Author: Dorian Holden

Oil prices are crashing.

Last checked, crude is down to nearly $20 barrel thanks to far too much supply, and not enough demand from the global community. “The global oil industry is facing its biggest demand drop in history, with traders and analysts forecasting crude consumption could fall as much as a quarter next month because of widespread lockdowns across the western world as the pandemic spreads,” reports Financial Times.

Should oil fall even more, it could easily drive American producers out of business, and destroy the U.S. shale boom.  That’s what Sen. Ted Cruz and other GOP senators told Princess Reema bint Bandar bin Sultan bin Abdulaziz Al Saudl, as noted by CNBC.

“We said. ‘Look, there are a whole series of steps we can take to escalate foreign policy pressure’ — and we outlined a number of them — ‘if you continue engaging in economic warfare against the United States, trying to drive down the price of oil in order to exploit this coronavirus crisis to drive a bunch of American producers out of business.’”

In an attempt to help. President Trump said he’s planning on calling Putin to discuss the price war.  “Russia’s got a big problem with that too, with the virus, so we’ll be talking about that, but literally that’s my next call,” Trump said, as quoted by Bloomberg.  “I never thought I’d be saying that maybe we have to have an oil increase, because we do.”

At the moment, there are no signs of thawing oil tensions between the Saudis and Russia.  Worse, with oil demand falling 20% a day thanks to the coronavirus, the outlook for prices remains dire, near-term.  

Blood in the Street Opportunities

Once virus fears and the oil war are behind us, we may be left with quite a few “blood in the street” opportunities, like Exxon Mobil (XOM) and Chevron (CVX).

Since Feb. 2020, Exxon has fallen from a high of $70 to a low of $30, which is unsustainable.  The last time XOM was this low was September 2004. CVX just fell from $113 to a low of $52. It hasn’t been this cheap since 2015.  

Both are severely oversold, and may soon be great blood in the street opportunities.

Stay tuned for more on both of these potential trades.

On hopes a coronavirus rescue bill is close, markets are exploding higher.

At the moment, Dow futures are up 930 points.  S&P 500 futures are up 110, with NASDAQ futures showing a gain of 350 points.  There’s hope this can hold after days of madness.

Senator Chuck Schumer and Treasury Secretary Steven Mnuchin said they hope to have a deal by this morning.  “There are still a few little differences. Neither of us think they are in any way going to get in the way of a final agreement,” Schumer said, as quoted by CNBC.

Right now, the Democrats have two main issues they want to get through.  Schumer added that the Democrats’ “two main issues: workers first and a ‘Marshall Plan’ for hospitals are very strongly in the bill.”

There’s hope this can get done.

However, with the Senate due to convene at 10am EST, no vote has been scheduled yet.  

Top 3 Ways to Trade Falling Volatility

If this rally is real, and can sustain itself, we could see decreased volatility.

Some of the best ways to trade falling volatility is with the following opportunities.

ProShares Short VIX Short-Term Futures ETF (SVXY)

ProShares Short VIX Short-Term Futures ETF provides short exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration, according to Pro Shares.

VelocityShares Daily Inverse VIX Medium-Term (ZIV)

The ETN seeks returns that are -1x the returns of the S&P 500 VIX Mid-Term Futures Index ER for a single day, says VelocityShares.

iPath Barclays Inverse S&P 500 VIX Short-Term Futures ETN (XXV)

The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants’ views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index.

There’s just too much fear in the markets.

At this point, the Dow could sink to lows we haven’t seen since 2016. 

In fact, that’s where we’re heading if support at 18,000 fails to hold.  For markets to stop falling, we need to see an end to COVID-19, which is now up to 350,000 infections globally.  We also need to see some progress from Congress.

The Federal Reserve has tried to help. 

Just this morning, the Federal Reserve announced limitless asset purchases to keep the markets functioning.  The central bank will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” added CNBC.

There’s also hope we can get some sort of relief from Congress.  

