The world is a lot quieter today...but not the market!

My friend forwarded me this interesting report:

Believe or not, while the anxiety-provoking mainstream news channels and social media feeds on our smartphones may indicate otherwise, but Earth has actually gotten quieter over the past few weeks. A recent article in the journal Nature described the science... "Researchers who study Earth's movement are reporting a drop in seismic noise – the hum of vibrations in the planet's crust – that could be the result of transport networks and other human activities being shut down."

Other earthquake scientists in Los Angeles and London posted charts online showing the same trends in their cities. More from the article..."Just as natural events such as earthquakes cause Earth's crust to move, so do vibrations caused by moving vehicles and industrial machinery. And although the effects from individual sources might be small, together they produce background noise..."

While our physical activities as a whole on the globe have been substantially muted these days, thanks to the damn virus, the market in the past two weeks has been nothing near muted. Actually it has been roaring hot and seemingly strong, at least on the surface! Even though I'm not surprised for a 20% rally at all as you know, I'm indeed a bit surprised for a 30% rally virtually straight line up within 2 weeks. This needs to be viewed against the backdrop of something really unique and unprecedented in the past 100 years in terms of the ferocity of falling into the bear market from the peak of the red hot market and the magnitude of the daily volatility. See the following interesting study again shared with me by my friend. 

The chart below depicts all stock market declines of more than 20% that happened after all-time market highs. The data dates back to 1915.Historically, on average, it has taken 255 days for the market to go down 20% from a peak (a 20% drop is the definition of a bear market). In March, it took just 20 days - which is less than 8% the time of the historic norm. You wouldn't believe it unless you lived through it. Even the 20% stock market crash of 1929, known as "The Great Crash," took 36 days. This time around, we almost cut that in half.
A Surprising Amount of "Up" Even though the market in March 2020 went down at record pace, the swings upward during the month were equally extreme. One day, the market had a big drop. The next day, the market had a big gain... It went up big, and then it went down bigger. It is really quite amazing that we went down as far as we did with how many massively positive days there were. Pictures tell a thousand words, so I'll show you how wild March 2020 was with another graph. This graph shows the Dow's cumulative absolute percentage daily change over the month of March compared with history. ("Cumulative absolute percentage daily change" refers to how much the market moved each trading day regardless of direction. So if the market went down 2% on day one and then went up 3% on day two, the cumulative percentage change would be 5%.)Wowzers! There is nothing in stock market history that even comes close. Adding the 22 trading days of March 2020 results in a cumulative percentage change of 117%. That is an average daily change of 5.3%! The next wildest month in history was October 2008, which had an average daily change of 3.8%.

  The million dollar question is whether or not this rally is sustainable and we are out of the woods already.  Of course no one knows for sure, nor do I. But I'm willing to bet by no means we have gone out of the woods by now. Far from it! Although I'm in the campus of believing that this bear market is different from all the previous ones in that it won't last for long, probably much less than the typical 18 months or so, I definitely don't believe it will be just a few weeks long. I'm convinced there will be another leg down to test the Mar lows, probably not once before we can finally go out of the woods! I know I tend to be early in macro calls and I won't put a specific timeline when this next leg down may come but personally I'm accumulating short positions to be prepared for it. The easiest way to hedge the downdraft is to buy some inverse ETFs. Of course no guarantee that it will start to work immediately but at least it is good to have some insurance. One thing I'm sure about is not to FOMO now by chasing highs from here. What we are seeing now is nothing different, sentiment-wise, from that seen prior to this fastest epic crash late Feb.  Although feeling great, believe me,  it is enormously dangerous!! I had warned similarly for weeks since Dec last year without many believing me. Could this fake rally continue for another few weeks? Sure it could but I highly doubt. Considered being warned!!!