When Will We Hit Bottom?

by JDH on March 28, 2020

How do you know when stocks have stopped falling?

The easy answer is “when we have a double bottom”.  That makes sense, psychologically.  In the absence of specific news (like a bankruptcy filing and the company shutting its doors forever) stocks don’t fall every day for 30 straight days until they hit zero.

As this chart of the S&P 500 shows, the index dropped to 2900, bounced over 3100, fell to 2400, bounced over 2600, then dropped to 2200 before recovering to the close on Friday at 2541.

If the index falls to 2200 but doesn’t break it, that will be an indication that we are at the bottom.

Is that a guarantee?

Of course not.

The past two weeks have been instructive.

On March 18 the SPX touched just above 2275.  On March 19 the low was just under 2325.  Looks like the bottom is in, right?  On March 20 the low was around 2300, higher than the 2275 from March 18, looks like a double bottom, right?

Wrong.

On March 23 it broke 2200, before bouncing back, so if you guessed that the low on March 20 of 2300 was a double bottom, you would have been wrong.

The message here is that a double bottom is only obvious in hindsight.  Depending on your time horizon you have to wait a few days, or weeks, or months to know for sure that the bottom is in.

Here is my current thinking:

We will beat the coronavirus.  Beating COVID-19 is the world’s number one priority right now.  (Funny how climate change has disappeared from the news, eh?  What will apparently destroy us in 10 years, and what we have devoted billions of dollars to, is not as important as what will destroy us in 10 days, apparently.  Where would we be if even a fraction of the climate change money had been devoted to pandemic prevention?  But I digress).  If every smart scientist is working on it, we will find a solution.

I believe it will take two years to find an effective vaccine.  We may never find an effective vaccine.  We don’t have a vaccine for the common cold, so we may not find one for coronavirus.  But that doesn’t matter.

We will find a treatment, and that’s more important.  In fact, it appears we already have one.  Do a search for: “cocktail of hydroxychloroquine, azithromycin, and zinc sulfate” and see what you find.  I’m not a doctor, so I have no idea if this is legit or not, but it appears that this cocktail of drugs, long used to treat malaria, lupus, and other conditions, is effective against COVID-19 if it is administered when the patient first has symptoms, and if the patient was otherwise healthy.  If you are elderly, or obese, or have other serious health issues it’s not as effective, but it appears that it is effective in slowing the spread.

Even better, the treatment costs around $20.

The problem is that the world does not currently have 8 billion doses, so until production can ramp up, we can’t sound the all clear.  Hydroxychloroquine is made in India, and they have stopped exporting it (because they want it for their population), so supply will be an issue.

But wait, you say!  I read this stupid blog for your mis-guided comments on stocks; you don’t know anything about immunology, and now you are spreading conspiracy theories from the internet?

Maybe, but do you have any better information?

Here’s a test: How many deaths are occurring?  Obviously the number of cases will increase exponentially over the next week or two, as more people are infected, but if there is an effective treatment, those people will recover.  Here’s the number of deaths, per day, in New York (from this data source).

  • March 22 – 42
  • March 23 – 37
  • March 24 – 59
  • March 25 – 107
  • March 26 – 107

What does this prove?  Nothing, yet, but if the death rate going forward is around 100 or less each day, that means that the virus is treatable, and if it’s treatable, we win.  We may all get sick, but we take the pills, stay home for two weeks, and we are good to go.

So, likely, the elderly and those with pre-existing conditions will have to stay home for the next few months, perhaps until the warmer summer weather, but it will pass, and we will all be back to work.

That’s when the recovery begins, and the stock market goes way up.

Of course many businesses will not survive.  Many local restaurants will be gone forever.  But, those with cash will buy those distressed assets and re-open and the world will continue.

So watch for the double bottom on the stocks you want to own, and be prepared to deploy capital.  I think the but point will happen sooner than expected.  If I had to guess when the buy point will be?

Easter.

Perhaps it has already arrived for NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS.  A buy order at $5.25 may be a good bet.  The low was around $4.80 on March 19, and then $5.12 on March 20, so perhaps a buy order at $5.25 may hit it perfectly.

