Will April be as brutally volatile?
We are in a new month and a new quarter. It may not be as volatile as last month, but I can guarantee we will not be short of volatility. Headline news surrounding COVID- 19 will take most of the space but economic releases will also play a big role.
The media will make a big deal of tomorrow’s unemployment report. Equity markets will swing around it. That’s back ward looking data. The Fed, Treasury and congress has already acted on it. What’s more important is what’s happening on the health crisis front.
The difference between now and the GFC is this. During the GFC, we had no clue of the extent of problems many institutions were facing. They were falling like dominoes for almost a year and we did not know to what extend the authorities will respond. But finally, when they did with “whatever it takes” everything changed.
With the current crisis the authorities have already shown their cards that they will do “whatever it takes” but the known “unknown” is we don’t have much clarity on the path the health crisis could take. So, while we are optimistic on that let’s look at the markets.
Equities
The Dow dropped 23 % in its first quarter of this year making it the worst first quarter in its 135-year-old history. We have been arguing the move up since Mar 23 is a counter trend rally. Nothing has changed to reassess our mind on that.
The Dow rallied to 22,595 on Mar 26 and S&P 500 to 2641 on Mar 31. The move down since is impulsive. There were nearly 14 stocks down for everyone stock that closed higher on the NYSE. Down volume was almost 92% of total volume on the board. So, not only did stocks start the day lower but it finished there too.
This may be the start of a much bigger move down. The critical levels in the Dow is 19,500 and it will be 2325 in the S&P 500. The risks are very poised for much bigger down move than any strength.
Bonds
Bonds have rallied to a window that we would like to be short. However, its persistence strength worries us. Any move above 184^25 will force us to be neutral. We are looking for a move down to 155 in the coming weeks.
Euro
In the short-term, Euro must have topped out at 1.1148 on Mar 26. The coming down move could draw prices below 1.0635 of Mar 22.
Gold
Gold is at a critical position and it should worry most of the investors. Only a rally above 1702 will worry us. Optimism towards gold remains at an extreme but the price is not supportive to it.
The gold ETF (GLD) took in almost 2.9 billion dollars of investment last week, the biggest inflow since 2009. This is very typical of a counter trend rally. Any move below 1520 will confirm the major trend is clearly down.
Be small, be safe, 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.