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The Coronavirus Is Not An Existential Threat - Buy The Pullbacks On SPY And Sell The Rallies On SPXS

Mar. 09, 2020 6:40 PM ETSPXS, SPY19 Comments
Poonam A. Arora profile picture
Poonam A. Arora


  • The COVID-19 outbreak originated in China with 85% of the cases limited to that geography.
  • The coronavirus is not indigenous to any other country in the world. All cases of the infection in regions other than China are imported.
  • New cases of COVID-19 in China are declining rapidly.
  • The condition will likely be contained across the globe over the next couple of months.
  • Buy the pullbacks on SPY and sell the rallies on SPXS.

Recent Statistics On The Spread Of The Coronavirus COVID-19 Demonstrate That The Disease Is Moving Towards Containment In China

John Hopkins Clovis-19 Dash Board

Source: John Hopkins University Dashboard on COVID-19; Seamist Capital Presentation, March 2020

The epicenter of the COVID-19 coronavirus outbreak is Wuhan. Wuhan is a city of roughly 11 million people situated in the central province of Hubei in China. As per statistics from March 6, China accounted for roughly 85% of the COVID-19 cases, with a majority of the cases emerging around the epicenter of Wuhan. The disease is not indigenous to any additional regions of the world. However, COVID-19 is highly contagious and spreads easily from human to human. Given the magnitude of air travel from China, the infection has been imported to additional countries first from China, and then from country to country.

A Majority Of The Over 100,000 Cases Of The Coronavirus Infection Have Emerged Around The Epicenter Of Wuhan In China

Corona Virus Spread

Source: The Center for Health Protection of the Department of Health of Hong Kong; Centers for Disease Control and Prevention; Seamist Capital Presentation, March 2020

However, it appears that the infection is on a downtrend in China. The number of new cases is declining sharply, and the spread of the disease outside of Hubei is being contained. According to a March 6 note by Reuters, China had 99 new cases of the coronavirus recorded on the day, with 25 of these diagnosed outside Hubei, 24 of which are reported as imported from other countries. As per reports by the World Health Organization (WHO), over the recent weeks, the number of new cases being diagnosed in China is far less than those emerging across the world.

As per remarks attributed to a top official associated with a body created to battle the coronavirus in China, there are likely

This article was written by

Poonam A. Arora profile picture
Currently, I work as an investment analyst at Seamist Capital. Previously, since 2006, I was on the sell-side, in a research analyst role. The banks I have worked for include the Stanford Group, Madison Williams, Roth Capital, and WR Hambrecht. I have passed the FINRA exams for Series 7, 63, 86, and 87. My educational background includes a Bachelors Degree in Finance and Investments and a Masters Degree in Finance. Currently, I rank among top 5% of bloggers and among top 10% of analysts on TipRanks.

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 (other than from Seeking Alpha). 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 (19)

I am wondering how you stop a virus that has a 14 day incubation period and has a small percentage of infected agents with no symptoms? Since testing is taking two to three days to get results how can testing ever catch up with the past contacts of a person being tested? Millions of test kits were supposed to go out this week, but on the CDC website the total number of tests on 3-10 for the CDC and all reporting health departments was eight, (a single digit.)

China has done a great job of stopping new cases by a massive lock down. That is good for them. That will never happen here. Inadequate testing and only a partial lock down can only mean rapid growth of active cases, until around the first week of May. At that time the hospitals will be totally overwhelmed. Economic activity will come to a halt.

One last point, now that China has squashed new cases, how do they get back to normal again without letting the virus back in? Won't they have to maintain the current state until all of the other countries get it under control? We are nowhere near the bottom.
Wow! With so many articles and comments similar to this we are WAY, WAY far from the bottom. After this advice I do hope the author goes ahead and puts both sides of his trade on (particularly short the SPXS). He even laughably states "I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours."
What a joker.
The human genome is an 80% match to the cattle genome, which is why we are practically identical to cows.

