Phase 3 Of Bear Market Rally

OK, very good morning, Wednesday the 8th of April. Hope everyone is doing well. Remember to like and subscribe to the channel for daily updates from myself and the rest of the team. But going into an overview of what I'm going to cover here, we've got updates on the coronavirus, of course. We've got China now in the origination of this virus in Wuhan in Hubei province. They are now relaxing their 2-month lockdown. We're going to talk about that and its implications potentially, and what it might mean for trying to project then, uh, what might happen in mainland Europe, in North America. We're going to talk about OPEC. Of course, we've got that meeting, that teleconference call happening tomorrow, and then the G20 energy ministers meeting on Friday. So we'll have a look at that. Then we're going to look at a few charts, predominantly that of the S&P 500, after quite a big turnaround in market sentiment as we went through into the latter part of the day, and what we feel now about going forward, some key levels to look at, and then a few other kind of headlines I want to run you through as well. So let's quickly have a look at the overall sentiment at the market open. And actually, you can see here in the top left-hand corner is EURUSD. And if I was just to bring up the Bund future just briefly here, you can see they're just mirroring each other in a, in an inverse relationship, if you like. So here, euro under pressure. The Bund was seeing a bit of a spike through this morning. As to update you then on this basis, we have had the European officials come out. They're supposed to be in a Eurogroup meeting happening, or there has been, but after 16 hours of discussions, essentially, if you just switch over my screens, they came close to a deal, but they're not there yet. Um, so this guy is Mario Centeno, who's basically the president of the Eurogroup and minister, finance minister of Portugal, was talking about the idea then that they've suspended the Eurogroup and will continue tomorrow. My goal: a strong EU safety net against the fallout of COVID-19. So obviously here what we're talking about is a coordinated European-wide response to COVID-19, and that has failed to happen. So even though, you know, this is a global pandemic and the death toll is rising, albeit somewhat dissipating in some of those spots like Spain, for example, Italy, they failed to come to an agreement. And obviously markets have seen that as quite a negative in the short term, just given the circumstances. So euro just bumped lower, just broke through its late Asia-Pacific low, and bunds have caught a bit of a bid on the back of that as well. So that's the euro side of things. Uh, that has meant that the DXY generally a little bit stronger on some of that euro depreciation. So cable also has just bumped back down to a test around its pivot, which was, as you can see there, the low that was seen yesterday afternoon. Otherwise, elsewhere, equity markets— I think a really interesting move yesterday from an equity perspective in the US indices because we were initially rallying quite hard and then we saw one of the biggest reversals that we've seen from a percentage basis. We were up quite sharply, but then we saw around a 4% reversal from into the close, and then even some more, some selling into the Asia-Pacific session. We haven't seen that type of reversal during a one-session period since the financial crisis in 2008. So I actually think, and I will go into the charts shortly, that that's quite a meaningful signal now about this kind of you know, this idea about a kind of a bear market rally and so on. And there's some graphs I want to show you. Otherwise, oil prices took a big slide last night, came on the back of again more concerns about, are OPEC really able to deliver on this promise? We have seen some recovery overnight, did have API inventories, another sizable build that came out there, just adding on to the large stockpiles that we were seeing last week, just given the still mammoth amount of supply the US producing, but the real immediate lack of demand, uh, given COVID-19. Um, so yeah, let's go through some headlines and let's talk about a few different things there. And I'll try and keep this as concise as possible because there's quite a few different elements that I want to mention. And first of all, is this is the update on the coronavirus situation globally. So confirmed cases now 1.43 million, total deaths at 82,000, just above. But the area, or a couple of areas to be mindful of— this is that FT, that excellent graph that they're doing at the moment, which kind of encapsulates more the visual trajectory of where we're at in terms of that, the kind of the journey of the virus, if you like, from acceleration to plateauing to fading, as of what we've seen in China. So here, the UK death toll yesterday was the highest it's been. Obviously, still the worst is yet to come by most expectations from a medical science point of view. But the likes of Spain, you can see, continuing to decrease. France still kind of, if anything, going from plateauing to slight pickup. But Italy declining. But the US is the one that continues to accelerate at this point more aggressively than pretty much everyone else. And the US every day brings new deaths than the last at the moment. One thing though, even though, you know, some of these signs here in, say, Italy and Spain are quite