Morning Comment....Friday Declines...TSLA Still VERY Overbought

  • Will the “Friday decline” begin a day early this week?
  • China finally admits to under-reporting the extent of the coronavirus.
  • The starting point of the coronavirus is MUCH different than SARS & H1N1. (That’s important.)
  • TSLA announces $2bn stock offing…at a time that it’s still VERY overbought.

Will the “Friday decline” begin a day early this week?

The stock market rose again yesterday….which makes 10,471 days in a row that the market has moved higher…(at least it seems that way). We would point out, however, that the market has indeed declined on several individual days over the past couple of weeks. In fact, it has sold-off on each of the last three Fridays…as investors worried that the coronavirus might get worse over those weekends…and investors took a few chips off the table…just in case the situation deteriorated dramatically over that weekend.

China finally admits to under-reporting the extent of the coronavirus.

It looks like the “Friday pull-back” might become a two-day event this week…as China is finally admitting that they have under-reported the size of the outbreak. (They’re actually attributing the big jump in cases to a revised method of counting the infections…but in reality, they’re merely just admitting that they’ve been under-reporting the numbers.) This does not mean that the coronavirus will become a much bigger problem…and thus the stock market is going to get clobbered, but it does look like it will give investors an excuse to take a few chips off the table over the last two days of the week…instead of just the last one.

It is one thing for market pundits to tell investors that they should not panic over the coronavirus, but it’s another thing to tell them it won’t have ANY impact…and thus they should continue buying stocks with both hands. Of course the continued rally in the stock market only emboldens these pundits to make those kind of statements, but we think it’s irresponsible. As we’ve said many times over the past few weeks, none of these market pundits has any idea how bad this healthcare threat will turn out to be, so sending out the “all clear” signal is not what they should be doing in our humble opinion.

The starting point of the coronavirus is MUCH different than SARS & H1N1. (That’s important.)

Maybe the most shortsighted argument is the one that compares this coronavirus…to the SARS outbreak of 2003 or the H1N1 outbreak of 2009. First of all, and like we just said, market pundits have no idea if the coronavirus is much stronger than SARS or H1N1. However, when one is talking about the impact this kind of health crisis might have on the markets, it’s vitally important to realize that the “starting point” matters whenever ANY crisis develops. In the case of the SARS and the H1N1 outbreaks, the starting points for BOTH of these flare-ups took place right after HISTORIC bear markets!!!! In both cases, these outbreaks developed just after a decline of 50% in the S&P 500 index over the previous three years. Therefore…in both cases…the market had become oversold (and washed out) and very under-valued…and the U.S. (and global) economy was just staring to take-off. This time around, the market is coming after a RALLY of over 80% during the past three years…and after the economy has experienced its longest expansion in history!

We’re sorry to keep harping on this issue, but it IS important! The starting point does matter…and it should be considered when thinking about how much the market can rally from its current…elevated & expensive…level.

Again, we are NOT saying that this coronavirus will mark the end of this great bull market!!! We’re also NOT saying that it will cause a recession. We’re merely saying that given the rally in the stock market since October (+17% on the S&P 500…+27% on the NDX Nasdaq 100)…and the rally over the past 14 months (+43% on the SPX…and +62% on the NDX), investors should not be anywhere near as complacent as they have been over the past few weeks. Sure, the Fed has the market’s back…but as we’ve said many times recently, history shows us that they only have it when the market falls in a significant way. To think they will step-in and after a very small decline is dangerous thinking to us. It is similarly dangerous to think that their “not QE” QE program will keep the market from falling AT ALL going forward (especially since their balance sheet stopped expanding at the beginning of they year).

Therefore, we believe investors need to be careful up at these levels. The coronavirus might not (and probably won’t) be anything close to resembling the Spanish Flu of 100 years ago, but to assume it will not have any lasting impact on the economy is dangerous in our minds. This is especially true since the stock market was priced for perfection before the outbreak became public. We just think it is a good idea to raise a little (repeat, LITTLE) cash at these levels…especially on the high flyers. That will give investors will have some ammo to use if/when we get a meaningful decline in the stock market in the not-too-distant future.

TSLA announces $2bn stock offing…at a time that it’s still VERY overbought.

We’ll finish bey highlighting that TSLA has announced a $2bn stock offering this morning. This new-news has the stock trading down near its recent closing lows of $734.70. It’s trying hard to hold that level, but any meaningful close below that level is going to be bearish for TSLA on a short-term basis…and could/should lead to a much further decline in the stock (no matter where it’s going to go over the next few years). We’d also mention that even though TSLA closed last night 21% below its intraday highs of last week, its weekly RSI chart still has a reading of almost 92! So it is still very, very, very overbought on an intermediate-term basis. Therefore, we think its recent closing lows will be broken soon…and the stock will trade lower.

This is a smart move by TSLA…and it should help them over the longer-term. However, it should also cause this (still) overbought stock to fall further before it sees an important bottom. (Charts attached below.)

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Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Feb 13, 2020 — 8:02 AM
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