Stocks Down Again On Coronavirus, But Attractive Buying Opportunities Emerge
Stocks dropped again as fears over the coronavirus grow.
The CDC (Centers for Disease Control) on Tuesday said that Americans should begin to prepare for the spread of the coronavirus in the U.S.
This alert was prompted by the sudden spread of the virus in other countries such as Iran, Italy, and South Korea.
Dr. Nancy Messonnier, the CDC head of respiratory diseases, said that "the data over the past week about the spread in other countries has raised our level of concern and expectation that we are going to have community spread here."
Of course, nobody knows when it will arrive or how severe it will be.
Wuhan, China has been the epicenter for the outbreak. And fortunately, according to the World Health Organization (WHO), the epidemic has already peaked in China.
But the spread to other countries, in spite of travel restrictions and other containment measures, has been perplexing.
Health and Human Services (HHS) Director, Alex Azar, said that the immediate risk to individuals in the U.S. remains low. Nonetheless, the administration is requesting over $2.5 billion from Congress to fight the outbreak.
Separately, there are reports that a vaccine could be ready in six weeks. In the meantime, the world is left wondering what happens next.
For perspective, I'm reminded that more people die from the flu each year than what we've seen so far from the coronavirus. But with so many unknowns regarding the current virus, it's hard to make accurate comparisons.
Getting back to the economic impact -- estimates are still only calling for a modest impact on the U.S. economy. But of course, the longer the outbreak continues, and the longer the disruptions of people and products go on, the greater the impact will be.
Looking at support levels for the S&P, the two we listed yesterday came in at 3,205.48 (which was a gap left on the chart from 12/19/19), and 3,182.68 (which was a gap from 12/13/19). Both of those were taken out.
There are three more logical support levels nearby: 3,119.45 (which was a gap left on the chart from 12/5/19, and which we hit almost exactly yesterday); then 3,094.97 (gap from 12/3/19); and then 3,046.90 (gap from 10/31/19, and which happens to coincide with the 200-day moving average at the moment).
The nearest support level is just 0.28% below yesterday's close, and the farthest one is 2.60% away.
From the S&P's peak on 2/19, to yesterday's low, the S&P has pulled back 8.10%. Seems worse than that, but that's only because it happened so quickly. But 8-10% corrections are not unusual. In fact, I would consider them to be ordinary. And quite frankly, if the underlying fundamentals are strong, I would consider a pullback like that to be healthy and a great buying opportunity.
And that's why I personally bought the triple-leveraged bullish S&P ETF (SPXL), and the triple-leveraged small-cap ETF (TNA), as we approached the 3,119 support level late in the day yesterday.
If we jump up today, fantastic.
But if we head lower, that's fine with me, because I'll be looking to add even more if we do.
Because in spite of the heightened concerns over the outbreak, our economy remains strong. And once the worst of the outbreak is behind us/the world, stocks are expected to soar as pent-up economic demand is unleashed.
So make sure you take full advantage of this pullback by being able to buy your favorite stocks at prices you only wished you could have gotten in at just a few short months ago.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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