't age well.
It's good to see that this author finally took a break and stopped writing. I think he realizes now we're not bottoming, the Dow is now in a bear market, and it will probably get a lot worse before it gets better. In this last article he said to start buying AMZN, and maybe ETSY. People are raising cash at any price, so even if there's a reason to buy a stock, the outcome will be disappointing. The most important thing now is for everyone to be safe.
linklinklink profile picture

Now if only @Jim_Purzickis would admit he made some huge purchase mistakes the past 4 weeks and lost piles of money on most of them we'd be all set.
T3SLA profile picture
Morningstar says the selloff is a gross overreaction to a manageable flu...

linklinklink profile picture

The Flu has a mortality rate of 0.02%
This Corona Virus has a mortality rate of 3.4%.
Your sample is way too small and underdeveloped. We have no idea how many people have already gotten the virus and dismissed it as a simple cold and cough, but anecdotally, we've heard from several confirmed cases where the symptoms were so minor as to cause no problems. In short, the mortality rate can't be calculated accurately on the data we have now.
T3SLA profile picture
Yeah...first of all, we don't know what the mortality rate of the Corona Virus is. Most people that get it think they just have the flu. They go home and take Tylenol and get over it in a week. The only numbers we have are from China and Iran, who are not known for putting out the truth. What are they known for? Trying to destroy America. So it makes sense that both countries would inflate their mortality numbers by including regular flu deaths, death from old age and spousal abuse, just so they could help to kill the Trump economy and keep him from winning reelection.

The mortality rate is much lower than what is currently being reported. Also, the rate doesn't matter. What matters is the ease of transmission and the total number of deaths. If only one person got it and they died, that would be a 100% mortality rate, but clearly not something to be worried about. The seasonal flu kills 600,000 people worldwide every year. This corona virus will only kill a small fraction of that, just like SARS and Bird Flu did. It will be forgotten by the end of the year, and meanwhile all your friends will forever remind you what a hysterical baby you were, walking around with your rubber gloves and surgical mask, warning everyone about the end of the world.
Jim_Purzickis profile picture
Gains evaporated so we are not at the bottom. Probably a re-test of December 24, 2018. Party
Jim_Purzickis profile picture
Well, now Russia is saying they would work with OPEC. The bottom could be in, but cautious 20% cash.
T3SLA profile picture
Yawn..... I'm going back to sleep with my newly purchased shares of banks at half price paying dividends of over 7%.... I can't believe the stupidity of "investors" selling shares of too-big-to-fail banks and other solid companies at these low levels. I grabbed a bunch of WFC, JPM and a few others at low single digit P/E's.
linklinklink profile picture

