Things you need to know:

• Buy algos appear a bit exhausted – as markets retreat
• Germany reports a “jump in cases”
• BoJo remains in ICU
• US oil production falls – Now isn’t that a surprise! Eco 101!
• Try the Grilled Shrimp

KENNY POLCARI, Editor
Chief Market Strategist, and Consultant

Circuit breaker limits today

• Level 1 – S&P must fall 7% – 186.15 pts
• Level 2 – S&P must fall 13% – 345.72 pts
• Level 3 – S&P must fall 20% – 531.88 pts.

So stocks surged out of the gate yesterday morning – gaping up for the second straight day as the excitement was building over a slowing virus in Europe as well as indications that we are starting to see a slowing virus in NYC. But as the day wore on – the excitement faded – and the buy-side algos appeared exhausted after the massive two-day rally that saw the Dow surge more than 11%. What this tells you is that “it ain’t over til it’s over and it ain’t over!” What the action yesterday shows is that volatility is likely to remain alive and well for a while. The VIX index – while down from the March highs of near 85 – is still well within volatile territory at 47. It will remain so until the market finds clarity and stability – two things which remain elusive. And with the start of earnings next week – we shouldn’t expect anything to change just yet.

Stocks have gotten way ahead of themselves – as talk of a slowing virus ignited the algos – and while I do believe that this too shall come to an end – until it does the surges higher coupled with collapses lower should be expected. Remember, the speed at which the market went from raging bull to raging bear was short and swift, piercing so many technical supports and rulesets before investors could even catch their breath. Algos and the latest technology have allowed for mind numbing action (in both directions) couple that with the explosion of passive investment products – ETFs that have forever changed the landscape and you have the perfect mix for angst and nervousness – especially when some ETFs are two and three times levered and very complex. When they begin to fail then watch out – because with one touch of the SELL button – it can all come unraveled. Conversely – with one touch of the BUY button can create a sense that “it’s all good.” As we saw on Monday’s 1600 point surge…

In fact – the selling (and buying) gets overdone in both directions….as the technology allows for the pendulum to swing way to far left and then way to far right as the market looks for stability. And that was clearly evident in yesterday’s action. What started out as another exciting UP day – ended in loss – now not anything that looks like a big loss. When you look at the whole day – the market had an 983 pt swing to end the day with the Dow down 26 pts, the S&P off by 4 pts, the Nasdaq losing 25 pts and the Russell flat.

Look – let’s be serious – the economic shutdown demanded by the government is absolutely going to weigh on the US economy plunging us into a forced recession well beyond this second quarter and that reality is about to hit us between the eyes starting next week. Goldman Sachs warning once again that anyone who thinks the markets have bottomed – may be a bit premature. Now I am in the opposite camp – I do think we have seen the bottom – and that would be 2200 – the levels reached in late March – but that is 400 pts ago or almost 18% lower from here. I think that as we move through earnings season and we gather more economic data and we watch as the virus washes across the country. The markets will come under pressure again….and test those lows. Now if the data or earnings or virus results are WORSE than the current expectation – then yes – GS would be correct. But if it is as we EXPECT – then I think it is what it is and a test and hold of 2200 would not be out of the question.

Overnight the news is mixed in Asia – China lifting travel restrictions in Wuhan – the birthplace of COVID19 – that has been in lock down since January 23 – (75 days). Japan declared a “state of emergency” to combat the spread of the virus (which is a bit odd that they are doing it today vs in January or February). Singapore joins in by banning ALL social gatherings – public and private and Hong Kong extends its bans on gatherings until April 23rd. Australia is set to pass a huge stimulus plan to combat what is expected to be a severe economic and fiscal shock as S&P cuts the outlook on Australian AAA sovereign debt to “negative.” By the end of the day – Japan closed up 2.13% as investors there celebrate the state of emergency, Hong Kong closed down 1.17%, China lost 0.47% and ASX gave up 0.86%.

In Europe – the situation is a bit sourer. Markets across the zone are all in negative territory as optimism fades. FTSE – 1.83%, CAC 40 – 1.95%, DAX – 1.06%, EUROSTOXX -1.8%, SPAIN -1.78% and ITALY -0.73%.

In the latest news, Eurozone finance ministers FAILED to reach a deal on Tuesday on any economic stimulus to benefit the Eurozone (that’s a negative). Mario Centeno – the Eurogroup head taking to Twitter saying they came closed to a deal but no cigar! Those talks are due to continue tomorrow. In Germany – coronavirus cases suddenly jump (that’s a negative) rising by 4,000 cases in the past 24 hrs. UK PM – BoJo remains in the ICU unit – but doctors tell us his condition is stable – and that he is NOT on a ventilator. (I guess that could go either way).

