So, we got numerous questions yesterday morning with the Dow off a few thousand points, “Is this the buying opportunity of a lifetime?”

Our answer was, “We would wait because the virus in unanalyzable!” Concurrently, the SPDR S&P 500 ETF (SPY/239.85) had its biggest gap down in its history yesterday morning. Such downside “gappage” has typically led to stock market gains. However, big downside gaps have rarely represented the ultimate stock market low.

So we continue to wait and exercise the rarest commodity on The Street of Dreams, “patience.” Fortunately, we advised raising cash in mid-January, but we only raised 30%, which in retrospect was NOT enough.

We are now 22-sessions into this decline knowing that the typical “selling stampede” tends to last 17 – 25 sessions. In past missives we have noted that while it is true some stampedes have lasted 27 – 30 sessions, it is rare to see one go for more than 30 sessions. The longest selling stampede chronicled in our notes of 56 years was 41 sessions.

Yet, I have NEVER seen a decline like this:

I seen a peanut stand, heard a rubber band
I seen a needle that winked its eye
But I be done seen 'bout ev'rything
When I see a elephant fly

That said, the black snake in our back yard is unaffected by the virus and continues to bath in the sunlight, which kills the virus. Like our snake, we continue to go to the beach and similarly bask in the sunlight for the same reason. The decline we envisioned, and wrote about repeatedly in mid-January, has been much more severe than we thought and for that we apologize.

We did not think the virus would be as bad as it is. We do think there is an over-reaction to the virus, but that is a discussion for another time. The decline has yet to cause the S&P 500 (SPX/2386.13) to violate our two potential downside targets. That would be the December 2018 low around 2346 and, after that, the May 2015 low of 2134. Quite frankly, we have no idea if these levels will hold.

As stated, “When you get into one of these selling stampedes downside targets are worthless.” We will say that the ~30% decline from February 19’s 3393 intraday-day high (SPX) into yesterday’s intraday low of ~2380 implies fee-based accounts at financial institutions are going to take a ~30% hit.

That means fees will decline by some 30%, which is why that group of financial stocks has been killed. We think the recovery will take a long time for the financial stocks.

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