Come on, this is aggressively dumb.
thank you, this jumped off the page to me. we share 99.6% of our DNA with horses, 80% is NOT CLOSE EVEN IN THE SLIGHTEST! what the heck is the author talking about here?

SARS pandemic? SARS never got close to a pandemic, or 110,000 cases (and counting fast). to date, there have been 8,096 cases of SARS world-wide. Italy has more than that alone, and a month ago didn't have any.

this whole article is based on bad science and false comparisons.
This article and other bullish ones presume the virus is the cause of the sell off and that the reaction is an over reaction. COVID 19 was merely the pin that pricked the bubble. How can you assume that stocks should go up 30% (in 2019) on declining fundamentals but shouldn’t quickly drop more than that when fundamentals get even worse?
Stop! We do not allow logic around here! Buy the dip is the only way.....(while institutions unload their positions. )
The overreaction is the real problem, not the virus.

The median death from coronavirus in Italy is 81, which is younger than the male life expectancy there.

At 80 in the US you have a 6% chance of dying from all causes within 12 months.

The death rate outside of Wuhan is about 0.6%, and it's all people that were sick or very old to begin with. (And by "very old" I mean, "near the natural life expectancy of their country and condition."

This just wouldn't be that much different than a bad flu year if not for the absurd overreactions by the public and governments.
You do realize their are economic implications beyond a death rate, right? Also, even at 0.6% that makes it 60 times more fatal than the seasonal flu.
The death rate is not 0.6% outside of China. We really don’t know what it is but it’s certainly well above any bad flu. The reality is also that it varies by nation and demographics.

It’s also pretty damn cold to simply discount older people’s much increased mortality rate vs general population just because they may already be high risk. They have every right to be protected if we can contain this.
It’s really not the death rate that is concerning. It is the speed of developing significant symptoms that require medical attention and hospitalization. The worry is that a sudden influx of cases would be extremely taxing on hospitals, flooding them with more patients than possible to handle given resources. This will only exacerbate the issue where people who need treatment cannot get it. That is what is happening in Italy at the moment which is why they are taking such drastic measures to curb transmission.
Oh wow....did this author just use the terms "virus" and "indigenous" in the same sentence? No wonder most of the country is so ignorant about what we are facing. Viruses do not discriminate what nation you are from...

The R_0 of this is above 2 and believed to be as high as 4.
No, unfortunately, this thing is going to continue to spread until a vaccine is developed. Period.
Jack Harkness profile picture
It will end when most everyone is exposed or a vaccine is available to anyone left.
Agreed. Natural herd immunity or vaccine. With the frightening speed at which this thing moves, I'd say the former.
How does natural herd immunity work out for the flu and common cold? Best bet is delaying infections and maybe a vaccination project if one is available in the Fall. Big maybe given how long it takes to test vaccines.
I am based in Singapore, and our experience with the virus is about a month longer than that of the US. We had our panic buying about a month back. So, Singapore could be a harbinger for the US.
Singapore had its infection under control for almost a month (~100 cases), and I would have agreed with your assessment that this is a temporary pullback and buy the SPY. But over the weekend, the cases suddenly exploded again, and a new cluster of infection is seen, and now we are again adding 10 new cases a day (-10%). What this is showing is that even with the most aggressive surveillance, you will have new clusters popping up.
Now, if you extrapolate to the US, the first wave of panic will pass, but if Singapore pattern is any guide, then expect the infections to again appear. I just don’t think that your optimism is justified as things stand, and so I would hold off on buying the SPY
I think the real issue is less the mortality, but the social distancing and quarantine, as that is the only way we know to stop the spread.

The real fear is that if this continues for long (say a quarter), then we are looking at supply disruptions and then demand destruction (because people are at home; probably lose jobs; and lower economic activity). And this could lead to a severe recession.

Right now, it is too early to see how long this continues and to recommend going long SPY is premature, to say the least.
09 Mar. 2020
Dear Lord what a mess.
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