The SPX is down a horrific 32% in the past 30 days wiping out 3 years worth of gain. Let that sink in. 3 years gone in 1 month. With the global economy effectively shutting down, even clowns Mnuchin and Trump have now accepted that a recession is unavoidable. And this won't be just a run of the mill recession, it's going to be the worst since the Great Depression. The hope is that it will be a "flash recession" such that there will be a major bounce back in activity once the lights get turned on again. I certainty do hope that this will be the case but hope is not a viable investment strategy.
Given the jaw dropping damage to the market and looming sharp decline in economic activity you would figure that the sentiment data would have shown extreme bearishness but to my surprise it didn't! Put/call ratios are high, but AAII sentiment and fund flows are showing just moderate bearishness. I was quite surprised by this. Given everything that's happening we should be seeing extreme bearish sentiment which quite frankly would be justified. Bull markets climb a wall worry. Bear markets decline on a slope of hope. It seems like we are on that slope of hope right now. I think what we are seeing is a combination of shock coupled with over eager knife catchers from both bulls and bears a like. I can tell by my twitter feed that bulls and bears have been caught off guard with the ferocity of this decline. Bears closed out bearish bets far too early with some getting ran over trying to play for an oversold bounce while bulls got ran over the whole time thinking every big dip was a buying opportunity. Yes, there is some panic selling but that's to be expected to a degree. You got to expect selling when the world economy is grinding to a halt. New York and California have now locked down. Other cities/states will no doubt be following suit. It's over.
From 2009-2020 we saw a lot things that the market freaked out about to cause it to correct and most of the issues did nothing to ultimately impact GDP/earnings in a meaningful way, yet bearish sentiment was always quick to surge. This time around we've seen a massive drop in the market and are staring in the face of a massive immanent contraction in GDP/earnings yet bearish sentiment is not as extreme as it was during the correction lows we saw in the bull market which were due to issues that are tiny compared to what we face now. That's not a good sign for the market. Although there is some capitulation, it seems there's also too many people that are either still in shock and/or too eager to buy the dip thinking that the Fed/government will be saving the day.
I know that the authorities are scrambling to provide support to people and corporations and they are doing some huge things and they will do more...they will do whatever it takes to mitigate the damage that will be coming. I sure hope they are successful. I sure hope everything will turn out fine in the end, but as stated earlier, hope is not a viable investment strategy and bear markets don't end with hope, they end with despair and we're not there yet. When the ugly numbers start coming out maybe at that point we'll get there.
Maybe I got this all wrong and I'm too negative. Maybe my negatively will turn out to be the contrarian indicator that marks the bottom. Believe me I would GLADLY accept this! As a trader/investor I don't care which direction the market goes so long I'm on the right side of it but I when you're a market bear, you're expecting and possibly betting on bad things to happen to the economy and therefore to people and I don't enjoy that. I'm not a miserable SOB like so many permabears are.
As I stated before, what I think we need to see to provide any sustained relief rally is any kind of positive news that the virus is being corralled. Until then dead cat bounces and lower lows is what I'm expecting. It will be a treacherous trading environment so beware. For me, I'm pretty much sitting this one out as I have been for some time.
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