Stocks Crash - Worst Down Day Since 1987

Okay, hi guys, hopefully you're ready to go. I'm sorry, slight delay this morning. Now we've made it to the end of what has been a tumultuous week. If you can hear me and I'm coming through clearly, please do type 'Y.' Good morning, good morning. Well, I just thought I'd start this session by having a look at the long-term picture and seeing really where we are and where we've been before. A lot of you guys that know me and have benefited, I hope, from some of our training when it comes to my area, which is behavior and psychology, will find this very interesting. I find it incredibly interesting how behavior repeats itself. And for those of you who have done the Amplify program over the last few years, you know, obviously we've been calling this rally, the phenomenal rally in US equities, you know, something of a behavioral move. And this move lower that we're having out of equities, this global liquidation event, is also a behavioral move. Traders, like investors, like animals, we all move in herds. And what we've had over the last 10 years is something called TINA. There is no alternative. Whilst interest rates have been at record lows, whilst equity valuations have been continuing to improve, asset managers and fund managers all around the world have had no alternative to buying equities. You're not going to get any return from, uh, other interest rate-bearing investments. So there's been a huge flood into equities over the last 10 years, and now what we're seeing, um, in the last few days is a huge flood out of equities. Patterns repeat themselves, people repeat themselves, and this is, you know, just taking everybody by a bit of a shock. But we're coming back down to levels in the S&P. Now, that depends how you look at it. One way to look at it is saying we're coming back down to the levels in the S&P back to, you know, the start of 2018. And the start of 2018 was really after a huge rally. This has been a significant market sell-off. Certainly we are down, you know, over 20% from these highs. But one other way to look at it is, is, is we're back to the previous highs in, in 2018. I've put here on the longer-term chart the dot-com crash, you know, the financial crisis, that 60% sell-off in the S&P where we hit 666. And yes, definitely some, some reminiscent patterns here of behavior, and especially of banking stocks getting killed. I was looking at Deutsche Bank yesterday, um, down in the fours. And, uh, you know, it's really painful out there, certainly. But I do want everybody to take a step back and look at this from a longer-term point of view. I personally believe there's going to be some opportunity in the next few months to really start looking at where to then reinvest funds after this liquidation event. But it's been tough. Giovanni in the room there, you're saying that you know, uh, carnage on— in T-notes at the moment. And this is, this is definitely a concern, especially after— I'm sure you've seen the news yesterday, um, about the Fed promise to pump trillions of dollars into the financial markets, into the financial systems. I'm going to say that again— trillions of dollars into the financial system. And this isn't the response that you'd be seeing, or that you think that you should be seeing, in T-notes. And And this really does show of that, that, that general liquidity event that's going on. Huge sell-off here in T-notes. But also, you know, you've got gold. Gold's been moving lower. Gold miners have been moving lower as well. And as you guys know, you know, for those of you who have followed Amplify for quite a while now, I've been very bullish on gold over the last 2 or 3 years, really on expectation of a further need for liquidity stimulus, but also the fact that US equity markets have been overvalued. And that's been, that's been a really interesting trade, you know, it's been, it's been an excellent trade certainly. But actually, you know, one of the ways that we teach you guys is to, is to scale out of risk when you have an opportunity to do so. And I took about half my position off off the gold miners over the last 2 weeks. You know, I still have half on, and it's interesting for me to think about going through these behavioral waves. But all traders out there, all of you guys out there, we're going through these behavioral challenges now. There's a conflict between opportunity and risk, and for many of you guys, this might be the first time that you're seeing it. All right, let's have a quick look at the major news. Um, global stock sell-off eases after the worst Wall Street rout since 1987. Um, I really remember 1987 well. That other people in the room, Michael C., you might remember it as well because there was a huge hurricane, wasn't there, the, the night before that global market sell-off. And interestingly, in a correlation of, uh, behavior, there was a huge hurricane in 1987 that stopped traders being able to get to their desks, which then created the stimulus. And I wonder if there's going to be a similar situation here with the coronavirus. I don't know if anyone's thought about this in terms of liquidity, in terms of market depth. If banks all around the world— and I was speaking to traders in New York, they're, they're on absolute clampdown there— if traders all around the world are not able to get to their desk, and they think they're not going to be able to get to their desk for the next few weeks, then of course they need to get out of everything. And you're going to see some really interesting market moves over the next few days, honestly, I can, I can promise you that. Um, so yeah, S&P 500 suffers fifth biggest one-day drop on, on record. Um, you know, look at this going back to 19— that's