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COVID-19 menace and Bernie Bros = Selling panic on Wall Street

Written By | Feb 26, 2020
COVID-19 menace, Bernie, Bernie Bros

Is that Mr Market taking a high dive into oblivion? (Actually, it’s a dude diving into Long Island’s Great South Bay. Photo by David Shankbone, via Wikipedia entry on Diving. CC 3.0 license.

WASHINGTON –After a brief bit of morning recovery sunshine Tuesday, stocks decided to continue Monday’s sickening COVID-19 menace – inspired waterfall decline. Futures had pointed to a positive opening. But, after spending about 20 minutes in the green, more investors (and high-speed machines), desperate to sell, took advantage of the brief rally and launched another selling tsunami. (BTW, Bernie and the Bernie Bros’ big Nevada win hasn’t been helping matters either.)

Monday’s selling panic accelerates Tuesday

CNBC provides more details.

“The Dow traded 500 points lower, or 1.7%, hitting new session lows as health officials gave new warnings about the possibility of a greater coronavirus spread in the U.S. The S&P 500 slid 1.3% while the Nasdaq Composite fell 1.1%. The Dow gained at the open Tuesday before the selling returned. At one point the average was up more than 180 points. Monday’s session was the market’s worst in two years.

“These declines put the Dow and S&P 500 more than 6% below the record highs reached earlier this month. The Nasdaq is trading 7.5% below its all-time high from Feb. 19. Technology stocks such Apple and Facebook have also fallen into correction territory, down more than 10% from all-time highs hit just last month.”




After the Dow Jones Industrials touched the negative 500-point mark on the downside, the average actually recovered slightly. And, as this column unfurls, around 1:15 p.m. ET, the Dow stands queasily at around 27451, a drop of roughly 468 points. But, as with the wild Monday selling panic, who knows where things will end up by today’s 4 p.m. closing bell? I sure don’t.


Also Read: COVID-19 panic obliterates US markets in wild Monday selling spree

The charts tell a tale of stock market woe

Check out our pair of trusty charts, and you’ll see why there’s blood running in the streets. First, the standard McClellan Oscillator ($NYMOT), as of COB Monday, February 24.

COVID-19 menace, Bernie, Bernie Bros

McClellan Oscillator, COB 02/24/20. Chart coutesy of Stockcharts.com.

Next, the VIX volatility index ($VIX), same date.

COVID-19 menace, Bernie, Bernie Bros

VIX volatility index as of COB 02/24/20. Chart courtesy Stockcharts.com.

Yikes. Longtime investors will find these charts about as sickening for their portfolios as COVID-19 menace, aka, the Wuhan coronavirus, might be upon their persons.

Interpreting the McClellan Oscillator

Look to the right side of the first chart, the McClellan Oscillator, which had already ticked down unpleasantly by last Friday’s market close. Terrified investors nuked this overbought-oversold measure, driving it solidly to the downside Monday. You can clearly see the selling panic reflected in the lengthy, nearly vertical drop in this measure on the right. This reflects an extreme oversold market condition – one that virtually parallels the bottom points of previous selling climaxes as you can clearly see by moving to the left on the chart.

This parallelism often indicates that we’re at the bottom of the current decline / oversold condition and are likely to get a dead-cat bounce at the very least. Unfortunately, while we got precisely that, it only lasted about 20 minutes this morning before Mr Market resumed his sickening decline. As if to emphasize the point, we’re now at the 1:30 p.m. mark, and the Dow is now down 533 points and apparently sinking fast. We could be experiencing a Maalox Moment here.

As I just noted, the McClellan Oscillator is quite useful for determining where we get a bounce, and it looked like today. And it’s still not too early for one of those exciting one-day reversals to the upside, so treasured by bulls. But at this point, we may have to get even more oversold on the Oscillator before happy days return for the bulls.

The terrors of a spiking VIX chart

Perhaps even more terrifying is our second chart above, again as of Monday’s close. On this chart, numbers around 12 or so on the vertical axis indicate a relatively placid stock market trading environment. But spikes to 16 and above indicate the trading action is heading for the wild side with increasing volume and (usually) increasing pressure to sell. Bernie and the COVID-19 menace were behind most of this, although stocks were already overbought to start with. But the final spike, above, is still unnerving.

Once again, look to the right of this chart and note the little line with a tiny black box in the middle. That was Monday’s terrifying decline, right? Nope. It marked Friday’s smaller but still scary decline. Start looking up from this point and you’ll see what you missed: a massive “island” spike up in the VIX, sending the volatility mark into the stratosphere.

I haven’t seen this kind of behavior in the VIX chart for quite a long time. And again, it’s about as scary as having Bernie Sanders for our next president. Or maybe even scarier. To oversimplify, this cannon shot of volatility means traders and investors are totally freaked out and are throwing everything overboard, the hell with what it’s worth.



Oh, and yeah, it’s 1:36 p.m. now, and we’re down 601 points. See what I mean. To paraphrase an old carny guy spinning the Wheel of Fortune: “Down and down and down she goes, and where she stops, nobody knows!”

Headline risk: Tuesday’s ongoing nuclear meltdown scenarios

Markets are likely reacting to twin nuclear reactor headlines that are melting down today like Chernobyl.

  1. The apparent, rapid spread of the COVID-19 menace around the world and the resulting, significant death toll; and
  2. Bernie Sanders’ big Nevada win in the Nevada caucuses this past weekend. And those unleashed Bernie Bros.

Neither event inclines traders to favor their inner bull, that’s for sure.

Back to that CNBC piece, we get some wise but unpleasant words from one of the Street’s most respected (by me) analysts, who warns dip buyers (like me) not to get over-eager today.

“I understand the inclination to buy on the dip. I understand that the path of least resistance in this market is to bounce up … but I stress, this is different,” [said] Mohamed El-Erian, chief economic advisor at Allianz and former Pimco CEO, told CNBC’s ‘Squawk Box.’”

Yeah, Mohamed, it sure is. I tried it twice during this morning’s initial decline and got burned twice for the effort. Looks like we need to see more of a decline in the McClellan Oscillator than I thought.

Bottom line:

Today, as I just found out, buying on the dip today, something that’s been quite successful for about the last 10 years at almost any time, will not help your digestion today. Maybe tomorrow. Maybe next week.

As far as where to look for safety? Investors have been crowding into Treasury bonds, utilities and gold ETFs. Problem is, they’ve already been bid up considerably, and the next rally (if it ever occurs) might hit those defensive investments right between the eyes.

So maybe it’s just time to raise cash, hold a few of your “sock drawer” stocks, wind out of most of the rest, and wait for the sunshine to come out tomorrow. Or the next day. Or, well, whenever….

Again, as yesterday, I’ll punch in a late update if anything changes significantly. I.e., headline risks concerning stocks, the COVID-19 menace, Bernie Bros antics, Schiff-for-brains, whatever. Otherwise, this column will return tomorrow, roughly the same time and definitely, same Bat(s) Channel.

– Headline image: Is that Mr Market taking a high dive into oblivion?
(Actually, it’s a dude diving into Long Island’s Great South Bay.
Photo by David Shankbone, via Wikipedia entry on Diving. CC 3.0 license.

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17