Coronavirus Update: First Death in USA, Moment of Truth for USA

The moment of truth for the United States will come in the next week or so. Will it follow the path of Singapore, or Japan, South Korea and Italy?

Only One S&P 500 Stock Survived the Coronavirus Panic; Palladium Update and 1998 Scenario

Looks bearish below resistance.
One stock that did hold up well was $NFLX. I think it's overvalued, but if the market rallies off the lows...plus Netflix is one of the companies in a position to benefit from coronavirus, or at least not suffer from it.
Zoom Video Communications (ZM) was another one that should benefit and it tanked on Friday.
It feels weird taking a bullish view amid the mayhem, but I still think palladium could tag that resistance line. At least, I can't rule it out yet. If anything the dip extends the time frame to a top. At the pace it was moving the last couple of weeks, it could have topped next week had markets kept rising.
Finally, the 1998 scenario isn't dead. I first discussed it on the day the market bottomed in 2018: What a Tantrum, Is 1998 in Play? To be clear, I didn't follow my own advice. But I did consider the possibility. I fleshed it out in March: 1998 Scenario Still in Play. The "market top" pattern I post from time to time supported a 1998 interpretation.
And I discussed it again in May 2019, at which time I did go short and did well for myself, but would eventually give some back because I didn't expect the Fed melt-up from October 2019-February 2020. 1998 Redux: Bonds Not Behaving Yet, 1966 Rising? Bonds remains a clear difference in the overall 1998 scenario, since rates rose into the market peak. Commodities such as oil, copper and palladium support the 1998 scenario.

The best case scenario is coronavirus fades like SARS. In this case, the market has already overdone it with selling. (Doesn't mean the low is in.) The U.S. sees a temporary economic boost, the government stimulates too much, markets melt-up to a final all-time high. Another possibility is February is the high as in March 2000. Sectors such as airlines are already in a bear market and while the S&P 500 or Nasdaq rally back near their highs later this year, they never make a new high.

Finally, for the immediate future, I am net long heading into Monday. My holding period has gone from months down to days and hours though. My largest position is short TLT, long XLE and QQQ. I don't plan on holding these for long whichever way they move. This market is becoming too volatile for all but the nimblest (shortest time-frame) traders. I will head towards cash and wait for a major support to hold or fail, or for a signal such as the market failing to drop on negative coronavirus headlines.

Update: Chinese traffic congestion is down this weekend, but that's to be expected. A recovery in work-week traffic is the bigger indicator for now. When weekend traffic rises, we'll know the corner has really been turned.

U.S. GDP Growth Set to Blow Away Expectations

Americans are going to spend their money somewhere and it looks like a lot more of it will be spent in the United States. This will cause a decline in imports. Under GDP accounting formula, a dip in imports translates into higher GDP growth.

Also, companies that took hold of the nationalist zeitgeist and pushed for domestic production could win big here. Companies that stuck to global supply chains may be out of luck.

CBS: Shortage In Chinese Products Could Mean Empty Shelves In U.S.
“Literally, empty shelves in Target and Walmart as early as April,” predicts David Iwinski, a local China business consultant who once ran a factory in China.

...Other product shortages are expected in clothing, computers, cell phones, shoes and even toys.

So when might this be over?

“We think August, September, this will be a memory,” predicts Iwinski.


Worse Than Even the Harshest Critics Imagined: CDC Denies Coronavirus Testing

When China was being attacked from all side for its slow response to the virus, I said let's wait until we see how other nations handle it. There's some legitimate criticism of China's actions, especially censoring doctors who were speaking about the new virus early on, but overall their response has contained the disease.

I posted earlier on the CDC's terrible guidelines for detecting coronavirus and discussed the potential for a major shift in the U.S. political system. Yet even my worries may prove too sanguine if this report on Reddit is true.

Reddit: My COVID-19 Story. Brooklyn.
At this point, the hospital called the CDC requesting permission to perform the COVID-19 testing. The CDC denied the request on the ground that I did not have the most life-threatening symptoms: chest pain and shortness of breath. According to everything I read it's very likely not to have these symptoms if you're in your 30's and relatively healthy.

And... that was that. They discharged me, said I don't have Corona virus, since they didn't test me for it, and said I can ride the subway, return to work, do whatever I want.

Of course my doctor disagreed. She said I should treat myself as if I am infected. My partner is currently staying in a nearby hotel since we live in a studio apartment. I've performed a self-quarantine for 14 days. Fortunately I can work from home and my partner can deliver me groceries if I run out.

But I don't think that many people are aware of the fact that they're actively not testing people for COVID-19, even people who have travel history to high-risk places.
The government is an incompetent clown show and this isn't simply one administration. There is deep rot in the bureaucracy. This is honestly what I would expect to hear from a country such as Iran or North Korea, or a completely dysfunctional African country.

