Investopia email read ... Gordon Scott, CMT
Who's Buying?
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Chart Advisor | Focus on the Price
By Gordon Scott, CMT
Monday, February 24, 2020
1. Stocks sell off hard, with subtle signs of opportunistic buying
2. The VIX says there is more selling to come
3. The only stock on the rise today
Market Moves
It isn't a surprise that the Nasdaq 100 index (NDX), S&P 500 index (SPX), Dow Jones Industrial Average (DJX), and Russell 2000 Small Cap index (RUT) opened with a calamitous gap lower. However, it is surprising that two of these benchmarks still maintained their upward trend of the last four months. Even more surprising is which two did so.
The chart below shows a four-panel comparison of the day's activity. This was a textbook exhaustion gap. The two indexes that maintained an upward trend (at least so far) are the Nasdaq 100, as depicted by Invesco's index tracking ETF (QQQ), and the Russell 2000, as depicted by iShares index tracking ETF (IWM). Though these two indexes dropped more than three percent lower on the open, they closed higher than the lowest close in January. The other two indexes closed flat or lower on the day. This is a curious outcome because it suggests that opportunistic buyers were prepared to buy up more risky stocks at a time when the market was exhibiting panic-selling conditions. This may be a hint that this particular sell off won't last very long. But would you be willing to take that bet today?
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The VIX Says There is More Selling to Come
On days like today, astute chart watchers know that it is important to review the price action on the Volatility Index (VIX). This index doesn't precisely predict what will happen next in the markets, but it does give those who review it an excellent indication of what the option market makers are thinking. Institutional option sellers set the prices for options by adjusting their implied volatility, and when they inflate the value of specific options, it rolls up into an aggregate and shows up in the VIX chart.
Today's VIX chart shows that even though the S&P 500 opened low, fluctuated and traded lower, the VIX gapped up and closed significantly higher. That means option sellers saw increasing demand for options throughout the day, and that demand held all the way through to the close. If this is any indication of the future, investors are still quite worried and it won't take much to get them to sell more stocks and send prices lower in the day or two to come.
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The Only Stock on the Rise Today
It's not too hard to figure out why Clorox (CLX) shares are on the rise today if it was news about a sickness that drove investors to sell. This company makes a lot of things that would be useful in the medical field, but nothing quite so valued as the best-known anti-bacterial liquid on the planet. It's not that it would cure the deadly strain of Coronavirus, but that it would be snapped up by everyone who wanted to clean, clean and clean again any surface of suspicion in a contagion-panicked world.
The chart below shows how this stock not only opened higher but traded higher on the day. Of all the stocks in the S&P 500, this was the only one to do so. The Average Directional Index (ADX) indicator, shown below the chart as a purple line, tracks the strength of the trend in a stock. CLX shares look like that strength is gaining.
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The Bottom Line
Stocks fell today amid rampant fears over the economic impact of the COVID-19, the current strain of the Coronavirus making headlines. But that didn't stop a few adventurous buyers from trying to play the contrarian. The VIX level remained elevated, which probably doesn't give those buyers a lot of hope. The one stock that did gap up and rise higher today was Clorox. Is anyone surprised by that?
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Comments
I decided today to nibble on some individual stocks I'd had my eye on.
But tomorrow I might wish I'd waited.
David
Maybe nibble tread very carefully w tight stop_loss
Travel restrictions and quarantines are still ramping up.
We have yet to see what the mortality figures really look like in an open society.
Nor do we really know the level of care that will be required for those that are seriously ill. But it's not hard to imagine that the virus could hit some countries a lot harder than others. And wait til this bug starts hitting refugee camps.
Buying in the metals with GDXJ, SILJ and CEF plus physical buying at these prices.
And so it goes,
peace,
rono
PRULX finally jumped today. Up almost a dollar since I got it early February. Looking to use some of that. Thoughts?
I don't think we're anywhere near the bottom. Sorry, but we're in the middle of a trade war, facing a pandemic, and we've got an idiot in the White House. We all hoped and prayed there wouldn't be some sort of international crisis . . . but hope don't pay the rent. He's calling the coronavirus a democratic hoax, but at least he put the chief religinazi in charge , who's asking the faithful to pray for a cure.
I urge you to fasten your seatbelts,
And so it goes,
Peace,
Rono
Enjoy your weekend, Derf
To ignore the financial implications of this would be foolish in the extreme.
Wasn't too long ago someone on this board called that we are in a secular bull market. In light of the last 10 trading days, we could be in something far worse if we don't take this virus seriously.
Epidemics run on panic and fear. The treatment is aggressive epidemiology by deep state experts funded by the CDC and scientifically based journalism to counteract wild rumors.
All things this administration, unlike any others has tried to destroy.
That is why I think it is impossible to use previous epidemics as models of the governmental and markets response.
This will probably get a lot lot worse. I would not be buying this dip
I am curious. Do you know anything about the epidemiology of the cases in the Washington State (Kirkland) LTC facility? Also, do you know if the current test methods in the US have any or many false positives? I tried to Google both questions because I scratch my head about some of the cases and found - not much.