Looking For Buying Opportunities After The Historical Selloff

Looking for Buying Opportunities After the Historical Selloff

As I write this, the market is officially in correction territory, with the S&P 500 off 14.5 percent from its all-time close on February 19. It took only six days, in fact, for the S&P to fall 10 percent from its high into a correction­­—a new record, according to data from Deutsche Bank Global Research.

The decline has certainly hurt many equity investors and 401(k)s, and there may still be more pain ahead. On Friday, the World Health Organization (WHO) raised its threat assessment of the coronavirus, or COVID-19, to “very high,” and warned that the illness could soon reach most, “if not all,” countries across the globe in the coming days and weeks.

I choose to remain optimistic, though. The underlying economy is sound. Nothing has changed about that. This selloff is purely incidental to the outbreak, and once it’s contained and the number of new infections begins to plateau, I expect to see stock markets recover sharply. The same goes for the industries that have been hardest hit by the virus, including travel and tourism, airlines and energy.

Take a look at the oscillator chart below. It shows that airline stocks are trading down a rare three standard deviations, the most in at least five years. What this means is that airlines are extremely oversold and flashing a “buy” signal. As soon as this outbreak subsides, I believe airlines will begin to soar again.

(Click on image to enlarge)

NYSE Arca Airline Index flashes a buy signal

During his press conference last Wednesday, President Donald Trump appointed Vice President Mike Pence to manage the U.S. response to the outbreak as well as the government’s messaging about the virus. The media is far too negative, Trump said, and there’s a lot of misinformation out there.

I don’t think I can disagree with him there. A recent survey found that, amazingly, 38 percent of Americans wouldn’t buy Corona “under any circumstances” because of a perceived link between the Mexican beer and the coronavirus. (For the record, there is none.)

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Disclaimer: 

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P/Case-Shiller Composite of 20 Home ...

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