The Volatility Experience
Manic depression is searching my soul. I know what I want, but I just don’t know. — Jimi Hendrix, “Manic Depression.”
Did you see yesterday’s reversal?
The market was up more than 3% across the board and then … pow! Total market reversal. Someone must’ve crossed the streams.
Rather than panic about it, the financial media took yesterday’s plunge in stride. It’s truly amazing what you can get used to, and this level of volatility is the new normal.
Don’t believe me? Take a look at a recent study by Bespoke Investment Group. According to the study, the S&P 500 Index moved at least 1% in 24 of the past 25 trading days. That’s crazy! It’s a level of volatility last seen in the 1930s. Yes, we’re talking Great Depression levels of market volatility here.
But former Federal Reserve Chairman Ben Bernanke doesn’t like the Great Depression comparisons: “People have made comparisons to the Great Depression. It’s not a very good comparison. The Depression was 12 years long.”
Well, no duh, Ben. It’s only been about a month. You obviously can’t cram 12 years into one month. You can, however, make comparisons to the volatility and the level of economic pain that are already evident in the market.
However, after dismissing Great Depression comparisons, Ben predicted that U.S. gross domestic product would fall 30% or more in the second quarter.
Tell me again how we’re not supposed to compare this to the Great Depression?
As Jimi puts it: “Manic depression’s a frustrating mess.” And right now, we’re all caught in the market’s crosstown traffic.
Now, I know that the recent market rally has lulled many investors into a false sense of security. I don’t want you to be one of the surprised and shaken when the other shoe drops. So, let me show you a Dow chart I’ve mulled over lately:
Do you see that yellow-shaded area in the chart? That area marks a 50% retracement of the Dow’s February 12 high and its March 23 low. In other words, the Dow just regained about 50% of what it lost from its February high.
Why’s this important? You’ll notice that yesterday’s last-minute rout — where the Dow gave up a 3% gain to finish in the red — started when stocks hit that 50% retracement level. We call this a continuation pattern.
Once an asset like a stock or an index completes a 50% retracement, there’s a high tendency for the previous trend to continue.
In this case, that means more selling pressure and downside risk.
In short, we’ve had our fun with this so called relief rally. We’ve pretended that the worst is over.
Now it’s time for reality to set in once again.
Hey Joe, where you going with that portfolio in your hand?
How are you weathering this market? Are you shorting up a storm or buying stocks by the basketful?
Let us know how you’re doing out there. Write to us at GreatStuffToday@BanyanHill.com.
From your past emails, I know quite a few of you go-getters ditched stocks for options long ago. (My masochistic options-loving spirit goes out to you!)
So, while markets just closed their worst first-quarter in history…
One of Banyan Hill’s strategies just had its best quarter ever.
It showed readers the opportunity to close 461% in total gains during the sharpest drop since the Great Depression. (See? I told you the Depression comparisons were warranted!)
Going: And I’m Sailing, Yeah!
Carnival Corp. (NYSE: CCL) should’ve been, could’ve been, would’ve been dead … if the Saudis hadn’t come to the rescue. Now, CCL stock is on a four-day winning streak.
The big deal happened on Monday, when the Public Investment Fund of Saudi Arabia, a sovereign wealth fund, disclosed an 8.2% stake in Carnival. The stake makes the Public Investment Fund the third largest CCL shareholder.
Since the disclosure, Carnival’s trading volume exploded with CCL ranking among the most traded stocks for the past three days. The shares have gained nearly 40% since the Saudi stake was announced, pushing CCL shares into an area of long-term support/resistance near $12.
But, while the recent rally makes CCL look quite attractive, it’s important to remember that its shares are still down more than 77% since mid-January.
If you’ve ever been to a theme park, we all know how these rides end. There’s another big splashdown coming for CCL once the Saudi hype dies down.
Going: Shipping Well Is the Best Revenge
COVID-19 has taught Amazon.com Inc. (Nasdaq: AMZN) a hard lesson: Building out your own shipping service is hard.
The online retail behemoth will reportedly halt Amazon Shipping services starting in June. The reason? Surging demand surrounding the COVID-19 pandemic.
“We understand this is a change to your business, and we did not take this decision lightly,” Amazon wrote to shippers, according to a company note seen by the Wall Street Journal.
As my dad always says: “Either you can hack it, or you can’t. Can you hack it?” It seems Amazon just can’t hack it.
This is good news for the two major shipping companies that Amazon jilted: United Parcel Service Inc. (NYSE: UPS) and FedEx Corp. (NYSE: FDX). Both are well positioned to pick up the slack in deliveries that Amazon Shipping can’t handle. Clearly, UPS and FedEx can hack it.
Gone: Champagne & Reefer
When I think of Muddy Waters, I don’t think of Wall Street hedge funds. Maybe that’s just me, dear readers, but I hope not.
One thing’s for certain: Muddy Waters Research has eHealth Inc. (Nasdaq: EHTH) feeling the blues this morning. Carson Block, head of Muddy Waters Research, announced a short position on EHTH today, and the stock plummeted.
According to Block: “From a legal perspective it’s not a fraud. Intellectually, it’s fraudulent.” So, eHealth isn’t a fraud … but it’s a fraud. That’s some nice legalese. Block’s really got his mojo workin’ here.
The hedge fund manager called out eHealth for creative and aggressive accounting techniques, which Block says the company uses to hide the fact that it’s unprofitable.
A counterpoint to Block’s opinion: With President Trump choosing not to reopen the Affordable Care Act’s health care marketplaces to new customers during the pandemic, eHealth could stand to benefit.
On a final note, I would like to say that it feels dirty to take out a short position … and then announce that position on CNBC. Muddy waters indeed.
It’s that time again … you Polo, I Marco!
You’re silly Mr. Great Stuff … that’s not how this works!
It’s a topsy-turvy, downside-up world these last weeks … and heck, my family’s having a hard time telling the days apart. (Tuesday has no feel. Monday has a feel, Friday has a feel…)
But today? Why, today is a most glorious day, dear reader, rest assured. It’s time to pass you the microphone in today’s Poll of the Week!
Everyone’s talking about “reopen this” or “reopen that.” So, when do you think the U.S. economy will reopen? Is Easter too soon? Or will we ride out the summer in our bunkers?
Let us know in today’s poll:
Great Stuff: Are You Experienced?
Got more on your mind? Rave (or rant) on, it’s a crazy feelin’ and I know it’s got me reelin’.
Drop us a line at GreatStuffToday@BanyanHill.com anytime, day or night. This is electronic mail after all.
In the meantime, keep your wits about you out there, sailor. These muddy waters are forecast to get muddier … and frothy. Muddy froth? You don’t want any of that in your sailboat — er, portfolio.
Now, don’t forget: Even amid relief rallies, reversals and retracements (oh my!)…
Even with the market crashing to historic levels…
You need a guide when the market’s waters get choppy.
And if you’re into tech, Ian King’s 5G research in Automatic Fortunes could be just what the plague doctor ordered. Ian finds tipping-point tech trends — and each trend’s standout leaders. Ian just spotted one company that’s at the forefront of the 5G transition.
(Just think: With everyone stuck at home … 5G internet can’t come soon enough!)
Until next time, be Great!
Editor, Great Stuff