While the U.S. still looks like it might get lucky by dint of having time to prepare, it does look like the case number will end up substantially higher than it otherwise could have been.

Coronvirus Accelerating Worldwide

Fear of Infection Slowing China's Return to Work

Caixin: Dilemma for Chinese SMEs: Resume Business But Risk Spreading Virus
Businesses are caught in a dilemma. Facing cash flow pressures, they are eager to restart their operations to make up the losses suffered during the closure, but they also face the risk of virus spreading among their workers once factories reopen.

China had 18.07 million SMEs at the end of 2018, accounting for 99.8% of all companies. If these companies can regain their footing, employment and the economy will stabilize, Zhang said.

Small private business owners incur expenses for labor, rent, and utilities even while closed. For example, rent and utilities for restaurants could account for 15-20% of their total costs, 30% for barber shops and small retailers, and as much as 50% for small mom-and-pop grocery stores, Tang Jun, deputy director of the State Administration for Market Regulation, said at the press conference.

Get Rich


Palladium Scoffs at Coronavirus

Palladium says @#$% coronavirus and the South Korean airliner you flew in on.
Prior post on palladium is here: Palladium Clock Adds a Tick and a Tock. Link to the initial post talking about a top is at the top of that post.

China Blocks Borrowers From Coronavirus Loans

On February 5, I posted: Inflation Coming? China Reverses Deleveraging Effort Amid Coronavirus Outbreak. I speculated that loosened lending standards will attract speculators and others seeking credit for unrelated reasons.
China will help companies amid the ongoing shutdown related to the coronavirus outbreak. Many of these policies are a reversal of deleveraging efforts made in the past year or two. They are loosening lending and reversing the crackdown on underpayment of social security. The social security taxes will be repaid later, but how many businesses will take the opportunity to load up on credit?
And yes, those companies are trying.

Caixin: China Blocks Access to Cheap Epidemic Loans for 48 Firms
Chinese authorities have booted 48, mostly state-owned, enterprises off an official list of companies eligible for special low-cost loans under a government initiative to boost financial help for firms actively engaged in the battle against the coronavirus epidemic out of concern the loans would not be used for their intended purpose.

The 48 companies comprise five coal producers, 38 transport companies and five local government financing vehicles, Caixin learned on Tuesday from sources close to banks and financial regulators. Some of them had tried to get loans under the 300 billion yuan ($42.8 billion) special-purpose relending program by pretending to produce goods such as disinfectants, the sources said. Loans already made to these companies will no longer benefit from the preferential interest rates, they said.
China has good information on SOEs, but even these guys were bold enough to try. No doubt there are many private borrowers loading up for the post-corona boom.

Chinese Factories Slowly Going Back to Work, But Many Still Below 50pc Staff

Chinese businesses are opening, but they're still severely understaffed. Migrant workers make up a large portion of the workforce, but many remain in their home cities. Chongqing estimates 88 percent of residents who came back for Spring Festival are still in the city.

21st Century: 多地农民工返岗就业率低于50% 就近就地就业仍需“精准施策”
By sorting out the public data of some migrant workers in the country, 21st Century Business Herald reporters found that despite the launch of measures to promote the return of migrant workers to work, there are still migrant workers returning to work in less than 50% .

Many scholars interviewed by 21st Century Business Herald reporters believe that with the downward adjustment of public health emergency response levels, more jobs may be released in the future. However, the increase in employment in a region is still a market behavior and has a close relationship with the stage of local economic development and industrial characteristics, so it is still not easy to create a large number of jobs in the short term.
With everyone focused on getting existing labor and production back to work, one thing that's been overlooked is the lack of growth. Companies haven't been creating and filling new jobs. For now, they're still hoping their workers return.
As of February 23, there were 3.889 million rural laborers returning to work in Henan Province. Before the Spring Festival, 9.78 million migrant workers returned from outside the province, the return rate was 37.72%. According to statistics from Kaifeng City, Henan Province, On the 22nd, the city's 187,000 returning rural migrant workers returned to work with 50,800 people. The return rate was 27.2%, of which 6402 were organized.

As of the end of December 2019, according to the Yunnan province ’s human resources system labor force resource survey, 12.244 million rural laborers in the province have realized transfer employment, 8.639,900 transfer jobs within the province, and 3.605 million transfer jobs outside the province, but as of February 21 The rural labor transfer employment in Yunnan Province was 3.286 million, of which 10.272 million were transferred outside the province and 2.624 million were transferred within the province—compared to the data at the end of 2019, there are still large differences.

