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Market Lab Report - Sorry... Out of Order

Market Lab Report / Dr. K's Crypto-Corner

by Dr. Chris Kacher

The (R)Evolution Will Not Be Centralized™

CME Circuits Tripped

Circuit breakers put a limit on a harrowing plunge in U.S. stock futures to -5%. How big will losses get? In times of panic, markets do not care about support levels or moving averages. Our 620 strategy has been hugely useful in these volatile times for two main types of traders: 1) Swing/day traders: 620 gets you into and out of your position boosting your odds of making quick profits, 2) Position (longer term) traders: 620 gets you out of any position earlier than waiting for a violation in a moving average. If one waited, it enabled one to exit positions on last week's bounce.

One of the major ETFs utilized by the Market Direction Model sits at a +27.13% profit since it went to a sell signal last week.

Today, the 30 year U.S. Treasury bond broke below 1% for the first time in history. Markets are now pricing in an 80% chance of a 75bp rate cut and a 20% chance of a 100bp rate cut which would bring the target rate down to 0-25 bps.

Here is what major market averages look like in premarket trading as the 5% maximum has been triggered:

Shock Sells

Last Friday, India's number 4 bank collapsed. Regulators took control. India is ill-equipped to deal with the coronavirus outbreak given its limited healthcare system and poor access to water and sanitation. Bloomberg then reported that the entire city of Milan is being quarantined, but because one can remain asymptomatic for at least a couple of weeks, quarantines are unlikely to contain the virus.

It is also unlikely a "one size fits all" vaccine will be created despite a number of research laboratories and universities working on a solution because corona is a single strand RNA virus making it prone to mutation. “Flu and coronavirus season” may become the new norm. Mainstream media will pounce on the virus not being containable while undermining the fact that its mortality rate is below that of other viruses such as SARS and MERS. Meanwhile, the number of infections and deaths will climb exponentially before leveling off, adding to the overall fear mongering. Shock sells and also causes market selloffs.

Nothing would please leftist-driven media mainstream to induce a massive bear market in this manner. Since people vote with their pocketbooks, this would put a serious dent in the odds of the incumbent republican president being reelected.

Ultimately, the virus will burn itself out but the world's overreaction will end up excessively damaging the global economy due to severe quarantines and supply chain disruptions, costing jobs, livelihoods, and, as a result, can spur second order health consequences unrelated to the virus. The silent epidemic known as stress is a killer. While recessions can induce bear markets, bear markets can also induce recessions as they wreck investment psychology thus put investors into a risk-off mindset. The effects of typical recessions tend to last for several years after the recession has ended due to the second and third order effects of lost jobs, diminished portfolios, and scant savings.

I'll leave you with a particularly poignant and relevant episode from the original Twilight Zone with Rod Serling, "The Monsters Are Due on Maple Street". Indeed, the world is full of Maple Streets.

Rod Serling - The Twilight Zone - The Monsters Are Due On Maple Street
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