Or not, I don’t know, it would be safer to wait a few weeks to see for sure, but if you are a gambler, that’s where you can place your bets.

So, to summarize, I think next week will be bad, but then we start the turnaround, and April will be a generational buying opportunity.

Let’s hope I’m correct.

Stay safe.

Wash your damn hands.

Quick Update on COVID-19

by JDH on March 21, 2020

You don’t need me to tell you what’s happening on the market.  You have the internet, I assume.

The price of gold is back to where it was in August 2019.  A big correction, but not the end of the world.

The DOW closed Friday around 19,000, a level last seen in the fall of 2016.  Again, a big correction, a crash if you will, but is it the end of the world?

No.

The next few weeks will be very tough.  COVID-19 cases are increasing in North America, and that’s not good.

But, it appears that people are finally getting the message.  This is not “just the flu”.  People are staying home, and that ultimately is what will stop the spread of the coronavirus.

All of the smartest medical people are working on this.  It appears that hydroxychloroquine, and anti-malaria drug, may provide some relief.  We will get through it.

I’m an optimist.

The human race is undefeated against all odds.  We have never been defeated.  We will prevail over this as well.

And when we do, and people go back to work, the pent up demand will create the mother of all rallies.

I predict that the markets will hit all time highs this year, again.  Crazy?  Perhaps, but if we get this thing under control in the next three months, we can be back to work in the summer, and it will be full steam ahead.

So, if you can find some cash to be ready deploy, I think it will be a great opportunity.

We shall see.

In the interim, wash your damn hands……

Disaster for Gold and Everything Else

March 14, 2020

Oh boy. On February 24, 2020 NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, traded over $42.  14 trading days later it closed at $6.76, after trading as low as $6.  That’s an 86% drop in two trading weeks. How’s that for volatility? So now what? Do we close up shop […]

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Coronavirus, the stock market, and the economy

March 7, 2020

That was a fun week, eh? Last Friday, February 29, the SPX traded under 2,875; this week it didn’t trade below 2,900, so on that basis “support is holding”. Of course on Wednesday it was over 3,125, so the drop to 2,900 on Friday is a 7% drop, which is not a great three day […]

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Disaster: The Beginning, or the End?

February 29, 2020

Quite a week, eh? Last week I was bragging about how it was a great week for gold; everything looked great.  This week, not so much. NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, the highly leveraged way to play gold shares, closed a week ago at $38.38.  Now it’s at […]

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A Great Week for Gold

February 22, 2020

That was awesome, eh? Gold started the year at $1,517.  It touched $1,652 on Friday.  Not a bad start to the year. The highly leverage ETF that tracks gold mining shares, NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, has had a rockier ride this year, but is finally back in […]

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Equinox Gold – New High – What’s Next?

February 15, 2020

Back on January 11, 2020 I published Equinox Gold Corp – A Deep Dive, where I explained why I thought EQX.TO – Equinox Gold Corp., my largest gold holding, would go much higher. This three year chart looks good.  Very good, actually. Equinox Gold traded at $9.62 on January 3, and closed on February 14 […]

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Out of Apple

February 8, 2020

Last week I described my Apple Experiment; this week I ended the experiment.  You will recall that I bought Apple shares, and sold covered writes against them.  That worked out fine, most of the transactions were profitable, but in the end I decided the risk was not worth the reward.  Yes, making 1% each week […]

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Apple – AAPL – My Experiment

February 1, 2020

We all know the Feds are printing money like crazy, and the stock market will keep rising until the US election in November, so it’s prudent to take a position in the stock or stocks that will benefit from a rising market. Most of my portfolio is in gold, but you’ve got to diversify, so […]

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How will China Impact the Market?

January 25, 2020

As I write this on Saturday morning, January 25, 2020, the coronavirus spread is accelerating in China, and that’s not good news. Gold was trading at $1,546 on January 21, and sits at $1,571 now, so it would appear that speculators are moving to gold for protection against whatever may happen next. Needless to say, […]

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