My daughter is enjoying a semester abroad in Rome, a metropolitan area of 4.3 million people with virtually no coronavirus cases and a sponsoring college which has urged but not required students to leave.

Only 350 miles away, in the area around Milan, cases have increased 10X in the past week – with 2,036 cases, 52 deaths (2.6%) and 149 recoveries (7.3%) as of last night. The markets have decided the coronavirus isn’t that big a deal.  But, think about it.

That 2.6% mortality rate is important. But, what about the fact that one person has died for every three who recovered? Shouldn’t we be concerned? I sure as hell would be.

If 2-3 of the students at your kid’s high school died, would you shrug it off? If one died for every three who recovered, would you feel any better about it? Would you send your kid to school tomorrow?  What if 2-3 coworkers died? Would you be eager to return to the office, hold meetings there, frequent the local sandwich shop or pub?

Over 20,000 people ride the train every day from Milan to Rome. What are the chances that no one who was infected traveled back to Rome, not realizing they were infected and contagious? Remember, you can be infected and contagious for weeks without even showing symptoms.

I think about these things as more and more cases are being discovered and schools shut down in the US, even though testing has been laughably inadequate. The latest occurred in metro New York, where 21 million people are suddenly very nervous.

The market has totally missed the boat on the seriousness of the coronavirus, egged on by politicians who think their primary duty is to keep optimism and stock prices elevated. It is not. Their primary duty is to do everything in their power to help protect those whom they represent. Period. Full stop.

The market has not grasped the reality that neither the Fed nor its counterparts can cut interest rates low enough to make the coronavirus go away.  This won’t necessarily stop them from trying, which means the algos could continue to rally enthusiastically – even as doubts increase among carbon-based investors.

continued for members…Futures are all over the map this morning, with ES backtesting both the neckline and the SMA200.  In the bulls’ favor, ES and SPX both popped above their falling channels and SMA200s yesterday.  That was the goal, and it was achieved. Like ES, SPX is still in limbo, also backtesting the neckline and above its SMA200 in the pre-market.  But, remember, this neckline was for an IH&S, so it has already failed. If ES/SPX pop above it, bulls would have another point in their favor. If not, we should see our SPX 2703/ES 2728 targets play out — still my base case. VIX is of little help, having broken down below the TL from the 20th, but forming a little falling wedge and slipping little since the breakdown.If it pops above its recent highs, it potentially has a long ways to go.

Even though USDJPY rallied off support yesterday, it is again sinking as money flows back into yen as a safe haven.

Oil and gas are taking the opportunity to rally off our downside targets, as we expected they would. But, this feels very much like a dead cat bounce, with no one in their right mind able to make a case for improving fundamentals.

As we enter March, there is increased tolerance for higher gas prices from an inflation standpoint. But, the coronoavirus changes things. Inflation is not currently a concern, meaning that we should almost certainly see a pullback from the recent 2.5% CPI levels. The bond market has been modestly helpful to stocks this morning, with the 2Y rebounding somewhat……and the 2s10s backing off its breakout highs. This is a net benefit to stocks in the interim, but should have little impact from a big picture standpoint. Gold is rebounding off its recent lows.

UPDATE:  10:00 AM

The Fed just announced a surprise 50 bps rate cut. Futures popped above the neckline, but the response, so far, has been underwhelming. Bottom line: if the market fails to rally appreciably on this news, stocks are screwed. Powell will hold a press conference at 11am. The dollar is not liking this move…UPDATE: 1:50 PM

So much for the Fed’s ability to fix things…  The 10Y has fallen below 1% for the first time ever……the 2Y is nearing support again…

…and SPX has given up 2.6% on the day.  Still, the trend hasn’t yet been broken – though it appears to be a matter of time… …especially if the yen continues to strengthen… and VIX breaks out of the falling channel.UPDATE: 4:30 PM

These charts pretty much say it all: the ES rally is technically still intact and VIX’s decline is technically still intact.  Therefore, nothing to worry about even though SPX dropped 87 points today!

Of course, that’s the narrative the algos are following.  As I’ve said the past few days, this is a very risky time to take long or short positions. As long as SPX remains above 2947, all is theoretically well. But, that doesn’t protect you from a 100-pt gap lower tomorrow morning, does it?  My SPX 2703/ES 2728 targets are still very much legit.

The 2Y fell briefly fell below channel support this afternoon, tagging .63 before rebounding at the close to .70. If this channel breaks down, stocks will have a hard time holding their ground.