Starting January 24th the S+P futures closed red for 3 consecutive Fridays...fearing bad virus headlines over the weekend...but this past Valentines Friday (ahead of a 3 day weekend) the S+P futures closed green...not exactly an “all clear” signal but at least “an indication” that the market was pricing less fear.
Commodities have been hammered since the virus became front page news...but bonds, gold, the US Dollar and stocks have all rallied...which begs the question, “Are markets anticipating a global economic slowdown exacerbated by the virus...or are they looking past that and anticipating massive fiscal and monetary stimulus?”
Emotional reactions to Coronavirus headlines churned price action across markets the past 2 weeks. This week, in lieu of my usual Trading Desk Notes I’ve attached the Power Point – and my opening remarks – that I will be presenting at the World Outlook Financial Conference February 7th in Vancouver, British Columbia.
Market psychology turned decisively “risk off” this week with many global stock indices hitting YTD lows...the “looming recession” idea is back in vogue as analysts factor in the knock on effects from the coronavirus hitting an already weak global economy.
The major North American stock indices hit ATHs this week...initially shrugging off virus concerns...but when the virus headlines became increasingly scary ahead of the weekend stocks and commodities fell while bonds, bullion, the US Dollar and the Japanese Yen rallied.
The major stock indices continued their relentless rally this week...and I got myself into a frustrating trader’s dilemma. It’s funny now...and I’m sure any traders reading this will be thinking, “Yep...been there...done that,” but it sure wasn’t funny while it was happening!
Dramatic market price action on Tuesday evening Jan 7/2020 created important Pivot points across a number of key markets...especially gold. Look at it this way...gold rallied ~$125 in 9 days leading up to and including Jan 7...it rallied ~$40 in the last 1 ½ hours to hit a 6 ½ year high at $1,613 (basis Feb Comex)...and then tumbled ~$70 in just over 24 hours.
Can we “trust” price action during low-volume holiday markets? That’s a tricky question...my best answer is that low-volume holiday markets are usually less “valuable” than regular markets in terms of “validating” price action.
The most important message from the financial markets in 2019 was, “Don’t Fight The Fed.” The 180 degree turn in Federal Reserve policy...the Powell Pivot...caused markets to realized that it was, once again, “All About The Central Banks.”
The benchmark North American stock indices keep printing new ATH...while complacency reigns even as the CNN Fear & Greed index is flashing extreme greed. Volatility is ultra-low across all markets, the put/call ratio is at a 5 year low and credit spreads are tight. People are reaching for yield and have no interest in buying downside protection.