Market Crashes
The market went from overbought to crashing very quickly. It's shocking how easy of a call this was. Some sold a lot of positions on Friday and then stocks went on a 3 day losing streak starting on Tuesday. This trade was easy because the signs were all there. Retail traders were pushing up bankrupt companies and professional investors were admitting they got it wrong.
Druckenmiller only made 3% from the bottom, while day trader Davey Portnoy rode the airline stocks higher. Companies with the worst fundamentals were doing well. Nikola, which had no revenues, saw its market cap surpass Ford’s market cap. The market was on one its best runs ever, stocks were expensive, and uncertainty was high.
As you can see from the table below, the S&P 500 was 13.1% above its 50 day moving average. It only got more overbought 3 other times. In the 6 examples listed, the market rose an average of 18.8% in the next year. It's doubtful that will happen again because the market was very expensive on June 8th.
NAAIM index that we had been anxiously waiting for was a dud as positioning fell from 91.6 to 77.48. This index is no longer giving off a contrarian sell signal.
Big Crash
The stock market had a major crash on Thursday. This would be a bigger deal if we didn’t just go through the fastest crash ever. It didn’t cause as much chaos as it normally would because this has been a crazy year. Dow’s 6.9% decline was its 25th worst day ever. This was the 4th decline in 2020 to make the top 25 list. This was the 4th biggest decline of 2020. 2008 was also listed 4 times. This list is dominated by the 1930s, 2008, and 2020. The Dow fell so much because Boeing fell 16.42%.
S&P 500 fell 5.89%. The market had the majority of my expected 10% decline in one day. The market is down 7.12% in the past 3 days. It’s no longer overbought. It’s tough to be bullish even after this quick decline because stocks are expensive. Many don’t expect good returns in the next year.
As you can see from the chart below, the NYSE saw its largest flurry of selling on record. It was a steady decline throughout the day. Patience was a virtue for the bulls.
Nasdaq outperformed, but it still fell 5.27%. Some of the tech stocks cratered, but it wasn’t a bloodbath. This wasn’t the decline we was looking for. Airlines fell sharply. Some want to see the cloud stocks dramatically underperform. Slack fell 6.56% which hurt because it was already oversold. It’s down 23.96% since June 3rd.
Tesla stock only fell 5.09% even though it hit a record high on Wednesday. Shopify only fell 2.49%. CLOU cloud ETF fell 4.76%. ServiceNow, which was highlighted as being expensive, fell 6.63%. Nikola stock only fell 6.94% which is amazing because Ford and GM fell 9.99% and 7.83%. You’d expect the high beta stock to do the worst. Once again, anything tech oriented acted as a safety net.
Russell 2000 fell 7.58% because it was a bloodbath for the regional banks. KBW ETF fell 9.31% which is remarkable because the index was down huge the prior 2 days. It’s down 17.41% in 3 days as the market priced in the potential for higher default rates and a near zero Fed funds rate for the next 2 years. This is probably one of the worst times ever to be a bank other than from 2007-2010.
Only 1 S&P 500 stock was up. Kroger rose 0.4%. S&P 500 fell the most since March 16th and had its first 3 day losing streak in 3 months. I’m curious if the market continues its long streak of up Monday’s. As you’d expect, every sector was down. Consumer staples was the best sector and it still fell 3.81%.
You know it’s a bad day when the worst sector is down more than 3.5%. Even Coca Cola fell 6.33%. Worst sectors were energy, financials, and materials which fell 9.45%, 8.18%, and 7.74%. Chevron is down 13.43% in 3 days.
Houston Near A Shutdown
This isn’t a 2nd wave of COVID-19. This is a continuation of the first wave in the areas that didn’t take the proper precautionary measures. Personally, I think New York will be one of the best states in July when it reopens. It had 688 new cases on June 11th which was the 10th most.
It’s slowly falling down the leaderboard. California and Texas are in big trouble. California had 3,574 new cases and Texas had 2,023 new cases. The good news is the number of new deaths in America is still in a long term downtrend. New cases are steadier.
The chart above shows one of the hardest hit areas in the country in mid-June. As you can see, Houston had a spike in April. Then cases fell as there was a shutdown. Now Texas has reopened and cases are spiking again. If the situation isn’t completely under control before a state reopens, there will be a spike in cases after it does so. Houston is about to go under lockdown. This is why stocks fell on Thursday.
The highest-ranking country executive Hidalgo said, “We may be approaching the precipice of a disaster. It’s out of hand right now. The good news is it’s not severe out of hand.” There are 2 options. Either the city closes for a few weeks or the situation gets worse.
A shutdown should be considered good news at this point because it will mitigate the damage. Plus, if a city is in really bad shape, the virus can spread to nearby cities. Texas could be forced to shut down soon. This is still the first wave. Hopefully, the 2nd wave in the fall isn’t that bad.