Bearish … rating of 4 (5 is neutral, 0-5 is bearish, 6-10 is bullish).
I’ve changed to a bearish rating. The reason is obvious – coronavirus and its effects. The Chinese overnight revision from around 45K effected to 77K effected, is one of those events that cannot be predicted and seems to come from out of nowhere. Also, it was reported that the viruses spread with significance to countries outside China, and both produced a big down day Monday.
Every year we have a selloff of some sort. A selloff can be as small as 4-5-6%; with a small selloff, its best to ride those out or be only slightly defensive. Other selloffs can be much larger and quite devastating. Right now, the DJIA is down 7.0% from its peak on 2/12, and we are just below the January lows.
My thoughts are this --- no one really knows with any degree of certainty whether this disease will reach pandemic status or not. The selloff occurring now may be one of the following three scenarios – either a) a concern over the spreading coronavirus and its effects on life, economic growth, and investor fear – in this scenario, the decline will be over shortly; and b) a possibility that coronavirus will trigger a deeper market impact because some underlying structural weakness is already present in the market; or c) a possibility that coronavirus could be much worse than believed and will reach pandemic status.
As I’m writing this, the DJIA is gyrating between down 250 and down 420 as bearish selling and bullish buying are battling it out. Many investors have elected to ride this out, so far. Others have taken defensive action. I believe the most likely occurrence is --- investor pessimism will increase and prices will be headed lower, and I am taking defensive action to protect our capital.
To see prior editions of this blog letter, go to http://www.defensiveadvisor.com
Opinions voiced in this post are for general information only and are not intended to provide specific advice or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss.