The Coronavirus Stocks Bear Market Begins, When Will it End?

FINALLY the stock market has woken up to the reality of the CORONAVIRUS! Triggering a series of waterfall drops this week, slicing through technical support levels as though they did not exist. Which they DON'T because this drop has very little if anything to do with technical levels as I pointed out in last weeks analysis with the Dow trading at 28,900. 

The bottom line is that this WILL have dire economic consequences, whilst it is too early to expect a global recession, however that is the direction we are trending towards. Which WILL hit the stock markets harder than anything visible on the price charts today! What are the consequence of 230 million seriously ill people across the world resulting in 7.5 million deaths? It's increasingly looks like were going to get a Coronavirus bear market the magnitude of which will only become apparent in hindsight.

With my analysis of 9th of Feb estimate of where the stock market could trend down to as a consequence of the Coronavirus trend forecast to 1 million infections by the end of February likely to result in a probable decline to at least 27,500 before a technical bounce, that each subsequent update has diminished the likelihood of.

So again to understand what the stock market is probably going to do next, one needs to understand what the Coronavirus is probably going to do next, how bad could the pandemic get and for how long could it run for, which is why the focus of my analysis since late January has been on coronavirus dynamics rather than the price charts.

Unfortunately, all those looking for a swift rebound in the stock market are likely to be disappointed as my latest analysis of the Coronavirus suggests we are in for a storm that despite the recent stock market mini crash is STILL NOT BEING FULLY DISCOUNTED BY THE MARKETS! 

The latest Coronavirus / COVID19 pandemic news has South Korea effectively declaring a national emergency as the nations Coronavirus cases continue to rocket ever higher, now totaling 1261 infected and 12 deaths, this despite deploying immense resources towards containment. Meanwhile the basket case north of the border with far greater cross border travel with China apparently has zero cases, whilst reports continue of mass cremations taking place.

Therefore given the reliability of South Korea's monitoring and systems, then the outbreak in this nation is likely more accurately reflects what to expect in terms of outbreaks in the West than China's statistics, that everyone now agrees have grossly under reported the true number of infections AND deaths by several magnitudes. In fact China's statistics are modeled on an outbreak starting Mid January rather than early December! And thus my recent in-depth analysis concluded that Chinese reported cases are under reported by at least X7, and deaths by X2.

https://youtu.be/KThEj67zdDQ

South Korea Coronavirus WARNING to the World!

Reliable South Korean data warns of literally exponential spread of the virus in the early days of outbreaks, where R0 rather than being 2 to 2.6 as being the consensus view instead South Korean data calculates R0 to 4.6 ! Literally explosive growth in the number of infections before a nations healthcare system is able to respond, this explosive early growth is likely as a consequence that those infected can be asymptomatic for between 3 and 7 days and a few super spreads for as many as 14 days! Who unbeknown are literally infecting dozens of people each day who themselves go onto infect others.

South Korean data shows an initial explosive growth starting on the 19th of February that saw 20 new cases (new outbreak) testing positive, next day that number more than doubled to 53 as the authorities desperately attempted to track down contacts, doubling again on the 21st to 100, and again on the 22nd, only slowing by day 5 as huge deployment of resources including shutting down a whole city succeeded in halting the doubling of numbers every 24 hours!

Thus South Korea is the model for the expected pattern of spread. Explosive growth that only slows when extreme actions are taken to shut down the movement of people within in infected areas.

So folks don't be lulled into any false sense of complacency because the initial outbreaks are EXPLOSIVE! The number of infected can literally go from zero to 1000 in a few days! And that is WITH an effective response to outbreaks to contain the rate of expansion of infected numbers. Another example of which we are already witnessing take place is in Italy which is experiencing a similar pattern of explosive growth soon following the detection of Coronavirus in a few small towns in Northern Italy.

If developed nations such as Italy and South Korea can barely manage to control outbreaks, then imagine what is likely to take place in nations without robust healthcare and emergency response systems and / or their political systems being unable to respond to outbreaks in a timely manner such as IRAN!

IRAN both lacks the infrastructure and the systems to respond to Coronavirus outbreaks hence the disaster we are witnessing unfold where likely several thousands are infected, and many hundreds have died, all whilst the totalitarian state reports just 50 infected and 12 deaths.

And Iran is far from being considered the worst able to respond to the virus, to that we turn to Africa that likely already has major uncontrolled outbreaks underway that will only make the light of day when the body bags start piling up in their hundreds.

Coronavirus Pandemic Day 79 - 25th Feb 2020 Update

My forecast for the total number of infections and deaths by 25th of Feb 2020 vs reported and estimated:

Were this trend to continue into the end of February 2020 then the number of infected would total 745,000 , whilst the number of deaths would total 7,500. So the latest data implies a lower spread and mortality rate of about 1%, which is close to what South Korea is currently reporting.

Again for methodology behind the estimated probable number of infections and deaths see my recent video -https://youtu.be/KThEj67zdDQ

Coronavirus Pandemic Outside China Update - 25th Feb 2020 

Whilst China's infection numbers cannot be trusted, meanwhile the developed worlds numbers should prove more accurate, at least in the early stages of the pandemic. Though we still have two gaping holes on the world Map i.e. Africa and Central & South America, to imagine that there is just 1 infection in Egypt and 1 in Brazil is delusional, given the comings and goings of upwards of 1 million chinese workers across the continents, instead the infected number in Africa and South America already likely runs into the several thousands that as of yet remain unrecorded, so expect a sharp spike in numbers at some point when the degree of infection is acknowledged.

