It's a Crash Mash-Up of 1929, 1987, and 2008
Google, the earthquake scientists, and we agree... The world is quieter... The market is still noisy... It's a crash mash-up of 1929, 1987, and 2008... Have we seen 'the' bottom?... Last chance to get Porter's newest recommendations...
The world is a lot quieter today...
The anxiety-provoking mainstream news channels and social media feeds on our smartphones may indicate otherwise, but Earth has actually gotten quieter over the past few weeks. A recent article in the journal Nature described the science...
Researchers who study Earth's movement are reporting a drop in seismic noise – the hum of vibrations in the planet's crust – that could be the result of transport networks and other human activities being shut down.
A seismologist at the Royal Observatory of Belgium in Brussels said similar changes are usually only seen around Christmastime there.
Other earthquake scientists in Los Angeles and London posted charts online showing the same trends in their cities. More from the article...
Just as natural events such as earthquakes cause Earth's crust to move, so do vibrations caused by moving vehicles and industrial machinery.
And although the effects from individual sources might be small, together they produce background noise...
Google's (GOOGL) treasure trove of data shows the same thing...
On Friday, the tech giant unveiled its "COVID-19 Community Mobility Reports" website.
It's a clunky title for what could also be described by Google as the "we know where you are at all times" report. For instance, here in Maryland...
Google says that since February 6, the state has seen a 45% decrease in foot traffic to retail places like restaurants, shopping centers, and movie theaters... a 25% drop in grocery store and pharmacy visits... a 50% drop in public transportation use... and a 29% gain at public parks.
Anyone can play around with the data for any country or region.
Google, as you know, has long tracked the regular "traffic" patterns of people around the world – both online and in the physical world – via software and apps on computers and on smartphones...
In short, Google knows everything.
Not only is it a verb – and obviously a recession-proof business – but the company makes piles of cash from its business model, no doubt. This "peek behind the curtain" shows why.
At the same time, we've seen some observers argue that Google releasing all these data may be an example of Big Tech turning a corner when it comes to doing a "public good." I (Corey McLaughlin) wouldn't go that far...
Maybe in some places the company's aggregated cellphone data reveal new information. But forgive me for feeling that Google isn't telling us something we already know...
After all, anyone walking outside today could reach the same conclusion...
Outside our window, on the outskirts of Baltimore today, we heard a couple cars on the nearby road every so often. The sound was significantly quieter compared with last Monday... and even just a few days ago.
It seems reality has finally set in for almost everyone as the number of reported deaths from COVID-19 grows here and around the country.
The "curve" looks like it's starting to flatten in the U.S. and in places like Italy and Spain. That's great, but the death number will lag that trend and peak over the next two weeks, if we're fortunate.
The headlines will be grim as doctors still "redeploy" as if they're in war. Jobs aren't coming back as soon as tomorrow.
And when we're all let out of our houses and turn up the volume of the wild again, it will be a different world.
In the meantime, the noise in the markets has not stopped...
We're keeping an eye on short-term developments like Russia and Saudi Arabia's oil-supply kerfuffle... while at the same time trying to keep the big(ger) picture in mind...
With today's roughly 7% rise in the major U.S. stock indexes, they're each already in – in the case of the Dow Jones Industrial Average – or approaching bull market territory (using the 20%-plus definition) from the March lows...
And we know many investors have their minds on this question: "Have we seen the bottom?"
Stepping way back, it might make intuitive sense that the stock market will bottom while U.S. deaths peak. But the market is not that rational, right?
For more on 'the' bottom, we turn to the 'technicals'...
As we've shared in the Digest since this sell-off began, several critical indicators gauge short-term market swings in the context of previous "key levels" over extended periods of time.
In other words, human behavior tends to repeat... And math can show it clearly. Or as Ten Stock Trader editor Greg Diamond put it so well in his Weekly Market Outlook this morning...
Short-term setups lead to the long-term trends.
Greg told subscribers he's looking at the striking similarities between the financial crisis and ensuing bear market of 2008 and 2009 to what we're seeing today... and the crash of 1929 at the start of the Great Depression... and perspective from the 1987 crash thrown in, too.
As Greg wrote this morning...
No two big market declines are ever the same. My base case is that this decline is a combination of most of the "big ones" throughout history.
As a reminder, a few weeks ago, we "unlocked" Greg's intraday analysis to all readers for free for a limited time. You can find it here or on the right side of StansberryResearch.com.
Here's Greg's relevant comparison to 2008...
It starts with the Dow Jones Industrial Average weekly closing price chart... and its relative strength index ("RSI") shown along the bottom of the chart below.
In short, RSI is a momentum measure of "oversold" or "undersold" market conditions.
And as you can see back in 2008, the Dow's RSI dipped to a low of 19 before it eventually made a "higher low" coinciding with the ultimate U.S. stock market bottom in early 2009...
The "divergence" shown with blue dashed lines in the previous chart, one going down and the other going up, is considered an indicator of a market turning point.
As Greg wrote this morning, back in 2008, the broader market first bounced double-digits (sounds familiar today) from its "oversold" RSI low of 19 – before stocks then headed lower into 2009...