However, Yunnan Province ’s Human Resources and Social Security Department ’s epidemic prevention and stable employment headquarters said that within the next 15 days, the province ’s rural labor force is expected to go out to employ 1.575 million people.
Chongqing estimates 88 percent of those who returned home for Spring Festival are still in Chongqing:
A press conference on the prevention and control of the epidemic in Chongqing, which was held on February 20, announced that there were 6.057 million migrant workers returning home in Chongqing during the Spring Festival this year. According to incomplete statistics, 739,000 people are currently employed outside the country. This means that there are still 5.31 million returning migrant workers in Chongqing who are not out of employment, accounting for nearly 88% of the returning migrant workers in the Spring Festival in 2020.
This is why traffic is down all over. There's still tens of millions of workers waiting in their home cities.

Mainstream Playing Catch-Up on Coronavirus

Coronavirus once again reminds investors that the stock market only discount what it pays attention to. For weeks, I and others were wondering how stocks were staying up given the clear threat from coronavirus. Mainstream media ignored it, many governments downplayed it, and even experts reacted to news of travel bans by calling it racist.

Now the mainstream is catching up. Here's the front-page from Drudge this morning. One of the big early news items about the virus was the HIV-mutation, which fueled conspiracy theories of a man-made bioweapon. Stocks are sliding sharply because the average person and those who don't have time to read a lot of news (including business, investment and government leaders) are playing catchup. I'd wager that by next week, we could be in a position where the greater risk is being caught short when "not as bad as expected" news starts breaking. Not arguing that will happen, but everyone should be caught up by the weekend. The threat of coronavirus is no long a "secret."
The big question is, has the virus been spreading undetected? Despite their confidence, the CDC and U.S. authorities don't really know. Wuhan was a disaster, and China is still under quarantine policies, because it spread unchecked for one month in Wuhan. Based on travel ties, the U.S. should have already had an outbreak. Instead, it has broken out in a seemingly geographic pattern with Japan, Singapore, South Korea, Iran and Italy reporting outbreaks in turn. That might be a quirk of fate or perhaps Trump's travel ban on China worked. One good thing about the travel ban and subsequent policies is that many of the people who come back from China have been sent into voluntary home quarantine. Others have decided themselves to self-quarantine to protect public health. Maybe the U.S. will get lucky.


Gold and King Dollar Rising With More In Store

USDMXN was the most bearish chart for the U.S. dollar the past few weeks. No more.
EURUSD bounced perfectly after filling its gap. If this topping pattern completes, we can switch to quoting it as USDEUR, since it could be going as high a 2.
USDBRL exploded after completing its base. Pullback likely given the run-up, but very bullish chart over the longer-term.
USDAUD same pattern, same breakout.
Last week I laid out the path to USDJPY 175. It has pulled back, but bounced off the former resistance.
The final currency that will complete a full blown dollar bull rally will be the yuan.
And the one to rule them all, gold. Gold has a massive basing pattern versus USD, which in turn has a massive basing pattern versus many major and minor currencies. Fiat is burning from the periphery to the core. Capital is flowing down the Exeter pryamid.

Social Mood 2020: Ultra Violence Coming to Baseball

Pitchers are taking revenge on the Astros for cheating during the World Championship season by throwing pitches at them. It is only a matter of time before this leads to concussions and violent brawls.

Market Still Under Coronavirus Pressure

When will the bottom be reached? It seems that today, Wednesday, February 26, one month after China shut Wuhan down in the midst of Spring Festival, is the first day the average American is really paying attention to this story.

Three charts make the case for a rebound if this is a normal correction. The USDAUD cross looks stretched to the upside as SPDR Energy (XLE) is stretched to the downside. The VIX Index did not make a new intraday high on Wednesday.
If this was a normal correction, I'd be more confident in taking some long positions here, but I believe the bottom will be reached when the news-cycle hits peak fear. For the market, earnings revisions are only beginning today. After hours, Microsoft (MSFT) cut guidance: Microsoft update on Q3 FY20 guidance
On Jan. 29, as part of our second quarter of fiscal year 2020 earnings call, we issued quarterly revenue guidance for our More Personal Computing segment between $10.75 and $11.15 billion, which included a wider than usual range to reflect uncertainty related to the public health situation in China. Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call. As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated. All other components of our Q3 guidance remain unchanged.
I still think an outbreak in the U.S. is likely. My hunch is at some point there will be far to pessimistic economic assumptions. Yesterday, I discussed a few positions I had. I'm out of Boeing today, but added shorts on Disney (DIS) and Expedia (EXPE), plus increased my TLT short as mentioned in the update to that post.

