US Futures Poised to Gap Down on Coronavirus Scare: What Then?

Mish

US futures are poised to gap down at the Monday opening. Things can easily change overnight but this is likely to stick.

What is a Gap?

  • A gap up occurs when the market or an individual issue opens higher than the high on the previous day.
  • A gap down occurs when the market or an individual issue opens lower than the low on the previous day.

In this case, S&P 500 futures are at 3257 with the low on Friday at 3281.53.

The close on Friday was 3295.47, but that is irrelevant. This gap down, assuming there is one, will close at any time in the future when the S&P 500 trades at or above 3281.53.

Gaps Act Like Magnets

I am a firm believer that Gaps fill sooner or later but typically sooner.

However, gaps can take days, weeks, months or even years to fill.

All the while, they act like magnets.

Best Bear Case

The best bear case is if this gap down fills quickly then the market collapses as soon as it does.

Coronavirus Scare

My title reads "Coronavirus Scare" but this is more than a scare, at least for China.

There are so many unknowns, but we are well beyond scare to the question.

Black Swan?

How bad will it be? A black swan?

I don't know, nor does anyone else. But I do know Global Coronavirus Cases Jump 50% Overnight, 5 Now in US.

I also know 5 Million Potentially Infected Chinese Fled Wuhan before a travel ban was imposed.

Let that stat sink in along with the fact that the incubation period is up to two weeks and mutations could be higher.

CDC Way Behind the Curve

I can also tell you that the Center for Disease Control is way behind the curve. See the above link for a discussion of their allegedly "proactive" measures and what a sorry joke they really are.

The CDC does not inspire confidence.

If you want better reporting and better tips I suggest following Chris Martenson who just reported Coronavirus Pandemic Event Now A Serious Risk and Dr. Dena Grayson on Twitter.

Also, do yourself a favor and watch Chris Martenson's Must See Video on the Coronavirus.

Mike "Mish" Shedlock

Comments (25)
No. 1-17
Sechel
Sechel

i could see an argument that China's GDP takes a hit from the lockdown but its way early to think u.s. stocks should take a hit. i guess you could try to extrapolate profits earned in china by u.s. companies....but...

yooj
yooj

Good buying opportunity, but with hedges, XLI puts.

Mish
Mish

Editor

Slowdown in global trade, airline traffic, foreign visitor spending, people fearful of flying, etc etc.

I suspect a 1% minimum hit to China GDP. Bare minimum. I do not know how to estimate ripple impacts but there will be some.

And it could get much worse. It is hugely likely to get "worse". How much is the question.

Latkes
Latkes

Can't wait for this hysteria to be over.

Six000mileyear
Six000mileyear

The virus didn't appear to harm the German DAX market on Friday. It was UP more than 1%. Don't Germans/Europeans fly to China, and Chinese fly to Europe? So I don't see how the virus is bad only for the US and not Europe; or how a virus outbreak would HELP a stock market.

Maximus_Minimus
Maximus_Minimus

Antarctica's futures looking good. I wonder what's the correlation?

Flic1
Flic1

Good excuse for the Fed to add an additional $100+ billion/night in liquidity....

truthseeker
truthseeker

And nobody has said anything yet about the bombing of our embassy in Baghdad which would be the big news item of the MSM if not for the China story...

Sechel
Sechel

right now I just don't see it. I don't see people not flying except maybe to parts of China. I know Taiwan has blocked flying to china but i don't see it at a global scale. I could be wrong. next few days may give more clarity to this question

Maximus_Minimus
Maximus_Minimus

The situation can't be that serious; I haven't seen a Trump tweet about it.

Casual_Observer
Casual_Observer

This is the black swan event the global economy did not need. Throw in the bombing near the US embassy in Baghdad again with Trump as President and it could make for a very crazy Monday.

truthseeker
truthseeker

Mish you say there are so many unknowns, so I will say to you to paraphrase an old friend, “We know there are known knowns, there are things we know we know. We also know there are known unknowns, that is to say we know there are some things we do not know. But there are also unknown unknowns-the ones we don’t know we don’t know. And if one looks throughout history of our country .....well you know the rest of it....

abend237-04
abend237-04

What a difference a day makes! I'm feeling a lot less immortal this evening, sitting here in north County San Diego.
Kobe's dead, and two of the five US Coronavirus victims are from an area a little more than an hour's drive from here.

Also feeling more than a little guilty, and thankful, having just polished off a fine steak and bottle of Cab that would have set me back hundreds in any local eatery, I'd offer the following link for those inclined to take the present moment too seriously:

lol
lol

China's black plague,caused by there massive smog and pollution problem.Ban all Chinese imports, electronics,anything with lead,ion,baby formula,all paints,ban pretty much everything.With literally everything is contaminated !

bradw2k
bradw2k

If it gets traction in the US (who knows!) I don't doubt airline business will drop. Spring break staycations? Anyway, don't think I'll be going into any Chinese restaurants for a while.

Greggg
Greggg

Add another trillion repo by the Fed combined with the Plunge Protection Team, no problem here folks. We gotta keep this going, yaknow.

Herkie
Herkie

This is very harshly disturbing. The potential death toll of this virus is now estimated to be about 65 million people (given what we know now early on) if they stop international travel today.

That is a worst case scenario but I think even that underestimates potential.

What do we know so far? Chinese health statistics are no more reliable than their accounting procedures which are basically more fictional than our own.

They say the death rate is about 4% of those infected, but I have read where doctors have been ordered to say cause of death was viral pneumonia. The actual death rate s a lot closer to 10%.

By now the entire world is going to be exposed to this. That is 7.8 billion people.

Ten percent of 7.8 billion people is 780 million people. And this is all before election day.

Hundreds of millions of people are going to die from this. It is not like SARS, there is no immunity to it, everyone exposed gets sick. People like me have no chance. Please understand that aside from IV fluid to hydrate people there is no treatment for this. You either live through it or you die from it, and when this hits peak infection in a few months there will be no room for you in hospitals anyway, you will get sick and live or die at home with no help coming to you.

And all that discounts the fact that this has mutated very rapidly. Even if people survive it they can get sick again because science has raely seen such rapid mutation.

I am like you hoping it is just like the whole SARS "epidemic." But I am afriad that it is not so this time. I think it could easily take out 10% of all people. And in retrospect that is not even as bad as the 33% or so plague took out in the dark ages. But, 10% of all people is still close to a billion people.

Will you be one of them? Will I?


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