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

Thursday | February 27, 2020

Hello Mayumi.

YESTERDAY'S CLOSING PRICES

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YESTERDAY: February 26

Wednesday's Summary:

TRICK OR TREAT

The stock market opened modestly higher to news that President Trump was going to address the country that evening. After opening about $12 points higher, the SPX kept running higher on news that Trump had something positive to say regarding the virus.

In addition to Trump speaking that night, there was a noticeable absence of a constant stream of news of new cases of the coronavirus popping up all over the globe. Within the first 15 minutes, the SPX was 40 points higher and having the media talking about having seen the bottom in the market.

The SPX hit a high of the day of 3182 (+54.30) with the Dow approaching a positive +500 for the day. Stocks like AAPL were bouncing strongly with AAPL higher by almost $10 points and approaching $300.

70 Minutes

A little after an hour into trading, the SPX and other indices rolled over and started their journey back lower. By 11:15am central, the SPX gave back all $54 points, and hit the unchanged line. I still have no idea what was the catalyst for the move lower. I didn't see any news at that time, but it might have been nothing more than people still needing to sell shares and using the move higher as a reason.

By 12:45pm central (4 hours 15 minutes after open), the market hit a low of -3018.99 (-19.22) when measured by via the SPX. Though one would think the market would be nervous having fallen 74 points from the highs, the day seemed controlled and like a normal trading day.

OUTSTANDING

TLT – Despite fear of the virus continuing, the TLT closed down 0.80 at 150.25. Despite the paltry returns on the 10-year treasury, people have been buying bonds and notes in a flight to safety trade. Yesterday, however, traders lightened some of their bond portfolio. Perhaps they realized getting paid 1.4% by tying money up for 10 years is not that smart.

You are only promised 1.4% if you hold the products for 10-years, but you can lose money if you close the position prior to expiration after it falls in price.

CRUDE – Crude oil broke through $50 p/b Tuesday, and contained to fall yesterday closing at $48.73. In the night session, I am watching the commodity trade in the $47 handle.

VIX – The VIX climbed slightly. Closing at 27.56, the product is very elevated when the mean of this is about half that price.

TRUMP SPEECH

At 5:35pm central time President Trump took to the podium to talk about the coronavirus.

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While speaking, the E-minis jumped around from a net change of +10 to -15. By the time the President finished talking, the MINIs were -15 and kept falling after President Trump ended the conference. A couple hours later the MINIs were down almost -50.

Why?

President Trump tried to calm the markets and people's fears. Everyone I speak to thinks Trump did a fantastic job at calming people's fears. While I was listening to the same speech, I walked away thinking that critics of the President could have found fault. He didn't instill a sense that they were being aggressive, rather they had things under control and could sit on lawn chairs with a martini and see what happens. This is not what the President meant, but the E-minis took it that way.

In an honest attempt to calm people, Trump's speech may have come across as just another thing on Trump's “to do” list.

LOOK...his aggressive critics find fault in everything he does, but this speech lacked a sense of urgency on his team's part. President Trump assured everyone that the CDC is the best in the world and his administration is in control.

TRUMP'S MAIN POINTS

President Trump mentioned that “we're requesting $2.5 (billion). Some Republicans would like us to get $4, and some Democrats want $8.5”.

(my take: This was probably not needed to be said, though Senator Schumer has been criticizing the President about it all day. It is very sad when people's hate from any President overrides the desire for him to succeed. I am not a democrat or republican—I am an American).

"We're very, very ready for this, for anything, whether it's going to be a breakout with larger proportions or whether we stay at that very low level," Trump said.

"You don’t want to see panic, because there’s no reason to be panicked," Trump said.

Trump remarked about the flu: "The flu kills between 25,000 to 60,000 people a year—that was shocking to me."

(my take: From the very first day of this outbreak, I mentioned the same statistic).

BORDERS

President Trump did have one great point. He shut down flights from China quickly, though people are still sneaking flights in via way points. President Trump was accused of panicking and being racist. President Xi of China and the Democrats in DC were all pushing the President to keep flights coming in, but he refused. Yesterday, the CDC said that action by Trump has prevented a HUGE number of cases being in the US. Trump is not xenophobic like Joe Biden was claiming, and his actions were the right thing to do to protect US citizens over Biden and Xi's feelings.

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TODAY: February 27

TOUGH CALL

The market SHOULD be sitting or moving higher, but the media is really selling the virus as a world changing pandemic. They did the same thing in 2002 (West Nile), 2004 (SARs), 2005 (Bird Flu), 2009 (Swine), 2014 (Ebola), 2016 (Zika).

NOTE: The only difference with this virus is more evidence is coming out that this was a man-made virus in a lab, has an HIV-like mutation which makes it extremely infectious.

BOTTOM?

NO ONE knows where the bottom is. It will probably come one day when the media reports that new cases of the virus has peaked, and the numbers are not growing exponentially anymore. This will be the fastest 1,000 Dow point rally you have ever seen.

Until then...VOLATILITY.

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KNOWLEDGE IS POWER and LOWERS FEAR

Those who are experiencing anxiety about the Coronavirus can do three things:

  1. Wash your hands often.
  2. Don't touch your face.
  3. Stay away from large crowds and the sick.
  4. GET KNOWLEDGE.

The Michael Jordan of viruses is Dr. Steven Harfill. I bought his book (THREE SECONDS UNTIL MIDNIGHT), and it is the definitive text on pandemics. Dr. Hatfill is a virus rock star. He is an MD, holds Master's degrees in microbial genetics, radiation biochemistry, and a Master's degree in Medicine. As an Oxford fellow, he worked on the Ebola, Monkeypox and other viruses at the US Army Institute.

2020 ONE-YEAR PREDICTION:
Average year with lots of intermittent volatility
(-3.54% so far)

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LAST NIGHT, we talked about the coronavirus. We discussed how the premium curve increases and elongates with this huge level of volatility. I demonstrated how 21-day vertical spread 4% OTM are still very expensive.

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DISCUSSION BOARD

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LAUGH OF THE DAY

Trading is a tough job on a stomach void of coffee and humor.
You provide the coffee and we will take care of the rest.

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