Despite lack of recording of African and the America's numbers, the number of infections outside of China has leapt overnight by 504 to 2933, now above my trend forecast that total 129,250 infections by the end of March 2020.

UK Coronavirus Trend Forecast Day 29 - 25th Feb 2020 Update

The total number of infections recorded in the UK continues to hold steady at 13, which in my opinion is just the calm before the coronavirus storm as my forecast as of 14th Feb 2020 concluded in infected to trend to 5000 by the end of March resulting in 90 deaths. As analysis of what has happened in South Korea illustrates that outbreaks are explosive, soon jumping from 1 to 1000 infected in a matter of days..

The bottom line is that most western nations are still in the calm before the coronavirus storm change where outbreaks could spread at near r5.0 in the first few days of an outbreak, which means the UK having just 13 managed cases is nothing to get complacent about for there WILL be outbreaks in the UK that will be just as bad as in South Korea and closer still Italy, it is only a matter of time and so it should not be wasted but rather utilised to prepare for. Perhaps an app that warns citizens on whether they are entering a coronavirus outbreak risk zone so as to take immediate preventative actions.

Stock Market Implications

1. We have NOT seen the lows for this bear market yet! In fact the stock market is probably not even half way there. I can't say how low the Dow will trade because the decline is not technical, it is the markets reacting to the unfolding Coronavirus trend, the perception of which is skewed towards the number of infections in major western nations. 

2. Expect a great deal of volatility as the Corona trend vies against market interventions by the Fed and other central banks in attempts to create supportive technical patterns.

3 .South Korea acts as a warning of SEVERAL WATERFALL stock market declines ahead i.e. to Expect SUDDEN out of the blue outbreaks resulting in hundreds of infections within a few short days triggering MARKET PANIC drops, i.e. such outbreaks could happen in any major city.. Where each outbreak results in more erosion of confidence as the economies of cities gradually grind to a halt, empty streets, parks, cinemas, super markets, shopping malls, paralysing day to day economic activity.

Global Recession 2020

The bottom line is that we are still at very beginnings of the Coronavirus bear market where to understand what happens next is to understand the trend trajectory of Coronavirus, that unfortunately could rage for the whole of 2020 which implies we ARE heading for a Global Coronavirus recession the magnitude of which will only become apparent after the fact i.e. it could be mild (probable) or it could be severe, we just don't know.

Also I see the mainstream press focused on the silver lining of the number of new infections in China declining, well firstly lets discount the fact that China has grossly under reported the number of infected by several times over. But what mainstream press fails to comprehend is that China is in LOCKDOWN, it's economy is running on life support, virtually at a standstill with at least 200 million people in quarantine with some estimates putting it as high as 700 million.

SO WHAT HAPPENS WHEN THE QUARANTINE IS LIFTED?

A rebound in the viral infections is highly probable, if NOT from within China then from a myriad of infected countries across asia and the wider world where the virus will continue to rage for some time. 

This means China's economy is NOT coming back to business as usual any time soon, not before a vaccine becomes widely available, estimates for which typically put it a year away. And what China is experiencing today is likely to be repeated across the industrialised world.

So until the vaccine materialises I don't see how the world's going to EXIT the Coronavirus recession. Which means the recession could last for upto 12months. Personally, I suspect the vaccine will materialise far sooner given the level of paralysis, especially as AI is being deployed to the task of speeding up the process. I'm no biochemist, but I'd guess the vaccine will be deployed within the next 6 months, so sometime in August / September 2020.

Also on the plus side, the stock market will be looking for signs to discount an end to the Coronavirus crisis, so likely jump on hopes for an early vaccine. So just as the stock market has fallen before the recession begins, so the stock market will rebound before the recession ends.

What to do?

1. Trading stock index futures is very high risk, and the sort of volatility we are witnessing makes it extremely high risk, so it's not something most should even consider, especially given that the markets are not being driven by technical's so the usual indicators that stock traders rely on are just not going work! Because the trend driver is elsewhere, and even there are leads and lags in market reaction. For instance a week ago the Dow was trading over 29k!

2. The tech stocks as I have been warning all year have run way beyond the norms of what I deem to be sustainable and thus have been ripe for a major correction. They were going to fall to some degree with or without the Coronavirus. Hence the AI buying levels for Q1. But the AI mega-trend is more powerful than the Coronavirus trend of 2020, so it remains to be seen if they come anywhere near the buying levels, which is the problem of being invested in good stocks, they don't tend to fall anywhere near as much as the rest of the market. 

Dow Infected with the Coronavirus 

Of course I am not going to just leave things at that and so here's my customary Dow price chart that condenses down my above analysis consequences of the Coronavirus into how things could play out over the next few weeks, baring in mind support levels are very buttery at the moment!

The chart illustrates that price action does not care much for technical levels as it's not being driven by technical's, or economic fundamentals but rather implied Coronavirus fundamentals that in my opinion the markets are still not fully discounting, hence at best we are at the half way point in what is likely to be a very a volatile downtrend, as I am sure the Fed will step in to buy stocks, so we are in for a very bumpy ride!. 

BUT! It's going to be TEMPORARY! Think of it this way, the market is going to gift you a significant DISCOUNT in your favourite stocks.

I will take a look at updating AI stocks buying levels in a future article as even with the Coronavirus I don't think most of these levels will be achieved i.e. I doubt we'll see Google trade down to $1280, the AI mega-trend is that powerful!

My next analysis will be on Bitcoin that I aim to complete this weekend.

Your analyst

Nadeem Walayat 

http://www.marketoracle.co.uk

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.



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