positive, perhaps not so much in the case of definitely the US, the UK, and France. But one thing I'm looking at, and I think it's quite a symbolic thing that's happening today, not that I think that it's going to create today specifically a meaningful move in markets, but I think it definitely could do in the coming days or weeks. And that is the fact that Wuhan has relaxed its 2-month-long lockdown. Remember, we had the Lunar New Year holiday at the beginning of the year. They've been locked down ever since. And this is a city of, you know, over 11 million people. So more than 50,000 people are believed to have already bought rail tickets to other cities, flights are resuming from international airports. So this is the, the first kind of meaningful relaxation there in what had been very stringent quarantine measures in that particular city and province in China. Um, but here what I'm showing you is, um, is obviously a map of China. Um, so Hubei province where Wuhan is situated is here. You can see it's kind of west, if you like, directly from Shanghai, which is obviously on the coast on the East China Sea. If you go up to the north here, there's an area called Heilongjiang. I'm sure I've pronounced that incorrectly, but just roll with me. But this is one of the furthest northeastern provinces within China, and you can see here it has a land border with Russia. And actually, this province has gone into lockdown. They've stopped now movement of their residents amid concerns of a second wave of infections in mainland China. Now, what they're suggesting here predominantly is that it's the passage of, of movement of people coming in from Russia into China that has caused it. Whether that's the case or not, um, who knows? But the idea here, and the reason why I think symbolically it's very important milestone for China's journey about whether or not we see a second wave of infections, you know, the relaxation now of Wuhan and Hubei Province, people can now move freely around the country again. And that for me is not a worry, but potentially could be. And so I think now we need to start tracking what's going on there once again. This was a good graphic that I saw, JPMorgan, in a research note that they had released, and they were looking at the conceptual global infection curve. And I think this is I think it's quite a simplistic way to think about a virus just hitting, plateauing, and going. I don't think in reality that that's what will happen. This, I think, is much more reflective of the true sense of the journey that we'll get into defeating this virus until the nth degree, and that is that the ultimate curve end is gonna be quite a lengthy journey because generally speaking, I think when you do relax these measures, people will get reinfected. Then there ultimately will be a second wave The question is, well, how big does that become? And then how infectious does it then spread as to further areas into a pandemic? I'm sure they would be, in China, allowed to move around their own domestic country, but very unlikely they're gonna be allowed into anywhere else, basically globally, particularly into the Western world. But here, what you're looking at is that every wave that comes thereafter the first basically gets ever more smaller as immunity levels from herd perspective start to pick up. Until then we actually hit enough time has lapsed that in kind of medical science, a vaccine is developed and is able to be distributed and deployed to get to that point. And obviously the other things that pick up over time that create more shallow kind of waves is not only the idea that the immunity effect from communities is getting larger, but you've also got this idea then that, you know, general government responses, measures, people's responsiveness to be able to adhere to certain rules. People are just more conscious of this so they can act more appropriately as well. Um, so, but yeah, this, this is what I'm, I'm kind of looking at. And obviously this does bring somewhat of a tail risk then to, to this orange line, which has been moving, uh, lower really for, for quite a period of time. Does that start to move back up? And that this, uh, severity or not, if that does occur, I think then would reshape what investors think then given how far ahead they are in Europe. Okay, Europe's plateauing in some areas. Well, this is just the first of several phases to come. And if that China one does ramp up quite sharply, well, people are going to panic about what that means then, on top of the already negatively priced economic implications that COVID-19 is going to have. So yeah, I just wanted to cover that, um, to go over that because I think it is important. And that graphic, I'll tweet this after the briefing if you want to check it out. My Twitter handle's there. Um, this was, this was an interesting graphic that I saw, and I guess before I go into that, let me just bring up the S&P 500 from yesterday because I was, um, I was doing a couple of tweets and talking about a couple of equity charts yesterday, and this is what I was looking at. This is the S&P 500, and a couple things I've got here. Um, I guess the death cross is not so important anymore because we've already gone through that at the back end about a week ago or so now. So it's less irrelevant for the moment, but certainly the, the shorter-dated moving average remains quite significantly below the longer-dated. Um, here you've got