Off this extreme low, the market shot up 24% in about two weeks, and then proceeded to decline another 33% before the final bottom in March of 2009.
Notice what happened with the RSI at the bottom – it made a higher low than price (dashed blue line). That was the major signal that a rally was ready to unfold. That was what marked the bottom.
Here's the same chart in 2020, as of Friday's close...
Last month, the Dow's RSI hit the exact same level (19) as it did in 2008. And the market rallied 24% into the high last week... the exact same price action at the exact same indicator level. As Greg continued in this morning's Weekly Market Outlook...
Now, the question is, do we see another 33% decline from here?
I can't rule it out... What I do know is that a new low in price will produce a higher low on the RSI weekly time frame and, like 2009, will give us the signal that "a" bottom is in (not "the" bottom).
But we must also consider time as well as price...
During the last bear market from 2007 to 2009, it took 352 trading days for the Dow to go from the high to the low. And in that span, it experienced a 54.4% decline.
Not long ago, the market had dropped 38.4% in 27 days from its February highs. And as Greg wrote today...
There are only two other precedents when this type of move happened... 1987 and 1929.
In 1987, the market dropped 41% from the high to the low in 38 trading days.
In 1929, the market dropped 48% from the high to the low in 49 trading days.
So either 2020 is the fastest bear market (27 days) and we bottom soon (like 1987), or we are on the cusp of a 1929-like market, which means more downside ahead and the bear market will last for one or two more years.
And here's the important comparison with 1929...
The black line is 2020 and the green line is 1929, aligned from their tops in August 1929 and February 2020... As Greg wrote this morning, "The price action is IDENTICAL"...
This means, in Greg's view...
We are due for one more (at least) big decline below the March 23 [2020] low.
This also aligns with the possible 33% decline from the first two charts above. The rally from the secondary high within the blue circle above in 1929 fell another 27% before bottoming out.
So you can see that both the 1929 and 2008/2009 time frames suggest another big drop is coming.
Assuming we get a new low, we need to look at the weekly RSI – it should make a higher low with a new low in price, just like in 2009. And that will mark the bottom.
Of course, timing 'the' bottom is not totally necessary...
It might be interesting to talk about and fun for short-term traders such as Greg. But at the same time, trying to nail the low precisely may drive a long-term investor crazy and lead to a ton of wasted energy.
For long-term investors, who are perhaps sitting on a massive pile of cash right now, seeing the bigger picture is more important... And the coming weeks and months will tell us a lot.
In any event, whether the bottom is now or later – and Greg's technical signs strongly say we should consider later – there are tremendous opportunities to be had.
We've explained that here in the Digest over the past few weeks... Specifically, our founder Porter Stansberry, who started the company more than 20 years ago, says he sees a buying opportunity today that he never thought he would see again in his career...
These opportunities come in the form of high-quality, capital-efficient companies like Coca-Cola (KO), McDonald's (MCD), and many more. They're businesses that people will continue to rely on, once the dust settles from this tragic COVID-19 pandemic.
Because even though life will change in many ways after all this – like a rise in online grocery ordering and online learning, we can imagine – other things will not... like demand for chocolate from Hershey (HSY), for instance. It's a world-class company that has paid out a growing dividend to investors for decades. And it isn't going anywhere any time soon.
As Porter said during a free event last month, when he released his recommendations...
What you want to do is not just begin to buy stocks but focus intently on buying stocks that you can comfortably hold forever.
This is a rare opportunity like the Great Depression, like 2008, 2009... This is chance to buy the highest quality businesses in the world.
Porter has put together a list of 40 "forever" stocks, some of which he says are no-brainer buys right now and others that are up-and-comers or future "Greatest of All Time Stocks"...
If we had to share a group of stocks that should be part of any portfolio or "watch list" for a long-term investor right now, it would be this one... But these opportunities will not last for long, and neither does Porter's offer...
We're pulling this special offer offline at midnight Eastern time tonight. I can't say if or when it will return. So click here for your last chance to get Porter's recommendations right now.
New 52-week highs (as of 4/3/20): none.
In today's mailbag, feedback on Austin Root's Masters Series essay from Saturday and concern about things getting worse...
"Thanks a million Austin for your exceptional essay, "It's Time to Stop Renting Your Stocks and Start Owning Them." The invaluable information is very helpful even for beginners who are serious about learning to invest the right way. I really enjoyed it. Looking forward to more 'wisdom' from the 'Guru' author." – Paid-up subscriber Sue M.
"Another self-check I use is to ask, 'What if I knew for a fact I would live 300 years?' How would that affect my thinking on investment purpose and strategy? Certainly it would dispel a lot of that short-term value stuff that distracts us." – Pete K.
"I am hopeful Porter is correct and this is a massive overreaction. I am also concerned that this shutdown will feed on itself and cause a depression. If companies panic and slash advertising, dividends and personnel this month, are we in for a year or more of pain?" – Paid-up subscriber Martin M.
All the best,
Corey McLaughlin
Baltimore, Maryland
April 6, 2020