I believe the market has been shrugging off mounting risks, climbing to positive territory for 2020 before faltering today. As discussed previously, I am avoiding the market as it is not adequately discounting risks. The market tends to trade on changes in newsflow rather than on levels, so it is not unusual for a market to rebound sharply on slight improvement in data. However, eventually levels do matter, and sharp distortions arise (such as a market in positive territory in the midst of a global crisis). One clue as to when the market has gone too far is when it reacts to not-so-positive data, like last week’s jobs report, in an excitedly bullish manner. It is a sign that bears have capitulated, and with positioning increasingly driving much of the market action, this serves as a signal that there is trouble for the market.
The primary risk not being adequately discounted is the potential for a resurgence in COVID-19 cases. Nearly every state has now reopened in some capacity, and yet, basically none of them have even met the criteria for reopening set by the CDC (or the Administration for that matter). And not surprisingly, we are starting to see cases bounce in many of these states.
With that in mind, I’m introducing a COVID-19 monitor in the form of a “bounce chart.” It basically shows the evolution of positive coronavirus cases as states reopen. You can access the monitor on either Daddy.Finance or Tabs.Live (our sister site). It is updated daily.