Coronavirus Hits Stocks!

The coronavirus hit stocks and major indexes this week as fear grips investors. The Dow Jones Industrial Average (see chart here) fell over 600 points yesterday, the S&P 500 (see chart here) closed lower by 58 points, the Nasdaq Composite (see chart here) fell 148 points and the small-cap Russell 2000 (see chart here) closed yesterday down 34 points. Now if you have been following me for a while you know I am a big fan of pullbacks in the market. However, I don’t like seeing the cause of this latest sell-off. I would much rather prefer to see the market retrace in a healthy manner versus a health crisis.

Some of the fear the market is experiencing is warranted. Companies are suspending business to and with China which clearly will have an impact on their businesses.  For example airline stocks have taken it on the chin recently. Most major airlines have suspended service to China and in some instances for months. Entertainment companies such as Disney (DIS:NYSE), Carnival Cruises (CCL:NYSE) and Royal Caribbean (RCL:NYSE) are also feeling the pressure due to closures and suspension of services. These companies and companies alike are doing the responsible thing here until the World Health Organization establishes the proper plan to contain the spread of this fast moving virus.

To that end, yes the coronavirus is a global threat for now. Past viruses such as the coronavirus are serious health risks and this one is no different. However, for market participants past events like this have ended up being opportunities in the marketplace. Of course the highest priority here is to not only stop the spread of the virus, but to find a swift treatment for it. Until then I do expect continuing volatility in the markets.

In the short term my plan is to be patient and not to act in haste. Historically when situations like this occur and then move to a respite, markets begin to settle in. Good luck to all ūüôā

~George

Are Stocks Poised To Breakout?

After an early November sell-off, the major averages could be on the verge of a breakout, at least from a technical point of view. The noticeable dip in equities that occurred recently was met with strong support and now stocks have rallied up to key resistance levels. The Dow Jones Industrial Average (chart) closed the month of November at 17720, the Nasdaq (chart) closed at 5109, the S&P 500 (chart) closed at 2075 and the small-cap Russell 2000 (chart) closed the month of November at 1198. As you can see by their charts the three top indices have resistance levels of 18,000, 5175 and 2125 respectively while the small-cap Russell 2000 (chart) is seemingly on the verge of breaking out. That said, it takes more than a day or two trading above a resistance level with strong volume to confirm a breakout. What could be in favor for a breakout with all of the aforementioned indexes is the seasonality of the markets a.k.a. the Santa Clause rally. This could very well be the catalyst for a year-end rally.

What could get in the way of a potential Santa Clause rally?¬†One example could be¬†if the technical resistance line(s) holds true to form and the key¬†indices cannot breakout¬†with conviction above these marks . There is also the risk of China’s market¬†continuing to abate as¬†regulators are cracking down on¬†trading practices of major Chinese brokerage firms. The China weakness¬†can spill over here to our shores even if it is only a short-term consequence. Of course there is¬†always a geo-political risk that could weigh in on market sentiment and behavior.¬†And last but not least, the Good Ole Federal Reserve and whether or not they would implement their first rate hike in almost a decade when they meet later this month.

That said and¬†notwithstanding any of these risks, we have seen stocks incredibly¬†resilient during this multi-year bull run and¬†I would not be surprised if we indeed breakout and experience¬†a year-end rally that could¬†challenge the all time highs. Good luck to all ūüôā

~George