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Market Update

Market Update

March 10, 2020

No Non Sense News

Today is Tuesday, March 9 and it is 11 AM.

I wanted to put out a quick update given the increased market volatility of late.

Volatility has spiked and fear of the corona virus is carrying the market lower. Last week I mentioned the S&P 500 had retraced 50% of the rally from December 2018 to February 2020. Yesterday it bottomed at a 61% retracement? Clearly, institutional sellers are in control at the moment. The biggest beneficiaries of this volatility are the traders. This morning, the market appears to be bouncing +700 Dow points.

So the question now is what is the level at which institutional buyers stop selling and begin buying? What is the percentage drop from peak that is needed before institutions feel comfortable that it is safe to start buying again?

The Dow is down roughly 20% from peak value. Clearly at this point institutions are trying to gauge what will be the economic consequences of corona virus and what should be the resultant decrease in the market to accommodate the negative economic effects of Corona virus as well as the deflationary effects of the sharp decline in oil.

No one can say with certainty whether we are at the bottom. However, there are some technical signs that may signal that we are close.

Yesterday’s low on the Dow represented a 76% retracement of the December 2018 to Feb 2020 rally. This is a Fibonacci retracement level that is very important to the institutional trading community. The next level would be a 100 percent retracement which would take us back to the December 2018 low where the rally started. Either way, my guess is that the bulk of the decline may be over and at some point, the fear pendulum will begin to swing back as the institutional buying starts to pick up.

Many pundits have made suggestions on ways to calm the fears. One popular suggestion is Fiscal stimulus of some sort.  Another tool at the Fed’s disposal is the outright purchase of equity products. We shall see which prescription proves to be the correct antidote.

As always, if you have any questions or concerns please call us at 407-248-9647.

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