including 1929, 3 days there in 1929, 1987, 2007, 2 days in 2008. Of course, World War II related in the '30s, 3 days there as well. Really interesting to see that huge stimulus coming out of the US, as you've— as I've already mentioned, more stimulus coming out of Japan as well. So let me talk about this liquidation event. What does this liquidation event mean? Well, this is why you're seeing things like gold sell-off, and you might start to see things like Treasuries sell-off as well despite the stimulus is markets move in behavioral ways. And now the word is out that it's time to get out, and asset managers and fund managers all around the world are now going back to the mantra that cash is king until it's time to, to reinvest. And, and that behavior means that other people are starting to follow. So I love this image here of, uh, throwing in the towel. That's it. Investors out there have had enough and it's time to now liquidate all positions. And that's what we're seeing in the market. And this is, this is despite that pump of liquidity. But yeah, it's interesting. This is talking about the repo market. This is the intervention that the Fed took. I think it was, was it September, October in the repo market to try and help short-term liquidity, to try and help facilitate short-term It's short-term loans, or it might be short-term cash transfers. It might be anything that helps the financial market system function over the immediate term. So this is 1-month and 3-month liquidation events. But yeah, I mean, it's— at the moment, I think the market is saying it's not enough. We haven't yet seen enough help on a global scale, and that's why you've seen equity markets Disappointing, disappointed. This is an important article in the Financial Times. You guys want to read this if you get a chance. What's causing such fear in the US Treasury market? And this is where— this is really a warning sign. And I think we— you saw it in Italian bonds. Was anyone watching FBTP yesterday? Italian bonds really, really getting smashed as well. Strange patterns have started to emerge in US Treasuries. Normally safe haven market actually now, uh, starting to, starting to come off as well. So it's just volatility. Yeah, same as OATs, Philip's saying in the room, same as the French bond market. Volatility in these ultra safe haven assets really can be a bit of a warning sign. Um, and I would say, especially for, for the newer traders out there, you know, just, just try and watch this from the sidelines if you're not feeling confident about what, what, what's happening on the screens. There is a lot of opportunity, but there's also a lot of risk. Look at this on the bottom right-hand chart. I'm showing you Treasuries just breaking through S1 on the 10-year bond. I mean, don't get me wrong, obviously they've had a, had a phenomenal rally. But the, the traditional correlations of risk-on and risk-off are slightly off. And that's what can create a lot of confusion out there. When you're trying to trade this day to day. Quick look around at the short-term movements of the different asset classes then. Gold has moved higher initially after that United States trillion-dollar promise. We did just move from really $1,550 back to $1,600. But here I am talking as a gold bug, but I think for the, for the medium term, gold's probably going to be a bit dead. Definitely worth taking some positions off, um, on, on gold. The correlations aren't quite doing what you might think. I still believe long term, um, as rates stay lower, there will be some further upside, um, for the precious metal. But, but now's not the time to, to, to go full in on, on, on gold. What about the S&P? Um, huge volatility, obviously We stopped and had limit down yesterday. Then we had an initial rally after the Fed's announcement coming. So here there's a limit down on the chart. Then we had an initial rally after the announcement of that liquidation event. There it was just before 5 o'clock. Can you see how short-lived that was? This creates a real, real issue for both central banks and governments in terms of what do you need to do to to try and stimulate the economy when you have both a demand shock and a supply shock at the same time. Uh, the pound doesn't make for, uh, nice viewing over the last few days, all the way down to, to 1.25. I mean, this is, this is a phenomenal move here over the last couple of days. I mean, I'm going to have to zoom out on this chart, go back to continuation settings really to try and find out where we might be able to find some support here in the pound, if that's what you're looking for. Um, we broke through, uh, the September high. That was quite an important level. You can see it coming out in July as well, support throughout May and June last year. We found support pretty much at the 125 handle, you would say. But a break of the 125 handle, uh, then you're really looking at that peak there, just, uh, 24, 44. Really before we start heading down towards the lows that we saw last year. So certainly awkward for, for the pound and the euro dollar. Well, I mean, yeah, it's so interesting. I mean, I haven't even mentioned the ECB yesterday, such was the amount of interest and such was the amount of action. So the initial move after the ECB and the euro, after no rate move on the rates, was higher. But then of course they mentioned all the extraordinary measures which pushed the euro lower again. Incredibly volatile conditions. And volatility is really— there's so much going on at the moment. Understanding how to manage yourself within volatility is absolutely key. I'm going to share with you guys a link in the room just off video that I did yesterday on that, and it's available, it's free for you guys to