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

Monday | March 16, 2020

Hello Friend.

YESTERDAY'S CLOSING PRICES

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YESTERDAY: March 13

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The EXACT OPPOSITE OF THE PREVIOUS DAY

Friday saw everything bounce in an equal and opposite direction from the market lows set on Thursday. Thursday, the SPX and Dow were down almost 10%, and Friday it was up the same amount. AAPL had closed down -$27.20 on Thursday, and it was up +$29.74.

WHY?

On Thursday, I stated in the Morning Coffee Report that we might have seen the lows (see below). President Trump's news conference seemed to help bail me out of my prediction, along with the passing of a Coronavirus bill.

Bills are useless in themselves. The money never gets to where it is suppose to go; however, the appearance of action and people in control is enough to comfort markets. You may have Barney Fife show up at the scene of a burglary, but the uniform is enough to instill confidence.

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FRIDAY

All day we heard bickering about a proposed bill to help those affected by the coronavirus. People were complaining that one party was trying to sneak in non-related goodies into the bill, and it was going to be blocked. We heard about politicians going home for the weekend with nothing done. Yet in the last hour, it was announced the bill was going to be signed. President Trump had a news conference with the VP and his coronavirus team. Once the bill's passage was announced along with news of more testing kits coming to market, the SPX ran higher by 80 points in 30 minutes. That is 800+ Dow points.

I have been saying for weeks now that the bottom will come when the whole world collectively sighs a big breadth of relief that the worst is over. This was likely not it, though. We will see politicians and the media rile up the masses. We will hear about geometric increases in the virus infection rate.

We are getting a little more desensitized by the numbers. Two weeks ago, an increase of 1-2 patients spooked the markets. Now most people wont notice a spike in the hundreds.

Volatility is likely here to stay for weeks as this plays out; however, people are getting accustomed to bad news. If we all turned off the television for a day, things would calm down more.

SURPRISES

SPX closed higher 9.29%

Dow closed higher 9.36%

AAPL closed higher by 29.74 at 277.97 (+11.98%)

VIX closed at 57.83 (lower by 17.64)

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TODAY: March 16

LEMMINGS AGAIN!

“In individuals, insanity is rare;
but in groups, parties, nations and epochs, it is the rule.”

—Friedrich Nietzsche

I first heard this quote in high school. I don't know why it stuck with me. I was usually asleep or thinking about girls, or asleep dreaming of girls. I intuitively knew one day it would come in handy; much like the Krebs cycle and the fraternity songs I have memorized to this day. You can't ever forget pi carried out to the 12th decimal. Important stuff!

THAT IS WHAT IS GOING ON NOW.

CITIES are closing down. Chicago is closing restaurants and bars for anything other than carry out. The rational part of this stems from a medical practice known as “non-pharmaceutical interventions (NPI)”. Doctors get their power from words no one understands, and this is one of them. Traders do the same thing but are not as bright, so we come up with “Butterfly”.

All it means is that people stay are to stay away from other people – like the chess team on prom night. No one on that team had a disease the next day – lol. The queen may have been taken, but no one was worried about a pregnancy test.

NPI

The purpose of NPI is not to stop the disease, but to slow the spread down so that all the infections don't happen at once. That would overwhelm the healthcare system, and it would collapse like in China. Below is a graph of what NPI is trying to accomplish. This is an intelligent practice that has been known about since the Spanish Flu in 1918, but was not followed because of the necessities of WW1.

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Though there has been an attempt to calm fears and explain why isolation is taking place, the lemmings are not listening. If the world is ending, then it is better to be in cash than stocks. You can fill a casket with cash, but not stock certificates.

We are falling again for a couple reasons:

ONE

The Fed Sunday said they were cutting interest rates to 0%-0.25%. Last week, they cut 50 bps that caused the market rally to turn into a -800-point day. “What does the Fed know that they are not telling us” thinking is going on.

TWO

WTF is the Fed thinking will be the benefit of cutting rates by 50 bps. How does that help the restaurants, businesses and bars being forced to close but still pay rent?

THREE

Panic shopping hit at peak—at least in the Chicago suburbs. Fear breeds fear—most of the time. I was laughing and feeling empathy. I feel so bad for people who are this worked up. I am surprised there is not a run on Prozac. Below is an aisle at the local TARGET. If you look carefully you will see that one can still purchase St. Patrick's day cupcakes, so it can't be that bad.

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THAT BEING SAID....TODAY

We will see panic selling of stocks on the open. The Fed's surprise rate cut on a weekend had the George Costanza effect intended. Mayors and Governors on television looking visibly shaken and closing things down exacerbated the problem. I suspect most of the panic will be over in the first hour.

S&P 500 Price Limits

From 8:30 a.m. to 2:25 p.m. CST, there are successive price limits corresponding to 7%, 13%, and 20% declines below the previous trading day’s reference price.

From 2:25 p.m. until the 3:00 p.m. CST close of the cash equity market, only the 20% price limit will be applicable.

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
(-16.09% so far)

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Lots of fun coming today. Separate updates coming.

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