Trade Alert: Prepare For Better Times

I’m glad I’m not in NYC this week. Wish I hadn’t taken my family there last week. There’s no doubt that the developed world has become Coronavirus obsessed. I would imagine a lot of this germ-phobia is going to stay with us, and that next year flu contractions will be down 20%.

The stock market headlines are full of fear, warnings and what I might even call hyperbole. Here’s a screenshot I took from my phone this morning:

And it’s not just during market hours that the markets are going crazy and headlines themselves are volatile. It was Monday night that I took this screenshot:

I know it’s hard to see past Coronavirus right now. Just like it was hard to see how stocks could ever pullback 20% when they were at their all-time highs, like just three weeks ago. Here’s what we should think about anytime we make a buy or sell decision, but especially right now. If everybody is scared about the real-life ramifications that they’ll be experiencing in coming weeks, and if everybody recognizes that earnings will be hit this year from Coronavirus, and if everybody thinks that the stock market the market is just about sure to go down (at least) another 10-15% and that the stocks can’t go up until after the Coronavirus has peaked and that won’t be for at least another quarter or two…

Then isn’t all of that exactly what the market is pricing in already? Look, I’m certainly not going to declare a bottom and cover all of my shorts (at least not yet). But I do think the risk/reward of scaling into more long exposure when you and everybody can’t imagine that stocks can go up in the next few weeks or months is probably pretty ideal, risk/reward-wise.

Again, I’d been predicting and preparing our portfolios some very bad Coronavirus scenarios since late January when the markets were at all-time highs and it was hard to picture that Coronavirus could impact things at all, much less the extreme manner in which has turned out to impact things (I did not expect the impact of Coronavirus to be this extreme). And it’s possible that the markets could outright crash another 30-50% or more if NYC and Seattle and LA and Chicago and the whole country gos on lock down for the next two months. So let’s not pretend otherwise and let’s make sure we’ve got some room to handle such a worst case scenario.

On the other hand, just as I’ve always done, I’ll remind you that we should prepare for the worst of times when things are great — and prepare for better times when things are horrible. The headlines, the markets, the economy — they are all in the horrible category right now. That doesn’t mean they can’t get more horrible-er, but I think that’s what most traders and investors right now, with the markets already down 20-2% from their recent highs, are preparing for.

So here’s what I’m doing today. I’m covering about 20-30% of my larger index shorts, including SPY, DIA, QQQ. I’m nibbling on some of my favorite longs, including CSCO, GOOG, ROKU, SNE. And I’m putting in limit orders 3-5% below the market to buy a little bit across the board in most all of our longs.

The sun shall rise again as it did this morning in quite a glorious manner at my house:

Also, we’ll do this week’s Live Q&A Chat tomorrow (Thursday) morning at 11am ET.

Here’s something from the Chat Room today (I stick my head in there most weekdays):

Q. Mass hysteria continues. After listening to the news, reading FB, talking with friends (who’re now refusing to go to dinners, etc.), I used to believe I’d be ok (and that we’d all be ok) with respect to the coronavirus, but now I’m truly scared. Why am I actually at work today? Maybe I should cancel all of my plans? Is this slight congestion the coronavirus? I have an image of the world coming to a halt. I feel panic in the markets, in friends, in society, in me. Fear is palpable.

A. Yes, indeed. Nibbling a little of some of our favorites, bidding on some below market, covering some more shorts. Easy does it. Be vigilant. But. Don’t. Panic.