In the US, futures are a bit lower. Dow – 64 pts, the S&P off by 9 pts, the Nasdaq lower by 22 pts and the Russell is down 3 pts. Early word this morning is that total US cases have now surged past 400,000 and deaths now stand at 12,864. NY reporting its highest death toll since it began. (So much for the slowing). Dr. Birx telling us that anyone who dies now and has COVID19 – no matter what their physical conditions/ailments are – will be designated as a virus victim. So I suspect that the death toll will rise exponentially in the days ahead. Trump goes off on the WHO (World Health Org) for getting “every aspect” of this pandemic wrong and is threatening to withhold funding for the organization to show his displeasure. But is this just Trumps way of telling the story? Trump offers doom and gloom, project huge death numbers, deflects blame to everyone else, threatens to withhold funding, has everyone on the podium singing his praises. He repeats it over and over setting the expectations so high that in the end – it is lower than projected and he can claim success. If he controls the projections and the story then he can change the narrative and come out smelling like a rose. Isn’t that The Art of the Deal?

In a press conference he said:

“They did give us some pretty bad play calling, with regard to us, they’re taking a lot of heat because they didn’t want the borders closed, they called it wrong. They really called every aspect of it wrong. And then when I closed it down, they said I made a mistake in closing it down and it turned out to be right.”

Remember that the WHO didn’t designate this as a global health emergency until January 30th after it had spread to at least 18 countries across the globe. They didn’t declare it a pandemic until March 11th after it was clear that this was a real global emergency. It has now spread to almost every country – wreaking havoc in its wake – causing a massive global recession, infecting more than 1.4 million people while it has killed more than 80,000.

Economic data today includes: Mortgage apps and the FOMC minutes from March – neither of which will steal the headlines – but there is the oil story, and that will challenge the conversation today.

Yesterday – we saw oil fall by 6.9% as the concern builds over the next move between the Saudis and the Russians. Yesterday afternoon, the US energy department told us that US output is declining – oh boy – isn’t that a surprise?

In yesterday’s note I said:

“US production is already in decline. Economics 101 – so do we have to cut further? Market pricing is taking care of it on its own. And with oil below $40, we can expect to see a rise in US bankruptcies across the sector – and there isn’t anything we can do to stop that – the longer it stays in the $20s the more bankruptcies we can expect. And when that happens then production gets cut even more. See how that works? It’s a natural result of weaker prices.”

This morning oil is up 2.5% or 62 cents a barrel at $24.30 as hope remains alive that tomorrow’s ZOOM meeting between the OPEC and the allies will result in a deal to help stop the bleed. Shorts are running a bit scared because if they do come to a deal. Then we will see oil surge like we did on Monday when the expectation was still alive and well. In any event – any deal will most likely push oil to $30 and not much more. They would have to make massive cuts if they want to see oil go much higher. But – let’s see.

Take good care

Kenneth Polcari
Chief Market Strategist, Consultant
[email protected]

Grilled Shrimp on a Bed of Orzo

Spring is here and Summer is coming… so get ready to try the Grilled Shrimp.

For this you will need: about 2 doz. large, clean & deveined shrimp, 10/12 skewers, olive oil, oregano, fresh lemon juice, minced garlic, s&p, feta cheese and some Orzo (Orzo is a rice shaped pasta – used in many types of pasta salads or soups or in this case as a bed for the shrimp).

Now we are going to grill the shrimps using skewers

if you are using wooden skewers – you must soak them in water for at least 20 mins so that they do not light on fire and burn.

Now – pierce the shrimps onto the skewers – maybe 4 at most per. Set aside in a deep pyrex dish.

Next mix the olive oil, garlic, oregano, some lemon juice, s&p – shake well and then pour 1/2 over the shrimps. Place in fridge and let marinate.

Heat the grill – using a grill brush –clean the grill rack.

Bring a pot of salted water to a rolling boil and add the orzo… cook for about 8 mins or so… do not let it get mushy… keep it a bit aldente. Strain and mix with the feta. Now pour the remaining mix into the pasta with the feta and stir well to coat. Place the orzo in a large family style platter and make a bed.

Next – remove the shrimps from fridge and place on hot grill… be sure to not burn… it should take no more than 5 to 7 mins max. Now place the skewers on top of the orzo and feta. Take a picture to remind yourself of this great and simple dish.

Buon Appetito.