News of the rapidly spreading coronavirus into South Korea, Italy and Japan, gapped the market sharply lower at the opening of trading on Monday, leaving an ominous 13 day island, trapping longs, proving that Fed liquidity, though “fire-hosed” ready, and still ongoing, is no match for a bearish exogenous event. For 5 consecutive days, stocks in every sector, fell an astonishing 16%.This decline, though taking only 5 days, has exceeded both the Ebola decline of 7.5%, and the SARS decline which dropped 14%, and took multiple weeks. While it’s highly likely the high for the year is behind us (SPY 339.08), the question becomes: do stocks enter a bear market right away, or do we enter a protracted period of wide-ranging, choppy trading over several months, while stocks make a comeback, building the right shoulder of an enormous H&S topping formation? With the Fed likely to cut rates 3 times this year, (80% probability, although it’s no vaccine), we favor the “comeback” scenario. The key: whether the New Economy sector can lead, and re-establish new highs vs the Old Economy. In the long run it will not prevent a recession, but in the short term will provide “staying power”. SPY Fib support 276.86, 274.86. SPY Fib resistance 309.15, 320.54.
Gold met our projected price target (1670) on Monday (actual spot high 1689.60) – held relatively firm for 4 days -then when most vulnerable by end of month Cartel paper selling, in coordination with the unannounced raising of margin requirements by the CME, as Wall Street took profits where they could find gains (to offset market losses), creating the “perfect storm” to hammer gold, (-7.5%) and gold stocks (-19%) off their respective highs. As we said “A healthy correction may be forthcoming once targets are met.” But, the amount of corruption and deception behind the precious metals markets is shocking. Support levels: GDX 25.12-24.78 (strong), GDXJ 35.35, GLD 144.29, SLV 15.30 Resistance levels: GLD 152.88, SLV 16.72, GDX 29.28, GDXJ 40.99, SIL 31.25, GOAU 17.19.
The greenback, surprisingly, gave up safe haven status, and sold off with everything else, closing under our 89 line trendlines (UUP 26.53). Fib support 26.29 (strong).