a fib from the all-time high to the March 23rd low. Obviously got the aggressive bounce that we saw on the Fed action and the kind of humongous US stimulus package that got, got passed. But really what I was more interested in yesterday when we were delivering this briefing was the end of March highs, which did line up with that Fib 382 level. And we managed to close above there, not yesterday, day before. And I felt quite bullish at that point because, but this time yesterday we were talking about just general plateauing of quite a number of the hotspots for the coronavirus. And then having technically got above these levels just with a bit of wind behind the sail, remember we were rallying yesterday to start the day, I did feel quite bullish that we'd get through 2700, and then we had an overall target here on the desk at March-June '19 lows, which you can see here, this double bottom that acted as great support during the, the kind of Q1 and Q2 period of that year. And we pretty much got there, just above it, before then we started to pull back. And it's that pullback which a lot of people are questioning. Um, you know, if you actually look at it here, well, this is— you can see I've got a markup here when the coronavirus cases were improving. This is the rally that we had going all the way up to really the open on Wall Street. We had a little wobble at the opening bell, recovered that, but then as soon as Europe went home, we then saw what was, you know, a decent pullback of, you know, we're talking about 3-4%, uh, if we're encapsulating as well the the Asia-Pacific session. Now, one of the things that I wanted to show you was this, because I think this fits within certainly my view. Although equity markets have been rallying quite aggressively of late, and a lot of people were talking about, well, these exceptional measures that the Federal Reserve are doing, which is buying every asset that they can get their hands on, fiscal stimulus, you know, we've had another headline come out overnight about another $250 billion the US government want to do for small businesses. You know, on top of the $2 trillion that we saw pass not so long ago. But I have felt that this rally is a bear market rally, and what I mean by that is what I'm showing you here. And typically then there are 3 phases to a bear market rally. Phase 1, as you can see here— so let's— what we've got here are 2 different things. You've got the orange line is the 2000 2003 bear market. So you're kind of talking about the dot-com kind of bubble era. Then what, you've had 9/11 as well during this era. And then I'm talking about the financial crisis, which is the purple line. And then you've got the 2020 bear market, which is this more solid blue line, which is where we're at at the moment. So the movement, you could say, in 2020, a little bit more pronounced than what we've seen in these other occasions, certainly of you know, a really powerful rally on the upside and a huge sell-off that we have had. But we're starting with a much higher base. Don't forget, the S&P and Dow are trading at these all-time high levels and multiples that are way more extreme than what we were trading 20 years ago. So I would expect a, a larger range here, um, in that respect, from a points point of view. So here though, what's interesting is Phase 1 Bear markets often start with a sharp and swift decline, and you've seen that here, and you can see that with those other occasions. Let's just focus on the financial crisis as a comparison. Then you go into phase 2. Now, phase 2, relatively small, but what you can see here is quite a big rally actually. You know, you can see here on these other previous 2 historical occasions, the market has come back up and really bullish over that period. And if you look at 2012, by comparison's sake. I mean, looking at proportionate of the sell-off to, to what's been recovered there, we've probably still got, you know, if anything, a little bit more to go. But ultimately, Phase, um, you know, why does it rally for a start? Well, after such a large decline, there's kind of this nature of it being oversold as a perception, and so it retraces part of that, only then for Phase 3 to kick in. And Phase 3 is the long-term decline that then continues thereafter at a slower, more grinding pace as the fundamentals start to deteriorate. Remember, the macroeconomic fundamentals are almost lagging in a sense, kind of like with that jobs data we've been seeing from a payrolls perspective. It's lagging the jobless, which is weekly, um, but then going forward, we're going to see absolutely catastrophic figures in unemployment rates, in PMI data, in manufacturing activity, uh, well, particularly this hard data, you know, things like GDP for Q2 is going to be, uh, an absolute, you know, historical moment because it's going to be by far the singular largest contraction that we've ever seen. And so yeah, I mean, despite some of the upward moves that we've had, I mean, I, I do certainly have that view that Whether this is the tipping point, I actually think it is. I think, I think yesterday was very meaningful in terms of the fact that the market was so bullish and then saw such a, such a decent pullback. And as I said, that type of pullback in an intraday session hasn't happened in the best part of about 12 years. And so, you know, have we hit the tip now of phase 2? And phase 3 now commences. If it hasn't happened now, I