Author: Dorian Holden

So much for the recovery rally.

A day after the Dow Jones rocketed 1,100 points as Joe Biden pushed ahead of Bernie Sanders, the index is plunging again on coronavirus fears.

All after California declared a state of emergency over the coronavirus following the first confirmed death in the state.  California now has the largest number of cases in the U.S. at more than 50 followed by Washington state, which has 44.  

Worse, according to a former director of the U.S. Agency for International Development (USAID), as noted by CNBC, the country has confirmed only a fraction of the total number of virus cases.  “We still don’t have anywhere near full visibility on total cases in the U.S. because of the testing shortfalls,” Jeremy Konyndyk said. “What we’re seeing so far in terms of official case numbers in the U.S. is probably just the tip of the iceberg.” 

As of Thursday, a total of 159 cases were confirmed.  Eleven people have died.

More than 100,000 May be Infected

And, according to Yale professor, Howard Forman, a radiologist and expert in healthcare management, as quoted by Business Insider, “”It is well within the realm of possibility that there are 100,000 people infected with this right now in the United States. Healthcare providers may be being exposed, other patients may be being exposed, and until you can give confidence to people about those answers, we are in a crisis here.”

He added that, “There is absolutely going to be an explosion in the number of identified cases.  But how fast that number increases is highly dependent on how fast we can test.” Unfortunately, because of flawed tests, and poor funding, wider testing has been impossible.  

Hospitals are Not Prepared for the Virus Outbreak

According to the World Health Organization, world hospitals are not prepared for the outbreak. 

Health systems are “just not ready” for a COVID-19 epidemic, said Dr. Mike Ryan, executive director of the World Health Organization’s health emergencies program, as quoted by CNBC.

“We’ve already seen in countries, and quite sophisticated countries, who’ve had a rapid rise in cases in the last week are having trouble coping with the clinical caseloads,” he said.

“We need to keep this virus slowed down, because health systems around the world, and I mean North and South, are just not ready.”

Crisis is Creating Opportunity for Investors

Stocks like 3M (MMM) and Alpha Pro Tech (APT) are surging on demand for face masks – especially after Vice President Mike Pence said, “We’ve contracted now with 3M.  Thirty-five million more masks per month will be produced, and we’re also going to be working with other manufacturers. We’re going to make sure and protect the health of our healthcare providers. As the President said, we have more than 40 million masks available today.”

In a massive comeback rally, the Dow Jones exploded more than 1,200 points in a day.

It was certainly a sight for sore eyes that watched the market plunge 3,500 points in previous days.  All on hopes G7 finance ministers would meet to discuss the coronavirus and coordinate an economic recovery plan.

Unfortunately, G7 failed to deliver anything.

While the group said they’d use policy tools to curb an economic slowdown, their statement contained no specific actions whatsoever.  Investors, hoping for some sort of coordinated action to come from global authorities, were instead told:

“Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase,” the statement said, as quoted by CNBC. “G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”

Unfortunately, there were no specifics on actions, which is forcing markets lower.

Stocks Haven’t Bottomed Yet, Says Charles Schwab

Analysts at Charles Schwab advises against buying the dip, noting, ““My general rule of thumb, which has been pretty consistent, is if you’re going to start buying on a dip, you need to wait until you get two good solid up days,” as quoted by MarketWatch.

Markets may only find their bottom once coronavirus headlines begin to slow down.  

“I don’t think we’ve seen that just yet. People need to be a little bit cautious and wait. We don’t know where the bottom’s going to be, but it doesn’t feel as though it’s here just yet. It’s too risky to be doing any bargain hunting and buying at the moment, but that also means don’t panic and sell out of your 401(k) and retirement portfolios.  Just simply wait and see how this plays out,” the analysts added.

While there are plenty of analysts that will tell you the bottom is in, like Bernstein, which just said, it’s “not time for investors to sit on the fence,” it’s okay to sit on the fence.  Your money may be safer waiting for the bottom to truly appear.

Mohamed El-Erian still advises that investors stay on the sidelines, as well.

“I stress, this is different,” he said.  Just because buying market dips has worked in the past does not mean it’s going to work this time, he said, as quoted by CNBC. “I would continue to resist, as hard as it is, to simply buy the dip.”

NEW YORK (AP) — Stocks that moved heavily or traded substantially on Monday:

Carnival Corp., down 40 cents to $33.06.

Cruise operators continued to reel over the coronavirus’ financial impact on travel and leisure companies.

Twitter Inc., up $2.62 to $35.82.

Elliott Management is pushing for a leadership change after reportedly buying a large stake in Twitter.

Forty Seven Inc., up $35.91 to $93.91.

Gilead Sciences is buying the biotechnology company for about $4.9 billion.

AT&T Inc., up $1.96 to $37.18.

The owner of CNN and HBO is launching a new internet-delivered TV service as its DirecTV business struggles.

