Markets are ‘risk on’ in the short term

Virus moves the markets. It is true. What I mean by that is the progress and deterioration in the virus situation determines which way the market is moving.

In the last report we discussed about the drop in daily ICU admissions in NY hospitals. Plus, a steep decline in daily intubations. Since the severity of this disease is determined by how bad your respiratory functions are, it is that NY hospitals have found an effective treatment option. If patients are treated successfully, they don’t require an ICU, they don’t require a ventilator. If that’s true we must have found a bottom for the health crisis.

The main media is not reporting the statistics on this. So, who has it? Apparently only the NY Governor’s office. Mr Cuomo in his daily briefings did not make any mention yesterday.

It could be that they don’t want to change the public’s perception on the status of the crisis, as to maintain the adherence to the lockdown.

But it is no coincidence that the discussions on opening the economy started in the last few days.

So, markets are ‘risk on’ in the short term.

There are two other major meetings that are taking place today. The EU ministers meeting to find consensus on dealing with Coronavirus and the OPEC meeting on stabilizing oil prices. Success or failures on these meetings will be market moving. Let’s have a look at the markets.

EQUITIES

Bear market rallies end on optimism, not pessimism. News that Sanders suspended his campaign and the positive vibes that we discussed above on coronavirus has kept the market momentum to the upside.

The S&P 500 carried slightly higher than the Dow as they both filled some gaps on the way up. The S&P 500 rose to a recovery high of 2761 which is under our initial target of 2795. It has met the minimum expectations of a recovery high but that does not change the fact that this is a bear market rally even if it rises to 2900 or to 2975.

Markets are very emotional, and any surprise news can create big price movements. However a move below 2658 should be the first sign of a trend reversal.

BONDS

It could be that we have seen a top in bonds. The countertrend rally was not impressive. A move down should gather momentum towards the levels that we had mentioned before.

EURO

There are many interpretations to the current euro picture. We have less confidence in making a strong call. Will wait for a better pattern to emerge.

GOLD

Futures gold prices shot up to $1743 while spot and GLD prices stayed below the Mar 9 high. Daily sentiment index indicator has risen to 90% bulls. It is important to watch silver as well at this point. A move below 14.52 is critical.

Be safe. Be small. Be 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.