The elastic bounce by the stock market Monday was the result of several factors, and if you blinked your eyes you missed the opportunity to buy shares at a large discount. Stocks closed lower 7 days in a row and the Coronavirus scare kept the pressure on every sector. This bounce shows how volatile markets can be when the market driver is echoed in the media cycle as the death toll rises and the number of those infected makes headlines from country to country and city to city.
The largest single-day bounce in market history happened yesterday and these types of moves where you have 5% bounces and market volatility are rare. This volatility normally happens in oversold conditions on the back of an impactful catalyst like the potential pandemic, such as the latest scare from coronavirus and a rising death toll worldwide. The world doesn’t see a global pandemic everyday. Markets spend 85% of the time preparing to move, and 15% of the time moving – yesterday’s bounce was one of those rare moves.
Stocks that are driving the market such as Tesla, Apple, Google, FaceBook and Microsoft all had big rallies, and if you look at shares of Tesla (TSLA) you see dramatic volume and volatility rarely seen. These are exceptions to daily trading where a widely held – high priced stock can move 75 dollars in a single day and have 300 dollar ranges during a trading session. These unusual trading days in markets do not happen that often so its worth looking at price action when you see a sasquatch or a unicorn. Tesla looks much like the overall market, and it’s also rare when the most volatile stock has a footprint similar to the broad market.
Markets make bottoms and tops with oversized volume and if this is a bottom, we will know by the upcoming price action. A market bottom here would likely need lower low, where trading looks like hell, and there is blood in the streets again. These are interesting times, and they do not happen very often. It is a bit like watching a car crash as multiple events happen in a short period of time so that the significance of the action is lost in the melody of the movement where it slowly unfolds and moves in the other direction. When markets make bottoms and find support, it is similar to swimming after a boat in the water – it moves off into the distance, and you don’t realize it until it disappears over the horizon. The volatility of trading and volume around this potential pandemic is one we should observe closely, before the boat gets too far away from us.