Yesterday’s historic plunge continued today

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Commenting on yesterday’s historic plunge and today’s trading Gorilla Trades strategist Ken Berman said:

Monday’s Historic Plunge Continues

Today’s price action was nothing short of panicky and only Treasuries provided safety against the avalanche of sell orders. Even the traditional safe-haven sectors were under severe pressure today, as the Volatility Index (VIX) skyrocketed above 30, and stocks finished at their session lows, with sentiment remaining gloomy throughout the day.

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Yesterday’s historic plunge continued today despite an overnight bounce, as the weaker-than-expected economic releases added to coronavirus-related selling pressure on Wall Street. The Dow Jones Industrial Average (INDEXDJX:.DJI) was down 879, or 3.2%, to 27,081, the Nasdaq (INDEXNASDAQ:.IXIC) lost 256, or 2.8%, to 8,966, while the S&P 500 (indexsp:.inx) fell by 100, or 3.1%, to 3,128. Decliners outnumbered advancing issues by a more than 9-to-1 ratio on the NYSE, where volume was well above average again. 

Global Coronavirus Situation Getting Worse

The global coronavirus situation went from bad to worse today as the number of confirmed cases continued to rise outside of China. South Korea, Italy, and Iran all reported a jump in cases, and several new countries also reporting infections. The CDC warned that a pandemic in the U.S. is likely just a matter of time, even as several experts said that the coronavirus could well be seasonal, similarly to the common flu. In light of the quick spreading of the virus, the global economy is likely to suffer, at least, a short-term shock, but should the outbreak slow down during the spring, we could see a swift economic recovery.

The relatively weak Dow retreated by almost 2000 points in two sessions and stocks are now almost down by double-digits on average, which well describes this week's historic plunge and extreme market conditions. While less than a week ago, the Nasdaq and the S&P 500 were still hitting new all-time highs, all the large-cap indices all registered multi-month lows This kind of selloff creates some of the best buying opportunities for bulls but uncertainty regarding the virus remains high, and volatility is likely here to stay until the global situation stabilizes. 

Another Record-Breaking Session For Bond Markets

The bond market had another record-breaking session amid the continued flight-to-safety with the long-end of the curve dropping to an all-time low. The 10-year and 30-year yields were both hammered but the rates on the shorter-dated bonds also fell substantially as trading volumes hit near-crisis levels. It’s no surprise homebuilders held up well, while financials suffered during the carnage of the past couple of days, as mortgage rates are expected to follow Treasury yields lower, further boosting the already active housing market.

We will have a relatively calm day of economic releases tomorrow, with only new home sales and the weekly crude oil inventory data coming out. Since all of the recent housing-related indicators surpassed expectations, another positive surprise is in the cards, while the battered energy sector could use another lower-than-expected number following last week’s bullish release. This week, economic releases have been mostly ignored by investors due to the virus, but should the panic subside, the still solid U.S. numbers will likely be back in focus.

Whats Next After The Recent Historic Plunge?

Technical Corner.  This week’s rout led to significant short-term technical damage on Wall Street, and even though the major indices are still in advancing long-term trends, the short-term outlook turned bearish. The relatively weak Dow fell below its 200-day moving average of 27,230, but the Nasdaq and the S&P 500 remain well above their rising long-term moving averages of 8,378 and 3,045 respectively. On the other hand, the benchmarks all plunged below their 50-day moving averages of 3,276 for the S&P 500, 9,247 for the Nasdaq, and 28,788 for the Dow.

While some analysts expected a typical 'Turnaround Tuesday' in the wake of yesterday's historic plunge, the overnight bounce quickly faded away this morning. The runaway bullish trend of the past few months, which led to overbought conditions in the stock market abruptly ended due to the new coronavirus outbreaks. Even though the longest bull market in history is in no immediate danger, the broad and deep decline suggests that we will have a more sustained correction before the long-term trend resumes. Stay tuned!

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