Bullish momentum faded, selloff occurred, now it’s time to start buying again

Dear fellow Traders & Investors,

In today’s ETF pair analysis you will find a detailed and professional evaluation of the current market conditions, historical trends, statistics, correlations and high-probability trade set-ups, which could help you to substantially improve your investment portfolio position, reduce your risk exposure and optimize the return on your investment for the upcoming month.

February, 2020

Political, geopolitical and economic risks without major market corrections

We started our prior monthly analysis on February 22nd when the US equity markets finished the last trading session for the week in the red after making another move higher into uncharted territory earlier in the week, attempting to continue their multi-year bull trend. We at Dow Experts had spotted certain signs of exhaustion and hesitation in the equity, some commodity and currency markets. Following our multi-year experience in the markets we knew that this could be a signal of a potential shift in investors’ sentiment and could result in a substantial increase in volatility in the following weeks.

At any rate, we at Dow Experts are here to educate you on the subject matter of investments and help you analyze the markets in a detailed and professional manner, because times of great volatility are one of the most successful wealth creation tools in our economy.
The new year and the new decade have indeed started in an unusually volatile fashion with plenty of political and geopolitical risks in the mix – the US-Iran military tensions with the death of the senior military Iranian leader (Qassam Sulleimani); the potential impeachment of Donald Trump and the ongoing saga around Brexit have all weighed on the future growth prospects of the markets.
However, even with all of that negativity we have seen the SPY moving approximately 7% higher since the beginning of the year. Additionally, there has been a predominance of up-days for the SPY in the last 2 months without any major corrections taking place. It seems that all market participants have already priced in the potential negative impact of the above mentioned risks and uncertainties, which has resulted in continued bullish movements for the stock market.

Fear Factor – (COVID-19)

Wealth Generating opportunity for the Stock Market

Nevertheless, we at Dow Experts believe that there is one more potential market risk that has not been priced accurately by traders and investors – the coronavirus (COVID-19) outbreak. The virus originated in the Chinese province of Wuhan back in December, 2019. The official version as to how it came into existence involves the consumption of raw, uncooked sea food at the Wuhan sea food market, which ended up transferring the virus to patient zero. The COVID-19 is very similar in terms of symptoms and health effects to pneumonia and seasonal flu – high body temperature, fever, coughing, sneezing, shortness of breath, muscle fatigue etc. The thing that we at Dow Experts believe will make the coronavirus a global public health issue is the long 14-day incubation period of the virus. It makes it very difficult to contain the spreading of the virus as people could be sick for up to 2 weeks without having any symptoms whatsoever, and still be infecting others.

As we initially expected this has resulted in the rapid increase of coronavirus infections internationally in the last few weeks, thus making it a global public health issue. We must remember that not only does the coronavirus (COVID-19) spread very easily, but its reported death rate continues to rise as it is currently just above 5%, which is significantly higher than the regular seasonal flu.
If the COVID-19 has very similar initial symptoms to the seasonal flu but also differs significantly in the mortality rate, then it should be more than logical for every intelligent investor and person out there to ask himself the following question “Well, if flu and COVID-19 are seemingly so similar, then how do they stack up against one another in terms of overall negative impact on the global economy, stock market fluctuations and potential recession speculations?”. Well, the answer here is quite interesting as even though that seasonal flu affects millions of people annually and causes hundreds of thousands of deaths on a global scale, it does not affect the status of the global economy, its growth potential nor it causes any downward spiral movements in the stock market, as it seems that people are not afraid of it – “Worldwide, these annual flu epidemics are estimated to result in about 3 to 5 million cases of severe illness, and about 290 000 to 650 000 respiratory deaths.” – WHO

On the other hand you have the coronavirus with over 2,000,000 confirmed cases and over 100,000 deaths globally so far resulting in a lot of fear building up among people and investors worldwide. Understandably, one of the most commonly discussed topics on almost all financial media outlets in recent weeks has been the negative impact that COVID-19 will have on the global economy and the risks that it imposes for the equity markets worldwide.

We at Dow Experts agree with the fact that the global economy will experience a major short-term slowdown as a result of the aggressive lock down measures that were taken by the leaders of almost every country out there, but we also believe that the key word that our investors need to focus on is “short-term”. With the proactive fiscal, monetary and of course health measures that we have been implemented on a global scale in the last few weeks, the COVID-19 crisis could be over in as little as a month. Now, we are very far from saying that everything will be back to normal in a month, as there will be definitely a new “normal” in everything once we are done with this crisis, but we are saying that investors will start to see a light at the end of the tunnel in the next few weeks. Once the public opinion on COVID-19 changes from panic that things are never going to improve to hopeful and enthusiastic focused on data showing the decline in the infections and deaths worldwide, the access of everyone to testing and a potential anti-viral drug that fights the virus effectively, then we will see a strong market rebound, which could very well set another record but this time a positive one. We at Dow Experts will be focused on buying aggressively on any significant down days in the coming weeks, while we are waiting for the “W” shape recovery to take place.

Additionally, all countries are currently taking steps into building the right operation mechanisms in order to track, prevent and fight the infection on a local level. Furthermore, the high recovery rate (80%) of COVID-19 and the continuous daily efforts of some of the largest US pharmaceutical and biotechnological companies like Pfizer, Abbvie, Gilead Sciences, Moderna Therapeutics, Johnson and Johnson in finding a vaccine are all reliable metrics upon which we could conclude that the outbreak will ultimately be contained in the not so distant future. So as much as there are certain risks for the global economy and the equity markets worldwide due to the coronavirus outbreak, these risks are more associated with people’s fear and perception of the virus rather than with its real health-endangering and economy-hammering qualities. Let’s not forget also that every year only in the US there are close to 40,000,000 cases of people being infected with seasonal flu with approximately 50,000 deaths and nobody is even talking about it. Furthermore, there have been 12 cases of virus outbreaks with pandemic propotions since 1981 including HIV/AIDS, Pneumonic Plague, SARS, Avian Flu, Dengue Fever, Swine Flu, Cholera, MERS, Ebola, Measels, ZIKA, Measels/Rubeola.
With the exception of the HIV pandemic outbreak back in 1981, the S&P 500 has rallied on average 12% in the following 6 months and around 20% in all other 11 instances in the following 12 months after the pandemic started. Thus, from a hisorical perspective there is roughly around 92% chance that the S&P 500 will end up rallying 12% and 20% in the next 6 and 12 months respectively!

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