Over the weekend there have been more confirmed cases of the Wuhan coronavirus spreading. China is claiming a higher infection toll and higher death toll every day proving an acceleration of the spreading. Is this a global pandemic yet? No. Does it have the potential to be a global pandemic? Yes. All we know as of now is that there is currently no cure and that the virus is still spreading despite China’s countermeasures. Many cities in China are under travel ban but this comes at a tough time during the Lunar New Year when many Chinese are travelling about to gather with family.
This week is a big earnings week with many top names reporting (AAPL, TSLA, AMD, AMZN, MSFT, and many more). Earnings are expected to be good but this uptick in volatility and downshift in the market will be a grey cloud for some time. Companies with heavy China exposure will have a tough time on guidance for the coming quarters/year as there is uncertainty surrounding the Chinese economy and workforce. As we know, many US companies source a lot of manufacturing from China so the virus could weigh on future guidance.
SPY has blown through the 15MA (teal line) and is nearing the key 50MA (purple line) at 319.20. Look for the bid to be tested early and continued weakness at the open and throughout the day. The coronavirus will act as a grey cloud indefinitely until we start to see a decrease in the confirmed cases and death toll numbers.
Volatility has been brought back to the market with the VIX shooting over the key 16 level. Nearly every time the VIX has shot over 16 an ugly market has been triggered and this should be no different. Look for a fade towards VIX 16 and then see if it breaks down or holds. If VIX stays over 16 look for a continued ugly market and further spikes to 20+. UVXY and VXX other volatility names to keep an eye on with VIX.
One final thought I will leave with you before you go BTD this morning: we are potentially seeing the start to a global pandemic virus in one of the most highly levered markets in history…
Cash is a position, too.
