TalkMarkets Monday Chat: Searching For A Bottom

Well, Spring did arrive over the weekend but with trading underway in Europe and Asia it appears that some market springs are still unwinding further as the search for market bottoms continues. Looking for positive signs, although lockdowns and containment measures are being ramped-up around the world, China is taking steps back toward resumption of daily life. For example there have been video clips across multiple media sources showing resumed production of surgical and safety masks in Chinese factories, all headed for export. Unfortunately, most of the other headlines remain grim. TalkMarkets contributors looking to assess last week's market carnage and the way ahead are of diverse opinion while trying to use history as a guide.

Declan Fallon in "Markets Finish The Week Near Lows" says without a doubt that the markets are seeking new lows and that "with key indices finishing near the week's lows" the chance for yet another gap down today looks high. He notes "What will be important will be the selling volume - we want to see some exhaustion (light volume) on down days, followed by higher volume buying on days markets are able to close higher." His expectation for Monday trading is that the S&P "will gap down" because "failed 'bullish hammer's have a nasty habit of trying to seek new lows. The only thing 'to like' here is the relative underperformance against the Russell 2000; if traders are moving back to more speculative stocks it might raise the opportunity for a more sustained low."

Ilya Spivak a writer at contributor DailyFX expects the US Dollar to continue to gain value against world currencies as it is a convenient vehicle for reinvestment whenever the current crisis starts to cool. In his article "US Dollar Aims Higher As Markets Liquidate On Coronavirus" he notes that over 80% of global monetary transactions are settled in USD (UUP). He sees the the peak of Covid-19 as the prerequisite for any increased risk taking by investors. He notes that "a Bloomberg gauge of US financial conditions shows sharp deterioration despite the Fed’s bountiful easing, with credit at its scarcest since 2009. This may keep cash – and thereby the Dollar – trading at a premium."

Ironman suggests that with lockdowns across several states in the US we are headed for a recession and further downward action in the market. Writing in "S&P Declines As Instant Recession Arrives For U.S. Economy" his take on the turbulence of last week going forward is that "The outlook for S&P 500 dividends continues to deteriorate, with the future quarters of 2020-Q2 through 2021-Q1 seeing declines in expected payouts." Looking at the charts for guidance (he has several in his article) he concludes with a sliver of optimism noting, "The actual trajectory of the S&P 500 is consistent with investors focusing on 2020-Q2 in setting stock prices, which is nearly a best case scenario given how much dividend futures have fallen." 

For a look at the Dow of the last twenty years, chart maven Taki Tsaklanos takes a look at what the charts can tell us. His article, "Incredible Support: Dow Jones Long Term Chart On 20 Years" is a cautiously optimistic (forward looking) and in depth historic look at the Dow's behaviour through critical examination of the charts. Of interest for serious chart followers.

If you missed Mark Cuban's interview on CNBC last week "No More Buybacks. Not Now, Not A Year From Now. Not Ever" you can catch it here. He is not big on past bailouts and insists that this time around we should "make sure that every worker gets compensated and is treated equally and that the executives don't get rewarded extra to stick around, because they have nowhere else to go."  He further adds that "Whatever it is that a company does for their executives, they should be required to proportionally do the same thing for everyone else that works for the company.Period, end of story. ..No buybacks. Not now, not a year from now, not 20 years from now. Not ever.Effectively you're spending taxpayer money to buy back stock and for me, that's just the wrong way to do that."

Norman Mogil writing in an exclusive for TalkMarkets, " The Unconventional Moves Into The Realm Of The Conventional" notes that these unconventional times will bring moves by governments to stabilize economies and help spur recovery. He questions what will work and how much are the right amounts. He notes that "that conventional fiscal policy—selective spending or tax breaks—take too long to formulate and even longer to work their way through the economy. Time is of the essence as cities are in lockdown and borders are closed. The real issue, though, is how much money should rain down? " Mogil does not believe sending $2,000 to each US taxpayer will be enough (and it seems the US Senate could not yet agree on a a right amount, either). He does not have a full answer, but asks us to stay tuned as "Early indications in North America are that millions will be added to unemployment rolls and the depth of the contraction could well be in the double-digits for the balance of 2020. Central banks and governments are not yet at the point of unleashing unconventional policies, but this may happen sooner than we think." 

I'll make those words a wrap for this week's "TalkMarkets Monday Chat" with the wish that the markets find a bottom soon.Hope springs eternal for all of us.