1. Moving the markets

In the end, today was nothing but one gigantic roller coaster ride, as an early rally lost steam, then found some fresh upward momentum, which was all given back at the close.

Maybe the early pump was the result of Apple’s blow-out earnings announced yesterday after the close, but it sure had no staying power with worldwide markets, as represented by the Global Dow, suffering as well.

In the meantime, the coronavirus deaths are spiraling higher with new cases being reported every day. Even Fed chair Powell, after leaving interest rates unchanged, commented that they are monitoring the effects of the virus and its potential for disrupting the global economy:

“It’s a serious issue. There is likely to be some disruption of activity in China and probably globally,” he told reporters, unprompted, in a news conference after the central bank’s first rate-setting meeting of the year. “We’ll just have to wait to see what the effect is globally.”

These virus issues are sure to stay with us for a while with the unanswered question remaining: Will the potential fallout be severe enough to unravel this bullish trend? It’s possible, since it does not look like the contagion can be contained within a short period of time.

1. Moving the markets

Despite coming off the intra-day highs at the close, the major indexes managed to climb out of hole, and close in the green for the first time in the past three trading sessions, although a major short-squeeze gave an assist in that effort.

Coronavirus fears subsided a little, as China appears to have taken serious actions much faster than a few years ago, when the SARS virus in 2003 created a mortality risk of +10%, while the current outbreak lies in the 2-3% area.

The focus also returned to the earnings season with Apple being on deck after today’s close. Companies are beating estimates by 5% so far, the best beat rate since 1Q19, according to MarketWatch.

Some headline chatter, that a vaccine was being produced in Hon Kong, was the original catalyst to get the bulls back on track, but who knows how much truth there was to that story. However, ZH pointed out correctly that “waiting at least four months for any vaccine will not stop a collapse in global supply chains, if this virus continues to spread like it is.”

That simply means, we must remain vigilant and be prepared that a major directional change remains a possibility.

1. Moving the markets

As was no surprise, more fallout from the coronavirus over the weekend made its presence felt with all markets showing red numbers. Again, given the relentless melt up since October, a correction was way overdue, and this one occurred as black swan event by coming out of nowhere and resulting in the first S&P 1%-plus loss in 76 days.

The events and subsequent market reactions were captured in this chart, with the investing crowd having now become increasingly concerned about the consequences of this virus, not only due to the obvious economic impact but also due to the severe travel restrictions involved.

The attempt to halt the spread of the virus may require more drastic measures, as the death toll had risen to more than 80 with nearly 3,000 confirmed cases of infections. Obviously, this event has taken center stage, but investors will also focus on the remainder of the earnings season, with nearly half of the Dow components being set to report results this week.

For sure, if signs emerge that the coronavirus has been contained, a huge relief rally will take center stage. If it isn’t, we will see volatility be our companion for a while, with the unanswered question being: Will this be a simple short-term correction, or the beginning of the end of this bullish cycle?

We will find out at some point and take evasive action, should the latter occur.