Kass: Danger but Opportunity as Well
Comment of the Day

February 27 2020

Commentary by Eoin Treacy

Kass: Danger but Opportunity as Well

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So, let's examine the non consensus view - some reasons why I have started to do some buying:

* China has moved on. Coronavirus cases are down and its stock market is well off the lows. (Interestingly, today the China H share Index and the Hang Seng closed up on the day.) Will this be the blueprint for the rest of the world as well?

* When China sneezes... The last two major selloffs in U.S. equities were China-induced (devaluation fears and a trade war with the U.S.) - these proved to be great buying opportunities.

* A point of maximum fear? There are many examples of this - Dr Roubini in the Financial Times, Mohamed El-Erian on CNBC, etc. "This time is different." But will it be?

* Market structure systematics created a perfect storm. We entered into this selloff with CTAs near record long with a need to sell substantial sums of stocks if the market inflected. This has more or less been absorbed now.

* Corporate buyback bids could trump systematic supply at this point.

* Volatility has spiked and the market may be pricing "guaranteed" panic.

* Speculation is no longer running amok and the "everything bubble" has been pierced. Stocks like SPCE, downgraded by Credit Suisse this morning (and many others) are in free fall now - erasing much of the recent gains as speculators run to the hills.

* As discussed in yesterday's "After The Fall" and "Brokedown Palace", stocks are swiftly moving towards oversold as market and economic expectations have quickly soured.

* If the old narrative comes back - it looks more sold than ever with yield gap support (and a 10 year U.S. note yield of 1.31%) coupled with a President Trump reelection (despite Sanders' ascent) at the highest probability this year.

* If financial TV and "talking heads" are viewed as a contrary indicator - the confident Bulls of only 1-2 weeks ago have confidently reversed their bullish views and now see little opportunity to buy.(Reminding us of Divine Ms M's wonderful phrase, "Price has a way of changing sentiment.") 

Eoin Treacy's view

There is no doubt that short-term oversold conditions are rapidly replacing short-term oversold conditions and a significant number of global stock market indices are back trading at areas of potential support. It is therefore a logical time to begin to think about where opportunities may reside.

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