Investors bought the dip – and lost.
Just yesterday, the Dow Jones exploded more than 400 points at one point. Investors cheered. Billionaires began to invest. All seemed well. The good times were back. That is, until the CDC confirmed the first possible “community spread” of the virus in the U.S. in California.
“At this time, the patient’s exposure is unknown,” the CDC said in a statement. “It’s possible this could be an instance of community spread of COVID-19, which would be the first time this has happened in the United States.”
The news sent markets down in an instant, leaving dip-buyers dumbfounded.
Many Analysts Warned Investors Not to Buy the Dip
For example, we even said, “Investors should be wary of further virus pullbacks. Should the virus start to spread in the U.S., we could see further panic-induced pullbacks. While the dip may appear attractive today, it may not tomorrow.”
Analysts agreed.
“We increasingly find it hard to believe that USA cases are as low as reported, and believe that given the flow of Chinese, Korean and Iranian nationals into North America, a large USA community-based outbreak is increasingly likely,” say analysts at Jefferies.”
Economist Mohamed El-Erian even noted, “I stress, this is different. Just because buying market dips has worked in the past does not mean it’s going to work this time. I would continue to resist, as hard as it is, to simply buy the dip.”
Wait for the Correct Buy Signals, Says BNY Mellon
“We do think by the summer, this will be a memory and that growth will recover,” says BNY Mellon chief strategist, Alicia Levine, as quoted by MarketWatch.
Reportedly, the analyst is “watching out for signs of a dramatic daily drop in China infections, and pickups in usage of coal, electricity and road and rail in that country, alongside property sales. As well she wants to see signs that the mortality rate is lower, which will mean fewer quarantines and containment shutting down activity.”
Others aren’t waiting for that.
Others are trading the immense volatility with related ETFs and ETNs including:
ProShares Ultra VIX Short-Term Futures ETF (UVXY)
The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.
VelocityShares Daily 2x VIX Short-Term ETN (TVIX)
This ETF tracks an index of futures contracts on the S&P 500 VIX Short-Term Futures Index.
iPath S&P 500 VIX Short-Term Futures (VXX)
The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return. As volatility shoots higher, so does the VXX.