Senate Minority Leader Chuck Schumer said disagreements over the bill could be overcome in the next 24 hours, as noted by CNBC. A spokesman for Schumer later added the senator and Treasury Secretary Steven Mnuchin had a “productive meeting.”

Unfortunately, the stimulus bill failed on Sunday after Democrats warned the measure did not do enough to help impacted workers and instead offered too much for company bailouts, says CNBC. House Speaker Nancy Pelosi signaled she was not on board with the current stimulus plan, saying: “From my standpoint, we’re apart.” 

Until something substantial happens, we expect for volatility to shoot higher.  

As we’ve noted before, some of the best ways to trade the fear is with the following.

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)

The TVIX is another great way to trade elevated volatility.  This ETF  tracks an index of futures contracts on the S&P 500VIX Short-Term Futures Index.

iPath S&P 500 VIX Short-Term Futures (VXX)

As volatility returns to the markets, one of the best ways to profit from volatility is with the VXX ETN, which provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return. 

The coronavirus fear has become palpable.  

Businesses and schools around the world are closing down.  Global indices are plunging. Sports and concert events are being canceled.  

And, as the number of U.S. cases jumps to 3,485 with 88 deaths, fear has only grown worse.  It’s why President Trump just released a new series of guidelines to slow the spread of the virus that calls for the lockdown of America, including closing restaurants and schools for the next 15 days. At the same time, Trump said his administration may look at lockdowns for “certain areas” or “hot spots” in the nation, reports CNBC.

At the same time, the global community is in a race against the clock for a vaccine.  Especially after 18 more people died in the U.S. in a single day.  

That said, here are some of the top companies racing to produce a vaccine.

Coronavirus Vaccine Stock No. 1 – Moderna Inc. (MRNA)

Moderna just dosed the first patient in a Phase I study being conducted by the National Institutes of Health.  “This study is the first step in the clinical development of an mRNA vaccine against SARS-CoV-2, and we expect it to provide important information about safety and immunogenicity,” Moderna’s chief medical officer, Tal Zaks, said, as quoted by Barron’s. 

If we see success from the trial, we could see higher highs for MRNA.

Coronavirus Vaccine Stock No. 2 – Regeneron Pharmaceuticals Inc. (REGN)

Regeneron and Sanofi just started a clinical trial to evaluate an experimental treatment for coronavirus patients.  According to Fox Business, “The companies initiated a global testing program for Kevzara, a fully-human monoclonal antibody that is already approved to treat adults with rheumatoid arthritis, in up to 400 patients.”

Coronavirus Vaccine Stock No. 3 – BioNTech (BNTX)Shares of BNTX are higher on news that it and Pfizer have entered the race to develop a vaccine. The two are reportedly entering clinical trials next month.  “We believe that by pairing Pfizer’s development, regulatory and commercial capabilities with BioNTech’s mRNA vaccine technology and expertise as one of the industry leaders, we are reinforcing our commitment to do everything we can to combat this escalating pandemic, as quickly as possible,” Mikael Dolsten, Pfizer’s chief scientific officer said, as quoted by Barron’s.

The fear has become palpable.

Major indices are plunging.  Businesses and schools are closing down around the world.  People are panicking. Gun sales are skyrocketing. Sports and concert events are being canceled.  Beaches are closing up shop in Florida during Spring Break. Some states have even more to restrict the operations of bars and restaurants.

But this may only be the start.

As the number of coronavirus cases has increased – there are at least 3,485 cases and 65 deaths so far in the U.S. – fear has only grown worse.  In fact, we can see that in the major indices. In fact, it’s why the Dow Jones is down another 1,000 points this morning.

Fear is why the Federal Reserve just cut interest rates to zero over the weekend, and announced a massive $700 billion bond buying program.  All as “The virus presents significant economic challenges,” Fed boss Jerome Powell said, as quoted by USA Today. “We’ve taken a number of actions to support American families and the economy overall.”

Unfortunately, this won’t be enough to cool markets.

