How Far Will The Market Fall?

IFocus · 10 March 2020

I know there are many members that have seen this type of market before so worth a thread on thoughts on where to from here and why.

This is of course accepting no one knows what will happen next just like any other day in the markets and probability becomes a problem in such volatile conditions.

But lets not stop that from us speculating after all isn't that what we are all here for to accept risk and speculate.

My own thoughts on the current market are this is just the 1st leg down bringing out value investors and a bit of FOMO, 2nd leg normally brings doubt and a bit of disbelief 3rd or 4th leg down brings capitulation which is a buy signal.

Note nothing wrong with buying now its a market each position has a different reason behind it.

Whats a measurement that can be applied to the unknown?

Markets are meant to look out many months or more so besides uncertainty whats this one pricing in?

A couple of obvious issues come to mind

Recession usually 15 to 20% fall
Supply / demand shock 5 to 15%
Confidance 10%
Delays to recovery (virus lock downs) 10%
Secondary shocks 10% (unknown at this stage)

Arbitrary numbers and most would merge together, I don't have a number yet as its only the 1st leg if there is a 2nd leg then the target will become a little clearer.

Interested in others thoughts particularly contra

UMike · 10 March 2020

This is possibly the most emotive and (irrational) fear based set of circumstances I have ever seen.

Find a vaccine and it is over tomorrow.
Until then sensible precautions and outright panic are going to do real damage to industry and economies.

sptrawler · 10 March 2020

I agree with most of what you say below IFocus, but I think there will be a much more dramatic effect on mining this time, as opposed to the GFC which was more financial sector focused.
With regard when to buy in that will be on everyones mind, it depends how cashed up one is and the time frame one is working on. Also whether one is a trader or a sit and hold, there is a lot of opportunities to dollar cost average, for the sit and holds.
As an elderly mate said on the phone today, thank god for franking credits, funny thing is he was against them before the election.
His situation has gone from sunshine and lollypops, to seeing his nest egg decimated.
I think we are near the bottom, if not the bottom, not far off. There is no other game in Town, people have to invest somewhere.
Be selective, no penny dreadfulls IMO.

peter2 · 10 March 2020

I'm contra; in that we've already hit the bottom. The ASX is up >10% overnight. I wouldn't expect much more. I think we may test the recent low as the virus spreads throughout the US. The March qtr results will outline the economic cost and growth will stagnate for a another qtr, possibly taking us into a technical recession. In 3 - 4 mths time the sentiment will change and be more positive as the virus numbers decline. Newspaper headlines may actually be positive for a change. I'll be buying all the reversal setups. Life goes on, while the idiots out there will wonder what to do with all their toilet paper.

Dona Ferentes · 10 March 2020

where was that graph of market peak GFC and recent peak sell-off? I think it was reddit?

updated version would be good

macca · 10 March 2020

I was expecting 6384 XAO to hold and bounce, dead cat ?

If closes down through there for 2 days then 5875 comes into play

basilio · 10 March 2020

As far as I can see the economic consequences of the corona virus have yet to be recognised. There is lots of noise and China has certainly had a crashing stop to its industrial production.

But where are the figures ? What have been the production and sales losses in China.? How has that impacted businesses, families, tax systems ? How is the banking system holding up ? What is keeping it afloat ?

Now across Italy, Sth Korea Japan Europe wherever we are seeing the knock on effects of reduced travel and tourism, breakdowns in supply chains, mass closure of public events, cancellation of conferances, concerts, sporting events. Collapse of many hospitality industries. Again how will this manifest itself in employment, sales targets, paying rent and paying loans?

Unfortuately I can't see any clear light until the virus has played itself out. I think the next few months should be basically survival mode around the world and doing what has to be done to save the house.

We may well have to burn a lot furniture on the way The figures on a stock exchange should be rather irrelevant IMV.

IFocus · 10 March 2020

peter2 said:
I'm contra; in that we've already hit the bottom. The ASX is up >10% overnight. I wouldn't expect much more. I think we may test the recent low as the virus spreads throughout the US. The March qtr results will outline the economic cost and growth will stagnate for a another qtr, possibly taking us into a technical recession. In 3 - 4 mths time the sentiment will change and be more positive as the virus numbers decline. Newspaper headlines may actually be positive for a change. I'll be buying all the reversal setups. Life goes on, while the idiots out there will wonder what to do with all their toilet paper.

Thanks Peter hope you are right

qldfrog · 10 March 2020

IFocus said:
Thanks Peter hope you are right

So do I : I think you are wrong but I hope you are right
I find the crowd on ASF quite optimistic considering it is biased toward an age group likely to see substantial losses..and I am not talking $ or portfolio....