do think it is coming in the next week or two. And certainly with US numbers still, in terms of the COVID-19 numbers in America, not yet peaking, and we haven't— we're not going to get to that peak for about another 1 or 2 weeks, you know. Could that be then the tipping point? We shall see, of course. Okay, a few other things to mention. Oil. Obviously oil is, um, so interesting at the moment. I showed you the graph earlier. We've been— I see saw price movement, and we're not talking about small moves either. Um, you know, we— if you take the actual high to where we were, I mean, let's just quickly, quickly show you the graphic here, or the graph I should say. So here's where we were when we finished on Friday and where we were at the low from Yesterday evening, we're down almost 20%. So after rallying, you can see this was the initial talk from Trump, uh, that came last week on what, Thursday, when he was talking up about a 10 million coordinated cut, possibly 15. Saudis were on board. We're all rallying into this OPEC meeting that was supposed to happen on Monday, and then, oh, it hasn't happened yet. And now people getting a little bit nervous about will it happen. You know, this is, this is the idea now about the management of expectations. Markets' expectations are high that they have to deliver, and now people are getting a little nervous. And you can see that what was an actual, you know, historic gain in oil over such a short period of some 35%, we're now only up about 11% from where we, we trade as of right now this morning. So what is going on? Let's have a quick look. So I'm going to walk you through a few different things. First of all, Saudi Arabia and Russia are said to be hammering out— and I'm going to, going to leave this one here as a graphic that you can just look at while I'm talking— Saudi Arabia and Russia are hammering out an agreement that the delegate said will reduce global output by around 10 million barrels per day. Some form of cooperation from the US, who is obviously the world's largest producer, is said to be necessary in order for them to agree to any type of action, according to these delegates. President Trump said on Fox News last night that he talked with Saudi and Russian leaders and that he expected them to work something out. So typical, kind of classic Trump. He's not really saying anything, he's just sort of saying They're talking, they're in dialogue, but there's no details. And this is somewhat what's disappointing the market at this point, that they haven't come to something more conclusive already, you know, because the clock is ticking in that respect. And deadline that markets have assigned this now is this teleconference call that's happening tomorrow. But that then leads on to the G20 meeting of energy ministers. Now, why is the G20 meeting of energy ministers important? Normally it really wouldn't be. It would all be down to the OPEC+ meeting, um, as they have the overall predominant control of oil. But remember, this is a pandemic. There's been a catastrophic drop in demand for crude, which has saw prices crash to at one point south of $20 a barrel. So what needs to happen here is not just a Saudi, Russia, and with OPEC name type of reaction. This needs to be a global coordinated response of all oil producing countries. That does include not just the US, but includes Canada, includes the UK, includes Brazil, includes Norway. All these different countries need to be involved. But this is when then particularly the G20 energy ministers have to be part of this deal. Now, one thing that was muted in the Wall Street Journal sources yesterday, which I think is very important point if you're trading this type of information going forward today, tomorrow, and so on, is what are the— what are the variations, the different scenarios of what could happen here? Now on that point, I did do a tweet about— basically I shot a video yesterday, it's about 20 minutes long, where— I mean, you can see it here— I go through, you know, what's been driving fundamentally the headlines behind the kind of shifts in volatility in oil. I explain explain about how the news flow works for OPEC meetings. What are the expectations? What are the specific numbers associated to each individual country? What underlines then the, the relationship between US, Saudi, and Russia? What is this idea about US antitrust rules that could be broken if the US were to take part in the discussions at the moment? And then most importantly, potential price targets under this variety of different outcome that we could see. Now, this is the type of thing that I update fairly regularly. I'll be doing this probably at least 3 or 4 times a week, and it all goes into a lesson. Now, this isn't publicly available. This is what I publish amongst other members of the team on the Amplify Now portal, which is our— this is our kind of on-demand online fully course that you can do. But in addition to just teaching you about how we as a global macro firm view, analyze, and trade markets— so it gives you the full kind of all the different asset classes, technical analysis, psychology, trading the news— that one of the things that we've added in as an addition on this is a chapter called Macro Now, where I'll do these types of one-off insights into these, these types of market-driven events from a fundamental perspective. So you can see here live recording of the jobless numbers, how do you