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.