CBerg · 10 March 2020

basilio said:
As far as I can see the economic consequences of the corona virus have yet to be recognised. There is lots of noise and China has certainly had a crashing stop to its industrial production.

But where are the figures ? What have been the production and sales losses in China.? How has that impacted businesses, families, tax systems ? How is the banking system holding up ? What is keeping it afloat ?

Now across Italy, Sth Korea Japan Europe wherever we are seeing the knock on effects of reduced travel and tourism, breakdowns in supply chains, mass closure of public events, cancellation of conferances, concerts, sporting events. Collapse of many hospitality industries. Again how will this manifest itself in employment, sales targets, paying rent and paying loans?

Unfortuately I can't see any clear light until the virus has played itself out. I think the next few months should be basically survival mode around the world and doing what has to be done to save the house.

We may well have to burn a lot furniture on the way The figures on a stock exchange should be rather irrelevant IMV.

I believe you are being very, very negative basilio. It's echo chamber at the moment. You should take a walk, read a good book.

Take these numbers with a grain of salt because it's the Chinese but I would rather not bet against a political system which has the will power to make 5, 10, 15 year plans and try to execute said plans.
http://www.stats.gov.cn/english/PressRelease/202003/t20200302_1729254.html
"Affected by novel coronavirus pneumonia in February 2020, the Purchasing Managers Index (PMI) of China has dropped significantly. But with the overall promotion of epidemic prevention and control and economic and social development by the CPC Central Committee and State Council, the recovery rate of enterprises was picking up rapidly, and production and operation activities were recovering in an orderly manner. As of February 25, 78.9 percent of the enterprises surveyed by purchasing managers in China had returned to work, of which 85.6 percent were large and medium-sized manufacturing enterprises."
For over 2 weeks now China has been returning to work & ramping up their economy back to steady state. Februaries numbers are bad but we knew that. March doesn't have a write off if people don't want it to be. The economy will tick over provided people don't turn negative just shut them selves off. Most people aren't which is a good thing so far. I've got a NRL game to go to on Friday, I sure as hell will be f*cked right off royally if they cancel at this point.

As far as health systems go, the smart option at this point is to stop the pretence that it will stop spreading if people lock themselves up & deal with the fact it's already here & spread further than news/social media fathom.

wayneL · 10 March 2020

I think Peter is right, for now, but wrong longer term. The flood of fiat will prop it up, but other economic shoes to drop will take it out at some stage.

I give it a few months.

sptrawler · 10 March 2020

qldfrog said:
So do I : I think you are wrong but I hope you are right
I find the crowd on ASF quite optimistic considering it is biased toward an age group likely to see substantial losses..and I am not talking $ or portfolio....

That is a different issue, we are talking the market, not the collateral damage.

CBerg · 10 March 2020

sptrawler said:
I agree with most of what you say below IFocus, but I think there will be a much more dramatic effect on mining this time, as opposed to the GFC which was more financial sector focused.
With regard when to buy in that will be on everyones mind, it depends how cashed up one is and the time frame one is working on. Also whether one is a trader or a sit and hold, there is a lot of opportunities to dollar cost average, for the sit and holds.
As an elderly mate said on the phone today, thank god for franking credits, funny thing is he was against them before the election.
His situation has gone from sunshine and lollypops, to seeing his nest egg decimated.
I think we are near the bottom, if not the bottom, not far off. There is no other game in Town, people have to invest somewhere.
Be selective, no penny dreadfulls IMO.

I think it will be materials again that saves the day for Australia again. I cannot see a situation where even in 12 months time there isn't more people joining the middle class in China, India & Africa. The last 2 will only grow their consumption more dramatically as time plods along.

I don't have the numbers on this handy but I believe almost all commodities are being used at a greater rate than ever before, demand won't stop suddenly either as more people get lifted from poverty into better situations.

InsvestoBoy · 10 March 2020

I dunno how far the market will fall, but I think it could fall up to 50-60% from the high without me feeling very surprised.

Global equity indices tend to move together, especially as passive investing grows, even if not in perfect correlation due to sector breakdown of the indices and currency fluctuations.

Globally, valuations are lofty, even after this little speedbump we've had.

If there are to be further rises, it will come from expansion of valuations as it doesn't seem like there are indicators of strong economic growth on the horizon. Call it stimulus or whatever you like.

Valuation expansion is really just another way of saying an expansion of market implied growth in the future to "justify" those lofty valuations.

So if the bond market/Eurodollar market/commodity market/inflation markets are all pricing in these poor fundamental scenarios at the coalface of where finance meets reality,

either those markets are wrong and "market implied growth" is right, or stocks are going to feel pain as the numbers come out showing their earnings are slowing, profit margins contracting, etc.

If valuations globally start to reset lower, I doubt the ASX will be spared. Hence, no surprise at a 50-60% drop.

