Equities and bonds to see fresh lows
It is the end of the month and what a month it has been. Like the story of “ Rip van winkle “ who slept for 20 years and missed the American revolution, in the same way one happened to go into the mountains, jungles or on a lonely island with no connection to the mainland and came back after 20 days, you are in a new world that you cannot imagine. Everything has changed on a dime.
So, what has happened in the market since we wrote the last report. For starters, oil prices have tanked. It dropped below $20 an 18-year low. The Covid-19 situation has forced demand to fall by almost a quarter. That is huge.
Things have gotten so bad that producers will quickly run out of storage spaces. Considering the cost of shutting down a well, a producer would be will willing to pay someone to dispose of a barrel says an analyst at Goldman Sachs.
Meanwhile there are talks President Trump will try to mediate between Russia and Saudi Arabia in the ongoing price war.
On the other side, stock markets have held up pretty well in the current situation. We will cover more on that in the equity section.
No doubt most of the market news is related to Covid-19. New York State is the epicenter of all that is going on in US. As I mentioned in the last report, details about the efficacy of using hydroxychloroquine as a treatment for Covid-19 should come out this week.
New York will be the litmus test, as they are running a 1,100-patient clinical trial and they are administering it as treatment since last week. Anecdotal evidence from China and France have confirmed positive results but tragically the matter has become highly politicized since Trump mentioned it.
On the markets many legendary managers are buying these markets. Bill Ackman has put $2 billion to work. Value investor Bill Miller is also busy in the markets. He called it one of the top five buying opportunities of his lifetime. The best investor of all time Carl Icahn was adding to two particularly not that well known stocks in the media. Many other managers are also setting up new funds to take advantage of these conditions.
Equities
The three main US stock markets indexes all closed higher. But, the internals were not that exciting. We are still of the opinion that this is still a bear market rally.
There are two major interpretations that we try to hang our hats on, but both argue for fresh lows in the coming weeks.
The S&P 500 rallied to 2632 and in the process filled a gap up to 2630 from last Thursday’s close. Yesterday’s high did not exceed the intraday high of 2637 on last Thursday. A move to 2785 will equal 50% of the whole down move this year so far.
In 1929, a 50% up move in the Dow took five months to happen but there was no trillion-dollar stimulus package or social security back then. So we will see how this plays out.
Bonds
Think bonds must have completed its countertrend rally and is ready to move down. Any move above 184^25 will force us to abandon our view.
Euro
The Euro has many interpretations and are currently confusing. Probably a top was seen on 27 mar at 1.1148. A move down can take it to fresh lows below 1.0635 of Mar 22 but would hesitate to be involved.
Gold
We covered gold through a special report yesterday. Think we must have seen a top yesterday. A move below 1600 will get us excited but a move above 1700 will worry us as well.
Be safe. Be small. Stay home.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.