As long as the U.S. doesn't experience a widespread outbreak, the core of the economy should do well. Leisure will bear the brunt of a less severe outbreak because airlines, hotels, theme parks and movie theaters could be shut by government order. Even if there's no official quarantine, individuals may avoid these places because they fear contracting the virus. The market sold these stocks today. Below is a list of stocks I plucked out of the travel, hotels, airlines and leisure categories with good volume, market capitalization and poor performance over the past month (with a few others tossed in). These stocks have been heavily sold, making them the most likely to rally hard if fear lifts, but could also see much further downside if the U.S. situation deteriorates.
Bitcoin is taking a hit and likely to test $8,000. BSV (my favorite in the cryptocurrency space) will likely see sub-$200 price if that happens.
Barring a bad pandemic, I think the market is approaching the bottom in time. Prices could still plunge in a waterfall decline because of bad news, but I lean towards there not being an uncontrolled pandemic. Central banks are printing money. Fiscal stimulus is coming out of Hong Kong and Germany. If the U.S. somehow ends up relatively well-off because it acted in time, the onshoring of supply chains will accelerate. The rebound growth for the U.S. could be surprisingly strong. The Y2K comparison looks less similar right now because coronavirus is more serious threat, but if the fear lifts, the sense of relief will be stronger.


Market Correction: Done or Ready to Run?

Update: I sold my QQQ, still holding TLT. Added some DIS shorts in case the market takes a dive here. Leisure and hospitality will be hardest hit by strict quarantine measures or an outbreak.

Nothing in this post should be construed as trading advice, I'm posting solely to let readers know where my mind's at.

I've been heavily short in the market, but covered a lot of positions today and even took some long positions such as QQQ and short TLT. The VIX came close enough to tagging its downtrend. My speculative thought is the market will bottom when a large city such as New York City announces an outbreak and quarantine measures. However, that might not come for some time. I think today was probably an overreaction caused by not taking this virus serious. Plenty of people were shrugging it off on Monday even after outbreaks hit South Korea and Italy. I don't think we've reached full panic/capitulation by the "it's just the flu" people, but a news-driven correction needs news. On the other side, signals such as the VIX say a bounce is likely.
Palladium is a speculative indicator and it was a nice shade of green today. Meaningless by itself...
Tesla should be rattled in a major correction, but held up relatively well considering.
Virgin Galactic (SPCE) is falling after hours, but as I type this it is still above a recent support line. An extremely steeply sloping line if zoomed out.
Two trades I made today were Boeing (BA) and Domino's (DPZ). I sold a position in BA and used it to buy a position in DPZ (all puts). I'm still short BA. As for Domino's, delivery will not be spared in a pandemic. People will not want contact with drivers, drivers with customers, and workers may not show up. Plus there's a huge gap to fill.
I mentioned Peru and copper awhile back, and noted BAP as a potential short. It is nearing a support level now. Again, breaking it would be huge. But I'm not sure the time is right for the big move.
A Russell 2000 ETF tagged support today, but also fell below its January 2018 high.
The S&P 500 and Nasdaq don't have much chart support here, but both have gaps to fill above.

I'm less bearish today given the downturn in stocks and recognition that coronavirus is a bigger deal than people understand. I expect the ignorant who ignored it until yesterday and today will eventually overshoot. I have been worried about coronavirus. I have made preparations at home in case the government imposes a quarantine or I choose to self-quarantine. Having said that, I was more worried when everyone was ignoring the virus. The faster authorities and the public realize it's a problem and change their behavior, the less one needs to worry. The past two days was the start of that recognition in the USA. Similarly, the sell-off is the initial shock hitting markets.

China Traffic Falls on Tuesday, Workers Still At Home

A Caixin article noted traffic was back to 90 percent in Shanghai. That was true towards the tail end of morning and evening rush hour on Monday. Traffic declined on Tuesday though. Similar dips were seen in other cities,
A separate article confirms the decline in traffic using roaming data from mobile phones.

Caixin: Millions Who Power ‘China’s Workshop’ Have Yet to Return, Mobile Data Shows
An analysis of roaming usage patterns from Guangdong-registered mobile accounts showed that through Sunday some 10 million people were waiting to return to the wealthy province in South China, officials announced at a Tuesday briefing. That included 1.7 million people from Hubei province at the epicenter of the Covid-19 outbreak, which has infected nearly 80,000 in China and killed more than 2,000.


Rest of World Coronavirus Cases Starting to Rise on Log Chart

I've seen reports that China has begun reducing its quarantine levels in cities down south, but no news headline yet. These cities are still under strict quarantine, but down one level if reports are true. On the other hand, someone in Guangzhou got out of quarantine and then showed symptoms, and now there are 4 people infected.

Caixin: 广州一家人隔离期满后发病 新冠病毒患者个别潜伏期长
Official news disclosed on February 23 that a cluster of new-onset pneumonia families broke out in Liwan District, Guangzhou. On January 22, the day before Wuhan closed the city, a family of six from Pan took a high-speed train from Wuhan to Guangzhou. Until February 21, almost a month later, Pan and his son-in-law were diagnosed with new coronary pneumonia. The next day, Pan's wife and grandson were diagnosed.
This goes against the news of quarantines easing.