After I saw Friday's stick-save close during the final hour in the S&P 500 I remarked that Friday afternoon's buyers may have just set up the perfect scenario for a "Black Monday". The market was ready for a capitulation Friday at 3:00pm EST, but it was not to be. We might just be getting that capitulation today instead.
What is Black Monday you ask? (anyone under the age of 30 probably wouldn't know)
Black Monday was a Monday in October 1987 in which the S&P 500 fell 22% during a single trading session. There are many similarities between then and now, including the fact that markets were already extremely shaky heading into today's trading session and news deteriorated further over the weekend.
At this point the words "perfect storm" are already overused, however, they are indeed apropos. I couldn't think of a more perfect scenario to crush global markets than the one we are experiencing right now. We knew we are overvalued and frothy when this all began in February, but it had been so long since a sell-off lasted for more than two days that very few people thought that it was possible for stocks to fall at this magnitude for such an extended sell-off.
Technical analysis becomes a bit less useful (just as fundamental analysis becomes completely useless) in trading a major market panic, because when people HAVE TO SELL a line on a chart doesn't matter anymore. However, I will say that the S&P does have some support around the 2720-2730 area, below there and we might have to go all the way down to 2600 (levels not seen in 14 months).
When will it be time to step in and buy this panic? My guess is sometime in the next 24 hours we will get a tradable low, from which markets could bounce as much as 10%. However, that bounce might begin from 2600 on the S&P, or perhaps even lower than that.
A .43% yield on the 10-year Treasury Note tells us everything we need to know this morning. We are now in a deflationary economic environment with negative economic growth. You don't need to see the data, the market is telling us what we will "know" one month from now when the "data" arrives. In deflationary times one does not want to have debt fixed at higher rates, because it becomes increasingly difficult to repay. The entire world is awash in debt, and therein lies a major problem that the world is now running head first into.
I want to also mention that this current economic panic could be the perfect storm to turn US politics on its head. Eight months from now the US could be sunk into a recession/depression with all the inevitable skeletons coming out of their closets. While a virus may NOT be TRUMP's "FAULT", he will still likely suffer the consequences of the unwinding of the excesses of the first 3 years of his administration.
Ladies and Gentlemen, what I am telling you this morning is that Bernie Sanders just became much more likely to be the 46th President of The United States.
Put that in your pipe and smoke it.
Today is my Father's 90th birthday (he passed in May 2017). It is fitting that this market panic is happening on his 90th birthday because one of my fondest memories of my father was from the afternoon of October 19th, 1987 (Black Monday). I was eight years old and I often stayed after school to participate in my school's chess club. My father picked me up from school about once a month (it was usually a babysitter, my mother, or another child's parent that would take me home), so when I saw my dad after school it was always a bit extra special.
He picked me up that day and I wouldn't have known that his net worth had probably fallen by about a million dollars or more that day. In fact, he was more loving and kind than ever. He asked me about my day and my chess games, and we chatted as we walked up Broadway on the Upper West Side. Then, he said "the stock market crashed today Robert.....a lot of people lost a lot of money."
My response was "Did we lose money Dad?"
To which he said "We lost a little, but it's ok."
That's all I needed to know, Dad said it's ok. And the conversation turned back to NFL football and chess. The stock market wasn't mentioned again.
Many years later I would learn that October 19th, 1987 was actually a very bad day for my father's net worth because a company that he had founded (and could not sell shares in because they were still in escrow) dropped more than 50% and would never recover from that drop. Regardless, it was ok and our family and markets did eventually recover.
While I don't know the future. It will be ok, even if it's going to get a little harder in the short term.
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