State of the Stock Market Analysis for the Week Ending on March 1, 2020 (Volatile and Bearish Week for Stock Market | State of the Stock Market 3-1-20All You Need Is Jobs

This week will definitely go down in history as one of most volatile and bearish ones on Wall Street since the major indices fell by more than 12%, and the registered their biggest one-day point loss ever. Stocks erased several months of gains as investors fled risk assets in droves because of the spreading of the coronavirus outside of China. Treasuries benefited the most from the risk-off shift, with the 10-year and 30-year yields both hitting record lows, driving the price of Treasuries significantly higher. While all of the key sectors closed the brutal week in the red, energy stocks were particularly weak, as the price of crude oil plummeted to a one-year low, and the outlook for global trade, tourism, and the auto industry deteriorated.

The key economic releases leaned bullish yet again, and even though we had a few negative surprises, the overall picture does not yet reflect the impact of the outbreak. The housing market was very strong in January, with the Case-Shiller Housing Price Index, new home sales, and pending home sales all beating expectations even before this month’s decline in mortgage rates. The manufacturing sector continues to send conflicting signals because while durable goods orders were higher-than-expected, the Richmond Manufacturing Index missed the consensus estimate by a mile. The CB Consumer Confidence number was slightly lower-than-expected as well, and analysts fear that the coronavirus-related worries might have a negative impact on the consumer economy in coming months.

The technical picture deteriorated due to this week’s rout, and especially the relatively weak Dow is in trouble after losing over 3,000 points in a matter of days and entering correction territory together with the other benchmarks. The S&P 500, the Nasdaq, and the Dow are now all well below their 50-day moving averages and apart from the relatively strong tech benchmark, their 200-day moving averages as well. Small-caps also fell sharply together with the broader market, following two encouraging weeks, and the Russell 2000 closed well below both of its moving averages. The Volatility Index (VIX) almost tripled this week, to nearly 50, reaching the levels of the “volatility apocalypse” in February 2018, and the “fear gauge” closed the week near its highs on Friday.

Market internals were crushed as the major indices plunged lower this week, as the most reliable measures all hit multi-month lows amid the rout. The Advance/Decline line declined by the most since February of 2018, as decliners outnumbered advancing issues by a 13-to-1 ratio on the NYSE and by a 12-to-1 ratio on the Nasdaq. The average number of new 52-week highs collapsed on both exchanges, falling to 15 on the NYSE and 18 on the Nasdaq. The number of new lows skyrocketed in the meantime, surging to 372 on the NYSE and 310 on the Nasdaq. The percentage of stocks above their 200-day moving average crashed due to the broad selloff, diving below 25% and closing the week near 27%, despite being over 70% just two weeks ago.

Short interest spiked higher for the second week in a row, and yet again, the industries most-exposed to the outbreak registered the most significant increase in shorting/hedging activity, with the most-shorted issues performing in-line with the broader market. While Tabula Rasa (TRHC) pulled back this week following a strong two-month rally, the stock still has a short interest of 36%, which could mean that bulls will target its all-time highs from 2018 later on this year. MiMedx (MDXG) held up well amid the broad selloff on Wall Street, and the stock’s sky-high short interest could fuel further gains following the correction. Duke Energy (DUK) popped up on the list of the stocks with the highest days-to-cover (DTC) ratios, with a reading of 12, so the stock could be ready to hit new all-time highs soon. (Unfortunately, the remaining portion of DUK stopped out of the GorillaTrades portfolio on Friday with a 10.5% profit.)

The first week of March is still expected to be all about the coronavirus epidemic on Wall Street, and wild swings will likely remain the norm due to the high level of economic uncertainty, especially should the Fed intervene over the weekend. The early profit warnings from the likes of Apple (AAPL) and Microsoft (MSFT) paint a gloomy picture of the second quarter, even though the U.S economy continued to show strength throughout February. We will still have a slew of crucial economic releases coming out, starting with the ISM manufacturing PMI on Monday. The ADP payrolls number will be out on Wednesday, together with the ISM non-manufacturing PMI, while the week will end with the OPEC’s meeting and the government jobs report on Thursday and Friday, respectively. Stay tuned!

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