I am more bearish now than I was last Friday at the same price levels. Volatile down day on Monday, followed by huge up day Tuesday. And now a big gap down today on no news. The volatile chop is one of the signs of a trend change after a big move. The sector performance also shows a narrowing of the rally, with mostly tech stocks and defensives leading the charge, while the financials lag and the energy stocks stay weak.
It is a fund flow FOMO driven rally, a lot of the short covering has already happened, its desperate fund managers putting money to work, fearing that they will lag the indices even more if they wait it out.
From a fundamental perspective, the aftermath of the pandemic will be grimmer than most think. A lot of small businesses will cease to exist. Bars/clubs/live events/conventions/airlines/cruises/hotels/casinos/restaurants will continue to suffer until there is either herd immunity or a widespread vaccine available, which is at least 12 months away. That has a chain effect on other industries. Also, the psychological effect after such an economic shock will result in consumers having an increasing propensity to save which reduces the velocity of money and lowers GDP growth.
Reduced cash flows will present solvency risks for many companies which will either lead to outright Chapter 11 bankruptcy or massive dilution of current shareholders through either secondary offerings or conversions. The duration of the recession will determine whether many of these public companies can make it without dilution or big debt burdens.
At current valuations, none of these risks are priced in. A near V bottom scenario is what is being priced in here, with many using the Fed and government intervention as a green light to speculate in stocks. No, it is a green light to speculate in bonds. The Fed's put option is much higher for bonds than it is for stocks. In order for the Fed to directly come to the rescue, we will probably have to break the March lows to get their attention. Since I expect that to happen later this year, the Fed will be coming in to rescue stocks, and I am sure Powell will go overboard like he's been doing.
I am getting a sense that more and more investors are looking for this rally to continue for several more weeks, with the lazy view that the Fed and government will have their back. That is a terrible investment thesis and shows a complete lack of understanding of what drives equity prices in the medium to long term (fund flows, valuations, future cash flows). Companies are going to drastically cut back on stock buybacks, the biggest source of US stock buying over the past 10 years, and will have reduced cash flows, requiring either debt or equity issuance. Those are negatives that many are ignoring for fear of missing the V bottom, and another 2019 like rally off the lows.
The coronavirus is a game changer that is not only relevant for 2020, but will have lasting effects into 2021. There will be more fiscal pork stimulus, but its only partially filling the economic hole. Both production and consumption will be drastically reduced, something money printing will not solve.
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I feel we still be at the corona is peaking and cases going down phase. Spurring talks of when the economy is going to reopen. Traders more fixated on how much the 3q rebounds. Since mkt looks forward 6 months. Something tells me today is another op to buy although the ceiling is much closer than the floor.
I don't like the risk reward buying at these levels. Sure, you can probably find a greater fool to pay higher in a few days but that's putting yourself at risk of buying on the downward slope of the move.
No one has a crystal ball, but you look at the risk/reward after a 30% rally and it looks bad, with fundamentals that are basically the same as a month ago.
Coronavirus is peaking because everyone is locked down, what happens when everyone goes back to work? Its rolling out the red carpet for the coronavirus when people are back to going out to restaurants, bars, taking the subway, buses, and flying more.
Reopening the economy and then having to lockdown again would be devastating for this bloated pig of a market.
You gotta be here in the trenches. Feel the heartbeat of the city of the economy that this market trades off of. See the cars on the streets. See the niggas inside the chipotle. Hard to see whos winning the war when you not in the battlefield. There is pent up demand and people are itching to get out go on trips again go to restaurants and bars again. There is pent up demand out here. Would take the articles talking about the worst depression in history with a grain of salt. They just released 10 trillion dollas in this bitch.
2765 was it I guess. Crazy but up we go again.
Pent up demand is out there but if coronavirus starts spreading again after lockdown, its going to be chaos out there. And another lockdown would guarantee another visit to the March lows.
Sold all longs and short roku. We need pain. Now.
Up another 3% after hours. Bear rape continues.
Is today the setup? The blowoff top?
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