track coronavirus efficiently, and then Sam North, who you're probably familiar with, used to do the videos with me before the quarantining. He does his daily trade setups where he reviews the European session every day and puts out his outlook for the— from a technical perspective for the day ahead. So particularly good if you're swing trading, medium, medium-term trading as well. So yeah, that's all on the Amplify Now portal. It's a subscription portal, but as I say, not only do you get access now to a kind of the best of our knowledge and content in terms of a structured course, which is a certified diploma level status, but you also get now this rolling content that we're updating every day on these key fundamental issues as as trade setups. I'll drop a link in the video for those interested. But one of the things I was suggesting to people yesterday— with two things I guess I can share here on the briefing— and one is who to follow for timely and timely release of news and rumors, as well as decent analysis that's going to help you fundamentally understand what's going on. So if you did want to have a look, here's a list of, you know, perhaps 10, 11 people that I think if you are trading oil, or at least if you need to monitor these OPEC meetings, these are all the people that I think you need to plug in to your TweetDeck in order to monitor it all in real time. Quite a different combination of different people, so check that out. But the other thing that the Wall Street Journal was saying yesterday, and I think this is an important point if you're trading this type of event is, um, what are the scenarios? And one of the scenarios is if they did cut 10 million, well, what did 10 million look like? Because what if you saw a headline come down the, the kind of tape and it said the non-Saudi Gulf nations cumulatively are going to cut 2.5 million? Now at this point in time, what does that mean to you? To me, that's a deeper cut from non-Saudi Gulf countries as a whole than what's currently used as a reference point, which is the Journal Sources, which is 1.5 million. So if they're going to 2.5 million, that would mean that probably extrapolate that out across then Saudi, Russia, US, Canada, Brazil, these types of countries, you're probably looking at a number bigger than 10 million. But this is what I mean about people's ability to be able to trade the news. You can only trade the news if you have that lateral kind of depth of retention of, of numbers of what is actually happening at the moment. You've got that ability to know with every piece of news what is the, what is the, the kind of expectation value, how is the market priced, what is going to be able to move this asset price. And that's how I look at markets and why I'm able to do the kind of job that I do is because I'm always thinking in that, in that way. So hopefully that's useful as a There's a bit of an insight, uh, so to speak. But just running you through the final few headlines and I'll wrap things up. Um, I did mention this briefly earlier, but just to go over once again, the Trump administration have asked Congress for an additional $250 billion in emergency economic aid for small US businesses. Again, really hitting where they need to help in terms of their funding because it's those businesses which are going to really feel feel the pain of this, this current situation, and potentially then also to help offset what is already a bad, in the, in the period to come, unemployment situation. The other things were you got the Fed coming out with their minutes later on this evening. I don't think it's going to be a big deal, to be honest, because I think it's quite old. The Fed have been very active and done a lot since the time the minutes came out. They are talking about, you know, Reuters a little bit sensational. They're talking about the frenzied policy response because you remember this is when the Fed slashed rates to zero. This is when they restarted QE. They were saying that other central banks, they're broadening their access to US dollar funding and all these different types of things. So it would certainly be, um, quite a historic account of a meeting from a Federal Reserve history sense. But as far as market moving, I don't think it's going to be too, too much, to be honest. And then this was another thing, the Aussie perhaps a touch softer overnight. Um, Australia's coveted AAA credit rating has come under threat overnight as the country's parliament returned to pass an emergency, uh, $80 billion US stimulus package. But obviously, as we've seen with the likes of the UK quite recently, The more debt burden they have, the lower quality their sovereignty becomes, albeit, you know, it's Australia still up there near the, near the AAA ranking. And it's only their outlook which got changed to negative from stable at this point in time. Calendar-wise for today, what have we got? Let me just shift this over so you can see. So we have had Not too much so far coming out this afternoon. It's relatively quiet, to be honest. You've got the All-Infantries in the afternoon and then the FOMC minutes, uh, coming on later on this evening. So I'm gonna leave it at that. Any questions, as per normal, just feel free to, to leave a comment. I do respond to them throughout the day, absolutely happy to help. And just remember to subscribe to the channel as well. All right guys, have a good day. And I'll see you tomorrow.