Harley-Davidson Inc., up 59 cents to $31.06.

The motorcycle maker replaced its CEO with board member Jochen Zeitz.

Costco Wholesale Corp., up $28 to $309.14.

Shoppers are stocking up on everyday goods as fear over the coronavirus spreads.

Mobile Mini Inc., up $2.03 to $41.02.

WillScot is buying the portable storage company in an all-stock deal valued at $6.6 billion.

Calavo Growers Inc., down $17.23 to $55.22.

The company said its chief financial and chief accounting officers are resigning.

The market is divided on what to do.

Some say it’s too soon to rush back into stocks on coronavirus concerns.  In fact, analysts at JP Morgan, Citi, and Goldman Sachs think there hasn’t been enough pain in the market yet.

“While ‘buy the dip’ has been a successful strategy since the Global Financial Crisis, with equity drawdowns often reversing quickly, it might be more risky this time,” Christian Mueller-Glissmann, equity strategist at Goldman Sachs, said as quoted by CNBC. “With global growth still weak, the shock from the coronavirus outbreak lingering and less scope for monetary and fiscal easing, the risk of a more prolonged drawdown remains.”

Mohamed El-Erian still advises that investors stay on the sidlines, as well.

“I stress, this is different,” he said.  Just because buying market dips has worked in the past does not mean it’s going to work this time, he said, as quoted by CNBC. “I would continue to resist, as hard as it is, to simply buy the dip.”  

However, some argue that it’s time to buy the dip

Billionaire Leon Cooperman just used the sell-off to buy stocks like United Airlines, betting the virus story will die by June 2020.  “Look at United Airlines: They came out with their commentary the stock is trading at six times what they expect to earn this year. They took out guidance because they can’t give you guidance until they know what happens with the virus.”

And, as global banks spark hope of interest rate cuts to boost the global economy, analysts at Bernstein say it’s “not time for investors to sit on the fence.”

“The impact that the virus outbreak will have on growth is, at the moment, unknown. But after such an abrupt move, as we saw at the end of last week from a sell-side strategy perspective, one cannot sit on the fence,” the analysts said, as quoted by MarketWatch. “Do we believe our tactical models or not? We do, and they are suggesting that investor sentiment has simply moved too far. … So, we are advocating tactically increasing equity exposure.”

Unfortunately, buying on the excessive fear now could cost investors.

There is still a big concern over bigger pullbacks, as the number of coronavirus cases and deaths continue to grow.  All hopes for upside were dashed after a second coronavirus death was reported in the U.S. in Washington State. 

At the moment, the number of confirmed cases in the state stands at 13 with those two unfortunate deaths. We’re also seeing cases in California and Oregon, raising fears of person to person transmission of the virus. A case popped up in New York City, as well.

More news like that could send the markets lower. 

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.

The coronavirus wiped out $1.7 trillion of market value in two days.

With the death toll approaching 3,000, over 81,191 cases officially recorded and an outbreak in Italy now shutting a big part of its economy, top analysts are still warning not to buy the dip, such as Mohamed El-Erian.

“I stress, this is different,” he said.  Just because buying market dips has worked in the past does not mean it’s going to work this time, he said, as quoted by CNBC. “I would continue to resist, as hard as it is, to simply buy the dip.”  

However, Many Investors are Ignoring that Fear

In fact, many are now buying the excessive fear.

“Looking at performance over the last 30 years, following a drop of more than 6% over two consecutive sessions, 75% of the time the index rallied over the next two weeks, and 88% of the time it rallied over the following month. Outside of the financial crisis, the Dow was higher one month later in every single instance,” as noted by CNBC.

Even billionaire Leon Cooperman just used the sell-off to buy stocks like United Airlines, betting the virus story will die by June 2020.  “Look at United Airlines: They came out with their commentary the stock is trading at six times what they expect to earn this year. They took out guidance because they can’t give you guidance until they know what happens with the virus.”

National Economic Council Director Larry Kudlow also just noted the virus-based sell-off has created a buying opportunity for long-term investors.  “The markets obviously are reflecting new fears. A lot of volatility out there. I don’t think these are fundamental factors …This thing will run its course,” Kudlow said, as quoted by CNBC.

At the same time, 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.  

“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.

Even Dr. Nancy Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases has noted, “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen.  Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.”

While the dip may appear attractive today, it may not tomorrow.

Buy the dip.

A day after the Dow Jones plummeted 1,000 points, some analysts said to buy the dip.  

But that’s the worst advice anyone could have given you.

·      “I think it could be a buy-the-dip opportunity,” Tim Chubb, chief investment officer at Girard Partners told The Street.

·      “Don’t let short-term concerns cloud your long-term thinking and prompt you into knee-jerk reactions,” said Greg McBride, chief financial analyst for Bankrate.com. “If you’ve been waiting for a better buying opportunity, the stock market is 3% cheaper today than it was Friday.”

Initially, “buy the dip” investors cheered as the Dow recovered earlier today.  But cheers turned to jeers, as the Dow slipped another 140 points, as virus fear explodes.  South Korean cases are nearing 1,000 with 11 deaths. Iran’s Deputy Health Minister has been infected.  And now, we’re seeing cases pop up in Switzerland, Austria, and Spain.

It’s not time to buy the dip at all, say many analysts.

CNBC’s Jim Cramer even noted not to buy the dips.  

“Things I need you to consider: 1. possible Milan to US outbreak, 2. GILD drug not working, 3. Moderna vaccine too far away, 4. eps weakness preannouncements,” he said in a series of tweets. “I put those negatives out there because they are all possibilities and can’t be overlooked. Which is why I don’t like to buy into a rally.”

Economist Mohamed El-Erian also warned against buying the dip.

“I stress, this is different,” he said.  Just because buying market dips has worked in the past does not mean it’s going to work this time, he said, as quoted by CNBC. “I would continue to resist, as hard as it is, to simply buy the dip.”

Disruptions to corporate earnings and economic growth from “shock” events such as the coronavirus tend to stick around longer than more fundamental downturns, he added.

What makes this situation even more dangerous is a World Health Organization (WHO) warning for the world to be ready for it to come “knocking on the door.”

Just moments ago, “GENEVA-HEAD OF JOINT WHO-CHINA CORONAVIRUS MISSION AYLWARD SAYS VIRUS IS A RAPIDLY ESCALATING EPIDEMIC IN PLACES, HAVE TO TACKLE SUPER FAST TO PREVENT A PANDEMIC,” as reported by Reuters.

Some of the only stocks moving higher on the virus story, include:

Pro Shares Ultra VIX Short-Term Futures ETF (UVXY)

One of the best volatility ETFs to keep an eye on is the Pro Shares Ultra VIX Short-Term Futures ETF (UVXY), which was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. 

Moderna Inc. (MRNA)

Moderna just shipped an experimental coronavirus vaccine to the U.S. government for testing just six weeks after it started work on the immunization.  The company also noted the first vials of the experimental vaccine would be used in a planned Phase 1 study in the United States, which typically involves testing a vaccine on a small number of healthy humans, as reported by CNN.  Trials could begin as early as the end of April 2020.

Gilead Sciences (GILD)

GILD has already started testing its antiviral remdesivir in patients with success.  Preliminary results from GILD’s clinical trials are expected in the next three weeks, says the World Health Organization. The experimental compound is the “one drug right now that we think may have efficacy,” Bruce Aylward, assistant director-general at the WHO, as quoted by Bloomberg.

If folks tell you to buy the dip, you may want to consider ignoring them.

A U.S. outbreak is increasingly likely.

“We could have spread here in the United States and not be detecting it at this point,” said former U.S. FDA Commissioner Scott Gottlieb said, as quoted by CNBC.  

“We don’t have a diagnostic test that works right now,” he added. “South Korea’s tested about 35,000 people to find their 900 cases. We’ve tested, cumulatively, about 500 people; our diagnostic capability probably isn’t more than maybe 50 to 100 tests a day at best because all the tests need to be shipped to the CDC right now.”

Analysts at Jefferies Warn a U.S. Outbreak is Likely

“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,” said the firm.

Even Dr. Nancy Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases has noted, “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen.  Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.”

With fear in the markets only mounting, some investors have turned to volatility trades:

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.

The coronavirus has become unstoppable.

Globally, 78,442 people have been infected and more than 2.456 have already died. And, according to Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, “This new virus represents a tremendous public health threat.”

Fear is well out of control with the Dow Jones down 815 points.

However, some of the top investors, like Warren Buffett advise that you don’t “buy or sell” on the headlines, as highlighted by Warren Buffett.

“The real question is: ‘Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?’” asked Buffett, as quoted by MarketWatch. “You’ll notice many of the businesses we partially own, American Express, Coca-Cola — those are businesses and you don’t buy or sell your business based on today’s headlines. If it gives you a chance to buy something you like and you can buy it even cheaper then it’s your good luck.”

Some of Buffett’s other top advice in times of panic include:

No. 1 – Have Cash on Hand

According to Warren Buffett, he keeps a lot of cash on hand “so that we can both withstand unprecedented losses and . . . quickly seize acquisition or investment opportunities,” as quoted by The College Investor.

No. 2—Don’t Follow the Herd

“A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance,” as quoted by CNBC.  

No. 3 – Be Fearful When Others are Greedy

“Be fearful when others are greedy, and greedy when others are fearful,” the billionaire often said.  It’s much like Sir John Templeton who advised investors to buy “excessive pessimism.” Even Baron Rothschild advises to buy the “blood in the streets.”