That is all to judge, without even thinking about coronavirus.

IFocus · 10 March 2020

CBerg said:
I believe you are being very, very negative basilio. It's echo chamber at the moment. You should take a walk, read a good book.

Take these numbers with a grain of salt because it's the Chinese but I would rather not bet against a political system which has the will power to make 5, 10, 15 year plans and try to execute said plans.
http://www.stats.gov.cn/english/PressRelease/202003/t20200302_1729254.html
"Affected by novel coronavirus pneumonia in February 2020, the Purchasing Managers Index (PMI) of China has dropped significantly. But with the overall promotion of epidemic prevention and control and economic and social development by the CPC Central Committee and State Council, the recovery rate of enterprises was picking up rapidly, and production and operation activities were recovering in an orderly manner. As of February 25, 78.9 percent of the enterprises surveyed by purchasing managers in China had returned to work, of which 85.6 percent were large and medium-sized manufacturing enterprises."
For over 2 weeks now China has been returning to work & ramping up their economy back to steady state. Februaries numbers are bad but we knew that. March doesn't have a write off if people don't want it to be. The economy will tick over provided people don't turn negative just shut them selves off. Most people aren't which is a good thing so far. I've got a NRL game to go to on Friday, I sure as hell will be f*cked right off royally if they cancel at this point.

As far as health systems go, the smart option at this point is to stop the pretence that it will stop spreading if people lock themselves up & deal with the fact it's already here & spread further than news/social media fathom.

Pollution levels don't show that yet not to say the numbers are wrong

https://www.cnbc.com/2020/03/02/nas...tion-decreased-amid-coronavirus-measures.html

edit tried to post BBC link but wouldn't let me try the above haven't read the article

sptrawler · 10 March 2020

CBerg said:
I think it will be materials again that saves the day for Australia again. I cannot see a situation where even in 12 months time there isn't more people joining the middle class in China, India & Africa. The last 2 will only grow their consumption more dramatically as time plods along.

I don't have the numbers on this handy but I believe almost all commodities are being used at a greater rate than ever before, demand won't stop suddenly either as more people get lifted from poverty into better situations.

I agree with that, what I was referring to was in the next 6-12 months, which refers to this current correction.
I am expecting a slowdown in manufacturing and demand, due to the virus fallout, which i think will lead to glut in materials.
When things return to normal, it will be business as usual, as you say.
There is no way that China and India are not going to keep industrialising, which in turn will increase their affluence and consumption.
As I said, I was more talking about the current market correction only.

Garpal Gumnut · 10 March 2020

I believe we are looking at a drop to 4000 on the XAO.

Look at the length of the ranges over the last 6 weeks.

And nobody I know has a sniffle yet, China as @IFocus notes is moribund and the world has no strong leadership outside of China.

My bet is that the XAO will shilly shally between 5- 6000 for a while, then drop to 5000 for a lesser time and the fall through that and 4000 to stabilise below there.

A monthly chart below over 10 years.

gg

CBerg · 10 March 2020

IFocus said:
Pollution levels don't show that yet not to say the numbers are wrong

https://www.cnbc.com/2020/03/02/nas...tion-decreased-amid-coronavirus-measures.html

edit tried to post BBC link but wouldn't let me try the above haven't read the article

Look I definitely think a big grain of salt is warranted with taking the figures of the Chinese government, no question there. Your picture is at this point 15 days outdated too however. I would expect activity is still only returning to normal but I would not think it's far from normal either at this point.

InsvestoBoy · 10 March 2020

peter2 said:
I'm contra; in that we've already hit the bottom. The ASX is up >10% overnight. I wouldn't expect much more. I think we may test the recent low as the virus spreads throughout the US. The March qtr results will outline the economic cost and growth will stagnate for a another qtr, possibly taking us into a technical recession. In 3 - 4 mths time the sentiment will change and be more positive as the virus numbers decline. Newspaper headlines may actually be positive for a change. I'll be buying all the reversal setups. Life goes on, while the idiots out there will wonder what to do with all their toilet paper.

Sorry I am confused by this post can you clarify?

Are you saying we hit the low, but you think there will be a re-test followed by new highs?

sptrawler · 10 March 2020

Garpal Gumnut said:
I believe we are looking at a drop to 4000 on the XAO.

Look at the length of the ranges over the last 6 weeks.

And nobody I know has a sniffle yet, China as @IFocus notes is moribund and the world has no strong leadership outside of China.

My bet is that the XAO will shilly shally between 5- 6000 for a while, then drop to 5000 for a lesser time and the fall through that and 4000 to stabilise below there.

A monthly chart below over 10 years.

gg

View attachment 101187

I can't wait to see the chart and the lines that explain that one GG.

How Far Will The Market Fall?

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