“The Fed is trying to be preemptive to calm the markets, but what’s worrisome to me is that they’ve unloaded the gun and there are no bullets left. If the markets don’t react calmly to this, they’re going to take it as a sign of fear and desperation,” says Nick Giacoumakis, president of New England Investment & Retirement Group, as quoted by USA Today.

Even economist Mohamed El-Erian – who warned investors not to buy the dip just said the Fed wasted a big part of its arsenal “by doing things backward,” as noted by CNBC.

“We should have been more laser-like focused on areas of market failures … and then followed up with more general interest rate cuts when that can have an impact,” El-Erian argued, stressing that lowering rates and making loans cheaper won’t change the spending behavior of consumers who are not leaving their homes.

The Best Ways to Trade this Market

While some talking heads have said, “no one could have seen this coming,” that’s just not true.  They weren’t paying attention.

In fact, on Feb. 20, 2020, even analysts at Jefferies noted, ““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.”

This was before we started seeing major outbreaks in the U.S.

It’s also why we began reporting that investors were turning to volatility trades 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.

Since Feb. 25, 2020, the UVXY exploded from $14.81 to $80.

The TVIX ran from $59.12 to $335.40, as the VXX jumped from $16.93 TO $54.61.

The best part – these are still some of the best ways to trade the fear in the markets. 

No one expected this crash.

But we were long overdue.  We were stretched fundamentally and technically, with the coronavirus the straw that broke the camel’s back.

“Historically our stock market is fundamentally connected to corporate earnings and the overall GDP, with typical stock price ratios of 15 times earnings and an overall market capitalization of about 0.9 times GDP. Lately, we have been running at 22+ PE ratios and two times the GDP,” said Norm Miller, University of San Diego, as quoted by The San Diego Union Tribune. 

“Low interest rates explain part of the higher ratios, but we were due for a correction and the coronavirus provided the trigger,” he added.

Kelly Cunningham, San Diego Institute for Economic Research, added, “Simply comparing the stock market to size of the economy or U.S. equity market cap-to-GDP ratio was at an all-time high. Average price-to-earnings ratio of 18.4 times had also not occurred since the “dot-com” bubble of 2000. This indicated the bulk of increase in stock valuation came not from earnings growth but investors unrealistically valuing or speculating on future growth. If the stock market was not overvalued, the coronavirus would not have as much effect.”

Now, even Goldman Sachs says we have further to fall.

David Kostin, chief U.S. equity strategist, wrote that, “After 11 years, 13% annualized earnings growth and 16% annualized trough-to-peak appreciation, we believe the S&P 500 bull market will soon end,” as quoted by CNBC. “Investors have cut their equity positions in recent weeks, but not to levels reached at the trough of other major corrections this cycle.”

He also believes the market could fall another 15% from current levels. “Both the real economy and the financial economy are exhibiting acute signs of stress.  Supply chains have been disrupted and final demand has declined for many industries. Travel is contracting sharply as both individuals and businesses restrict movement.”

“Airlines, hotels, cruises, and casinos report plunging demand, lower occupancy, and cancellations. Employees are being furloughed.”

However, he does believe we’ll see a rebound in the second half of the year, which could boost the S&P 500 to 3,200.  Let’s hope he’s right on the rebound.

How Investors are Still Preparing for Volatility

As we’ve noted, three of the best ways to prep for volatility include:

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)

The TVIX is another great way to trade elevated volatility.  This ETF tracks an index of futures contracts on the S&P 500VIX 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.

Hope sparked a rally.

But it’s not time to buy just yet.

Granted, President Trump did say he would meet with Congress in a bid to pass a temporary payroll tax cut and fund sick leave for temporary employees.  “We’re going to be talking about hourly wage earners getting help so that they can be in a position where they’re not going to ever miss a paycheck,” Trump said, as quoted by the New York Post.  “This was something that we were thrown into and we’re going to handle it and we have been handling it very well.”

However, according to some inside the Trump Administration, “That was news to everyone on the inside,” with details up in the air.  “It’s not there right now,” an official said. “A lot of details need to be worked out.”