watch, on how to trade volatility. And I'll share that link in the room so you guys have it, because it really is time to manage yourself. And as I'm saying in this video here, and I'll share with you— I look knackered on that video— it's time to manage your FOMO, because I think Absolutely, this is one of those things that can do more harm than good when you're seeing so much go on. I myself have been having it when I look at the VIX. I keep on looking at the VIX and thinking, "Definitely, that's an excellent— that's an excellent trade to get in long," and then I don't do it, and then it's up 60%, and then I don't do it, then it's up 60%. And I want you, if you're having the same experience with the assets that you're trading, And I just want you to be okay with that. I want you to recognize that, you know, we are in this period of— there will be more opportunity. And, you know, the sort of timeframe that you guys need to trade with, I think, is important because when you're getting these— I mean, here I'm looking at— I'm looking at gold where we've gone from, you know, $1,550 up towards $1,700, down towards $1,550, up to break through $1,700. Down towards 1550. To call this a roller coaster, um, would be a compliment to Thorpe Park. This is, this is just phenomenal in terms of this, this, the, these, these, um, market moves. But what it does mean is that if you've missed an opportunity and you've missed that sell-off here, you don't necessarily need to get in. You don't have to force yourself to get in. Sit back, wait, and think, where will the next opportunity be? Because certainly in this market, it's full of opportunity, but if you time it wrong, the consequences can be incredibly dangerous. And if you manage yourself poorly, if you've timed it wrong, even worse. So, so let's have a quick look at the data that's going to be out today. Um, really, I'm going to be looking for any more central bank announcements like Japan that we had overnight. I think the main moves— I'm— if you've taken Anthony's lessons in terms of how to trade news, obviously you've got fundamental news that's expected. This is economic data, this could be central bankers talking, this could be a press conference. I think today the main, the main action is going to be on unexpected announcements, but, but you can try and be prepared for those. It is likely that you might, for example, get further commentary coming out of Scandinavia, of Canada, of Mexico about how they are going to take action or further action given this unfolding corona crisis. On scheduled news, I'm just looking out there on what, what we've got left to come. We've got some, well, Italian auction coming out actually for BTPs, so Italian 10-year, uh, bond auction. That's an interesting timing for that auction, Italy. Um, let me just see if I can bring that up, actually give you a quick look. Yeah, so guys, have a look. This was, this was the Italian 10-year government bond price, not yield. This is the, uh, FBTP future. So Italian 10-year government bond, you can see We took a hit yesterday. And actually, if you want to look at this on a slightly longer term for Italy, of course, I mean, some real suffering in Italy at the moment. And economically, this is going to, this is going to create huge issues. This is this move here in Italian 10-year bonds. Just to remind you, this was Mario Draghi's whatever it takes. He'll do whatever it takes in Italian bonds. And actually, in 2014, the Italian 10-year government bond was one of the best performing assets to be involved in. Volatility since then, political volatility in 2018 resolved, we've had the rebound. But yeah, looking at it on a monthly chart, this is— and understandably, this is an incredibly strong, strong sell-off. So interesting time for Italy to look to raise further money. It's gonna, it's gonna be expensive relatively. Okay, out of the United States, remember, we haven't caught up on our springtime clock change yet. So we're going to be looking at 1:30— sorry, 12:30 for continuous, uh, continuing jobless claims, core PPI, initial jobless claims. I don't know. Yes, this is going to be important for sure, but I think it's too early for the US economic data to have been impacted dramatically by, by the virus. I will just tell you a little bit about the US though, guys, because I was speaking to a trader colleague in New York yesterday. Hi, Steve, if you're listening. And he was showing me pictures of the New York subway, and it is empty. I mean, I have to say, here in London, the train is still busy. It's a little bit quieter, but it doesn't feel like an apocalypse at the moment. But he was saying in New York You know, I think maybe, you know, there definitely is cause for concern and we should definitely all be taking precaution, of course. But I think in New York they're really taking very early preventative measures. I spoke to Credit Suisse in New York yesterday. I spoke to Morgan Stanley in New York yesterday as well. Everybody there is working from home. There is a lot of panic, and perhaps obviously rightly so. The countries that have dealt with this quickest have, have been able to manage this outbreak most effectively. However, what it does mean for the United States, for us, if you're not based in the US at the moment, you know, this is definitely going to have an impact on markets out there, on the performance of the economy, and you should expect more extraordinary monetary measures, both from a fiscal and a monetary policy point of view. You should expect more to come. Okay guys, that's it from me. Um, sorry on that economic, uh, just I'll update you on that economic data front. That's it from me. I hope you have a good session and I'll see you in the room. Thank you.