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Prepared by StratagemTRADE.com and Scott
Writing under the nom de plume of J.L. LORD

Friday | February 28, 2020

Hello Mayumi.

YESTERDAY'S CLOSING PRICES

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YESTERDAY: February 27

So, first of all, let me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance”. —First inauguration of Franklin D. Roosevelt

Above is FDR's speech during his first inauguration, and it applies today as much as it does today.

Like Henny Penny screaming that the “sky is falling”, people are way ahead of the virus. That is how markets work, and yesterday was the best example in a long time of how fear feeds on itself.

Wednesday we had 58 confirmed cases. Yesterday, the number may have been as high as 69. There have been no deaths in America yet.

MARKETS

The SPX opened at roughly 3050, which was about 66 points lower. All of this was attributed to Saudi Arabia suspending pilgrimages to Holy Sites, the CDC stating that it fears a “community outbreak” in Sonoma Country after finding its first case. In addition, China and Japan announce they were closing schools.

AFTER OPEN

After the open, the SPX fell and got as low as 3007 (-109 pts), a significant technical number. This happened in the first hour, but then the sun came out to sterilize the markets. A miracle happened.

There was no negative news about the virus for 3 hours and VP Pence spoke to reassure the public. The SPX worked its way back to -19.32 (minis down about -15) by the start of the 3rd hour.

11:30am Central to Close

When the markets reached their zenith for the day, some reporters on CNBC were predicting that the markets would be in the GREEN by the close. This was short lived when the Governor of California stated that there are 8,400 people from commercial flights being monitored for CoV-19. He stated that California has 28 confirmed cases of the 2019-nCoV.

This was enough to kill all forward movement, and gravity set back in. The rest of the day was a slow fall back to the lows.

CLOSE

On the close, the SPX broke through support of 3,000 like it didn't even exist. Once through 3,000, algos and traders panicked. In the final moments, the SPX fell another 22 points to close at 2978, but futures kept falling for another -15 minutes.

LOOK at the devastation since last week:

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TODAY: February 28

It is amazing that on this day the DNA-molecule was discovered, and now we are relying on it to find a cure for the coronavirus.

RUNAWAY PANIC

NO ONE KNOWS AT THIS POINT.

Do I think there is a reason why the SPX was down 4.4% yesterday, making the drop for the first 4 days of trade a negative 11.2% ? ? ?

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Overbought Market

If you take into account that we had an overbought market that usually sees 3 corrections of 5% a year (on average) and an occasional 10% correction coined “correction”, then 10% of the move is fine.

Bernie Factor

It is hard to quantify what a fear of a remote possibility of Bernie Sanders being president is worth on the stock market. At this time, I don't think the threat of him becoming President is anywhere near as real the the media makes it out to be. They are showing estimates of a 33% chance of that happening, which is nuts. He may have those odds at winning the Democratic ticket, but then he still has to go against Trump. That cuts his odds at least in half, from 33% to 16%.

Coronavirus Health

Whatever we fall because of health risks seems premature at this point. The fall would be based on fear of what could happen, not what has happened. China has a problem that is real, but no one knows how real.

Coronavirus Financial

This is probably the biggest concern. If the virus dies out right now we will not see that much of a financial hit on the GDP here.

Every day that factories are closed, people are afraid to take vacations (cruise ships, hotels, airlines, crude and gasoline sellers, restaurants, etc.) major corporations will suffer in sales.

SUMMARY

Between a natural correction (10%), sell-off because of Bernie (2% at best at this time), Coronavirus Health (insignificant), and Coronavirus Financial (unknown), we could make an argument of the market falling at least 12%. The top of the selling range is impossible to quantify, but the market is now down 16% from the highs made just 8 days earlier.

I am NOT shocked that we are down 16% from the highs. I am VERY shocked that is is happening at such a rapid pace.

RELAX

It is the fear of the unknown that scares the markets the most. Unlike elections, Brexits, earnings periods, etc., we have no idea when the news that stops the panic is going to come out, and perhaps that is making this worse. Politicians and media using it for political purposes and to gain “air time” are doing most of the damage. This is an apolitical virus that doesn't care about race.

You’re braver than you believe, stronger than you seem and smarter than you think”.
– Christopher Robin, Winnie the Pooh

2020 ONE-YEAR PREDICTION:
Average year with lots of intermittent volatility
(-7.8% so far)

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Separate update coming.

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