You should read up on 1929.
swaps profile picture
Twitter is a dog of a social media stock, internal social engineering killed it and Singer will exacerbate that. Travel and leisure....depends on how media flogs hysteria when Corona deaths get above 100 in the U.S. (Compared to media ignoring 85,000 flu deaths in this country two winters ago). Home leisure indeed a safer haven for now.
T3SLA profile picture
Wow, I picked up JPM, BAC & WFC so cheap yesterday. never thought I would see any of these levels again.
BAC would be cheap at $7.
I thought the same thing in 2010, lol. Stay away
T3SLA profile picture
Bank stocks returned a thousand percent over the last ten years, plus dividends. I'm sticking with the too big to fail ones and maybe looking at V, MC & AXP if they drop the same.
Rainbird profile picture
Good that I followed David’s advice not to short in this situation. I had shorted the previous day 200 TSLA. I was already in bed and could not sleep, thinking about where the markets are heading to. Close before midnight, here in Spain, I remembered David’s advice not to short in this situation and thought it might be better to buy the 200 Tesla back. So I got up, went to the trading station, bought them back in after-hours-trading, bought instead MSFT and AYX and had a good sleep afterwards. This morning I found out that this not only saved me $5000 les profit from the Tesla shorting, but gave me an extra profit of the same amount by buying MSFT and AYX.
@Rainbird Tsla pre-market is now $467, MSFT $141 and AYX $90
One of the characteristics of bear market is that it has several vicious spike up. Unlike a bull market where there are hardly any spike downs. As a trader my advise to investors would be to exit long positions at all these spike ups. Over the next few weeks you will find plenty of commentary like "vix not making new highs" , "bond yields have increased", " buffet is buying", " fiscal/monetary stimulus coming", " China recovering" etc. And when you see market responding with spike ups then get out. Look, I am not not in the business to give you tips to become rich. just save capital to invest another day . So why not close all positions and not invest ? Ideally yes, but then we won't follow because of the innate desire to beat the crowd. The feedback/loopback from the market fall can precipitate a meltdown. Let's say I am wrong, and today was the bottom. Sure you will miss out . But markets won't reach the 52 week high back in 2-3 weeks. So you can again get back at some point following the spike up days.There is a lot of leverage in the market - especially with ETFs. p.s. - None of the above applies if you are a trader
Solid points. Hoping you are correct as I agree.
Thanks man. Today was a good day to exit. All gap up gains dissapearing . But there will be days in which gains sustain for the entire day - but does not mean anything. Anyways, there will be lot more opportunities to exit.
Well the bottom is 0. ofcou
I am so glad I see your smiling face and read this bullish article. We 20% down and there's no fear. Delicious, down we go.
I'm 22 percent down and scared as hell.
Sirmione 88 profile picture
Spot on! As always

And the cherry was the announcement today.......well done, can’t wait for you next article
cwfuchs profile picture
Sorry David, but as most of the time, today you are wrong again...
at least in my opinion you should be much more careful with your
unbiased presumptions.
Not buying a dam thing. Your a fool if you think there is a bottom. There is no bottom!
I agree. If the market is using the virus as a sell off excuse, to correct a long time pump of the market, then the narrative is still on course. This market may drop another 5 or 10%, or it may not. That's my frame of mind as far as executing any buys right now.
This author still does not see it is not about the virus itself, but fighting the spread of the virus. It means a sudden stop in economic activities around the globe. Italy has just ordered a lockdown. How will Italian GDP evolve if the whole country is in quarantine?

This author made you buy the very first 3% correction from ATH levels. Although he still does not understand anything regarding this situation, thus spamming buy the bottom right now ideas in a row.
I think the author oversimplifies the situation. The crashing oil price will have some effects as a combined 11 trillion of debt will come due early 2021 and with some shale companies going out of business the market is pricing in contagious risk. Up to last Friday, the situation was about slowdown due to COV-19, but now it's all about bonds. In addition, when large funds need to liquidate, they liquidate and prices of all stocks go down, it doesn't matter what sector. Once the market found a bottom, there will be great opportunities. However it is concerning that the market closed at session lows today and it does seem odd that it closed right around where it opened.
You're right. I was shocked to see how many of the oil patch stocks, previously good stocks, were trading for under a dollar. OxyPete at 12.51. Lots of bankruptcies unless Russia or the Saudis change their posture.
Orangejulius profile picture
As soon as I saw, "There will be no recession," I knew this guy wasn't taking anything seriously. I'm looking for actual positives and all I see are ostriches with their heads buried.

For the last time, the media is not to blame here. Covid-19 is very real and coming to a town near you. (If it hasn't already) The impact will be real and hard to quantify until after the fact. A recession is now being priced in, and market participants will continue to leave when they don't see a light at the end of the tunnel. I suspect there will be a time to buy, but that time is definitely not now. I firmly believe we'll see S&P 2600 soon, with a bottom in the 2200-2400 range. I hope.
Higher 4 Longer profile picture
I hope you're right about 2200. I still got too much dry powder left to deploy. Long FTEC
SuperPac profile picture
This article is full of tropes and an un-serious attempt at investment analysis.
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