Stocks closing on their lows is never a good sign, especially on record-breaking down days like today.
The Dow closed down 2,997.10 points - round that up and call it what it is: a 3,000-point loss. Or 12.94%, call that what it is: a 13% loss in a single day. And the Dow closed almost on its lows.
The same's true for the S&P 500 and the Nasdaq Composite.
The Fed cutting the Fed Funds rate to 0% is not a good thing. It smacks of desperation, of a lack of liquidity at big banks. Worse, if the Fed's opening up its "Discount Window" and accepting bad collateral for interest-free loans, which is what they're doing, it's because institutions need liquidity immediately, and some are desperate.
That's frightening...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
All we need now is a "Lehman Moment." Not that I see one immediately ahead, but one's out there with all the leveraged risk parity funds and other leveraged funds and companies who borrowed to execute buybacks to lift their stock prices, as they have been employing for years.
The coronavirus's impact on humans - on where we go, what we do, how all that translates into sales and business prospects - is what's impacting equity markets. Investors have no way of analyzing, calculating, even modeling revenues or the lack of them, profits, or more likely losses, at any company affected by the virus, and when investors are faced with unknowns, they sell.
When faced with monumental unknowns, they're going to keep selling.
Today, benchmarks blew through their next support levels, and in some cases they blew through a couple of support levels. The Dow didn't even look at its 21,917 support before opening a lot lower. It didn't even pause at its next support at 20,649. The Dow closed at 20,188.52. Its next support level is 20,013.
The S&P's next support level is at 2,346.03. It blew through 2,565 and 2,419 without pausing.
The Nasdaq Composite blew through 7,436.90 support at the open, and it blew through support at 6,999.58 like a hot knife through butter. Its next support is 6,780.07.
This isn't time to bottom-fish, even though there are fantastic companies on sale right now. Now's the time to hunker down, raise as much cash as you can, and get ready for more losses, because I see another 20% to 25% drop possible, if not probable.
The "start buying into new positions" bell for investors will be when we see the infection rate in the U.S. stop growing and start reversing. The all-clear for investors, meaning it's time to buy everything on their Christmas lists, will be when China's 100% clear of the virus and there's no reinfection going on.
If China starts seeing a surge of reinfection rates around the country, sell what you have, because we're going a lot lower.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.