Hopefully, something will happen, though.

President Trump also noted the Administration would work with travel companies, such as airlines and cruise lines, as travel restrictions take a big toll.  American Airlines for example just cut international and domestic flights, as demand breaks down. Reportedly, wage relief is also on the table, but would require “big federal spending,” as noted by CNBC.

An Oil Price War is Wreaking Havoc

Oil is up slightly this morning, but tensions are still high between Russia and the Saudis.

In fact, Saudi Arabia just escalated its oil price war with Russia, with its state-owned company saying it’ll supply a record 12.3 million barrels a day next month.  That increase would be more than a 25% month over month increase, and would flood the market.

In response, Russia’s energy minister said the country has the ability to boost production by another 500,000 barrels.  That could boost Russia’s output to 11.8 million barrels a day.

Analysts Still See Bumps Ahead

“The COVID-19 outbreak is a serious real-time exogenous threat, and our view might change as developments unfold. For now, though, we believe that the fundamentals of the U.S. economy are supportive of a cyclically bullish stance. However, caution is still warranted in the near term. It is too early to bottom fish in equities,” say analysts at BCA Research, as quoted by MarketWatch.

So, no it may not be time to buy the dip just yet.  

Oil could dip to $20.

In fact, that’s what Goldman Sachs just warned of after Saudi Arabia cut prices.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus. This is the equivalent of a 1Q09 demand shock amid a 2Q15 OPEC production surge for a likely 1Q16 price outcome,” Goldman Sachs oil strategist Damien Courvalin said, as quoted by Yahoo Finance.

“This completely changes the outlook for the oil and gas markets, in our view, and brings back the playbook of the New Oil Order, with low cost producers increasing supply from their spare capacity to force higher cost producers to reduce output.”

All thanks to a new oil price war between OPEC and Russia.

With Russia’s unwillingness to cut its output, the Saudis are preparing to open the spigots.  

Reportedly, Russia is refusing to go along with OPEC’s proposal to rescue coronavirus-battered oil markets by cutting more production.  Because of that, the Saudis cut its April oil selling prices to $8 with hopes this will bring Russia to the table. 

If not, ″$20 oil in 2020 is coming,” Ali Khedery, CEO of U.S.-based strategy firm Dragoman Ventures, as quoted by CNBC. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

Crude oil is now down to $32.44 after losing another 8.84.

As a result, major oil stocks are down.  Exxon Mobil (XOM) for example just fell another $7.71 this morning.  Chevron (CVX) fell $15. Hess (HESS) just fell $11.72. All are being avoided as the oil price war begins to take shape.

The blood bath continues.

The Dow Jones is down another 1,255 points, as the 10-year Treasury yield hit an all-time low of 0.318% amid a flight to bonds.  All thanks to coronavirus fears.

Global cases of the infection are now up to 109,000 with at least 3,801 deaths.  

And there’s little hope for containment.  

“We’re past the point of containment,” Dr. Scott Gottlieb, former commissioner of the Food and Drug Administration said, as quoted by MSN.  “We have to implement broad mitigation strategies. The next two weeks are really going to change the complexion in this country. We’ll get through this, but it’s going to be a hard period.”

Italy just locked down 16 million people – more than a quarter of its population to help halt the spread of the virus.  Its death toll is now up to 366. Saudi Arabia just imposed a temporary lockdown on the eastern Qatif province. Germany just topped 1,000 cases.  

Of course, that fear sent markets screaming lower.

However, the pullback in world markets isn’t a shock.

As we’ve noted, “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.  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.

As we noted on Feb. 27, others are trading the immense volatility with:

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. Since Feb. 27, UXVY jumped from $19 to $36. In pre-market on Monday, the UVXY was up to $52.15.

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. TVIX traded around $85 on Feb. 27.  It’s now up to $170. In pre-market on Monday, it soared as high as $300.

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. On Feb. 27, the VXX traded at $22. It’s now up to $29.82.  In pre-market Monday, it was up to $40.75.