WASHINGTON – After Monday’s horrendous, 2,000+ point Dow plunge – which ensnared the other major averages as well – Wall Street tried to rally Tuesday morning after some encouraging words from the White House, which combined with a modest recovery in crude oil prices, which were nearly eviscerated Monday by the Saudi-Russian oil price impasse. But today’s persistently bungee jumping stocks continue to outfox traders and machines alike.
Starting with an impressive 800+ point Dow rally not long after Tuesday’s opening bell, today’s comeback rally slowly petered out, fairly quickly turning into a sickening 200+ point rout. That was likely due to more and more investors using the rally opportunity to get out of dying positions. But it didn’t help either that the Administration’s earlier ballyhooed “plan” to defend the economy as well as American employees from the potentially severe effects of the coronavirus
pandemic epidemic issue wasn’t actually on paper yet.
Yet as we approach the final hour of trading at 3 p.m. Tuesday, averages are back in rally mode. The Dow is now up 577 points (+2.45%), give or take. The broader-based S&P 500 is gaining 69 points (+2.6%), and the tech-heavy NASDAQ is up an impressive 202 points (+2.55%) and climbing. This, of course, is no guarantee of future performance at the closing bell, as this market continues to confound the most grizzled veteran investor.
A recap of Monday’s horror show in the oil patch
The double whammy that hit stocks Monday – that Saudi-Russian squabble over the price of crude oil – hit many investors out of the blue. (Read all about it HERE.)
On top of the media’s continuous screaming about the coronavirus — which essentially equates it with the Black Death during Europe’s medieval age — the international oil debacle was a main cause of Monday’s sickening rout. But even this pulled back a bit today with vague reports floating about that the Rushkies might at least be willing to talk to the Saudis about it.
The real problem is that absolutely no one knows what to believe anymore, given that today’s “news” is so often literally fake or not thoroughly sourced. So the markets continue to offer investors a blue plate special of bungee-jumping stocks and bonds that will definitely move away from the original purchase price. But up or down? That’s anybody’s guess. Which is really no way to invest. It’s just too treacherous. Which is why nearly any move is the wrong move.
Is there a secret reason behind the March plague of bungee jumping stocks?
Aside from the coronavirus and the oil patch, I’ve been harboring suspicions for quite some time that either some evil individuals, evil hedge funds and / or evil high-speed trading machines and algorithms have been shorting the crap out of certain key stocks, sending nearly everything else scurrying down the rabbit hole our of pure fear.
This is easier than ever because the incredibly useful and sensible “uptick rule” was canned years ago at the instigation of professional investors and firms who found it dated and archaic. Essentially, the uptick rule said you could only short a stock after an uptick – meaning, if you had a tranche of shares you wanted to sell short (betting they were going down), you had to wait until a buy transaction executed before you could execute your short.
And now, for a plausible conspiracy theory
Gateway Pundit, of all places, offers some useful history on this rule, while decrying its clearly ineffective successor. The writer also harbors some political suspicions (which may prove at least partially true) as to why all this downside nastiness might really be occurring at this time. (Bold text appears in the original.)
“Bad actors are using the Coronavirus news to try to cause a market panic.
“They are making a killing by short selling, and they are going to tank the Trump economy.
“To Stop the Current Short Sale Attack on the Stock Market President Trump Must Reinstate the Uptick Rule
So bring back the uptick rule
“President Trump needs to reinstate the uptick rule to stop the short seller attack on the market. The uptick rule worked great from 1938 to 2007. The current modified uptick rule in place since 2010 doesn’t work. Reinstate the uptick rule and stop the short seller attack.
“The Uptick Rule in place from 1938 to 2007 prevented a short sale of a stock unless the previous trade caused an increase in price (an ‘uptick’). “It was put in place by the Securities and Exchange Act of 1934 in response to the stock market crash in the Great Depression to prevent future attacks on the market by short sellers.
“The rule was eliminated by the SEC in 2007, and the market crash of 2008-09, which was in part a short seller attack, followed almost immediately. The resulting crash absolutely helped Democrats win in a landslide in 2008.
“In response, the SEC introduced the “Alternative Uptick Rule” (Rule 201) in 2010, “which imposes restrictions on short selling only when a stock has triggered a circuit breaker by experiencing a price decline of at least 10 percent in one day.”
Cause and effect. And the solution to wildly bungee-jumping stocks
“In the current market decline, individual stocks are falling less than 10% each day, so they are not triggering the short selling uptick restriction. Stocks are declining 2%, 3%, 4% or 5% each day for several days in a row, but not 10% in one day, so the short seller attack on the market can continue.
“The modified uptick rule only kicks in after a stock has fallen 10% in a single day. That doesn’t work. Stocks are falling 2% to 5% per day for consecutive days and so are not triggering the uptick restriction.”
As already noted, it would be a great idea to bring the uptick rule back no matter how much the funds and rich guys bitch about it being “outdated.” They already have enough ways to steamroll individual investors like you and me. So why give them another tool?
Answer: Wall Street usually observes the Golden Rule in all things: He who has the gold, rules.
Next item: Portfolio adjustments
We’ve liquidated our slight but unfortunate overweight in energy preferred stocks and big oil. This stuff is clearly hosed for most of the rest of 2020, so why lose more money than we already have? However, we remain in a couple of preferred issues that at least have a chance of coming back while we’re still alive.
Otherwise, we’re literally nibbling at a couple of stocks and ETFs that might be among the first to come back when the current insanity finally exhausts itself. Once among the endless list of this month’s bungee-jumping stocks and ETFs, the bungee-jumping seems largely at an end with these issues.
Some of these include shares of Microsoft (trading symbol: MSFT); Abbvie (ABBV, still a bit volatile but settling down); JP Morgan Chase (JPM), considerably marked down from late February highs; and a stout-hearted CEF (closed-end fund) – Flaherty & Crumrine Preferred Securities Income Fund (FFC) – we just discovered in the comments section of Innovative Income Investors. This one has held its own in the recent bloodbath, reason enough to add it to the portfolio, even in these troubled times.
That’s it for now. Let’s see how we close today. Even if the rally comes back, there are no guarantees for tomorrow. So we’re still holding lots of cash and hoping for a better day.
UPDATE: The Dow closed Tuesday, up 1,164 points, or 4.9% on the day. In a surprisingly exciting market close, the the Dow, which had been down for much of the day after an initial rally, cut its Monday losses Monday in half. Both the S&P 500 and the NASDAQ finished the trading day up 4.9% each.
– Headline image: Bungee jumping stocks? Try Bungee-jumping from the Nevis platform in New Zealand, circa 2005. Image via Wikipedia entry on bungee-jumping, GNU 1.2 license.