The biggest charting development overnight was VIX’s resurrection. Breaking down below its channel bottom dating back to Nov 27 drove stocks to new highs. Will rising back above it bring stocks back down to earth?
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The biggest charting development overnight was VIX’s resurrection. Breaking down below its channel bottom dating back to Nov 27 drove stocks to new highs. Will rising back above it bring stocks back down to earth?
continued for members… (more…)
BTC has reached our next downside target – the 1.618 Fibonacci extension at 29,280. As we discussed in our last update [see: Jan 12 BTC Update]:
As we noted [in our Jan 7 update] after it reached the 40,138-40,180 target range, if it can’t hold 40,180, then we could look for a backtest of the 1.618 around 30,000… It would first have to drop back through the pink channel top, currently at 31,333.
It remains to be seen whether yesterday’s 30,261 lows were close enough to the blue 1.618 extension at 29,890 to count. I think there’s a better than average chance it’s not done yet.
It wasn’t. BTC bounced sharply for 3 days before coming back to tag the 1.618 extension. It has since rebounded to the pink channel top. Now the fun part starts.
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It was another potential ugly day that turned into a barn burner as VIX followed through on its bearish 10/20 cross and broke below a trend line dating back to November.
The day was also about expectations. AMZN, for instance, which had broken down after establishing a pennant pattern dating back to Sep 2 and hasn’t been able to top its SMA10, surged a whopping 4.57%.
The departure of Jeff Bezos’ nemesis, perhaps? In any case, it wasn’t the only major component of the S&P 500 to spike higher.
AAPL +3.29%
MSFT +3.65%
AMZN +4.57%
FB: +2.44%
GOOG +5.36%
NVDA +2.61%
NFLX +16.85%
With the FAANGs back in business, can we stop worrying about the downside?
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Twelve days ago, we noted that the equal-weighted S&P 500 had reached important resistance at the top of a channel dating back to the 2007 top [see: Run, Don’t Walk.]
At the time, RSP hadn’t quite reached the 1.272 Fibonacci extension. Now it has.
The only reason futures are up 23 points is because, as we discussed yesterday, VIX has experienced a bearish (bullish for stocks) 10/20 cross.
Can the algos push to new highs, or is this the final warning to head for the exits?
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The algos are pleased with themselves this morning, pumping futures 30 points higher on the fact that VIX crashed over 7% overnight. At one point, the SMA20 was only 5 cents below the SMA20.
Friday’s dip didn’t quite reach our 3730 backtest target – which, ironically, leaves the door open to an even lower low.
Can big bank earnings convince investors to continue overpaying for stocks?
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Now, almost 25 million cases and over 400,000 deaths later, we stand by our comment at the time that such tweets were both irresponsible and dangerous. Eleven months later, we’re still paying the price for not taking things seriously.
Imagine if we had closed all borders at the time and asked everyone except essential workers to stay home for one month. Anyone who had been exposed at that point could have been quarantined and their contacts traced through a federally coordinated effort as was done in many other countries such as Australia, New Zealand, Singapore, etc.
Imagine having a chart shaped like either of these…
The cost for paying all those salaries for one month: about $400 billion. We could have reopened the country a month later with confidence. It has been estimated that we’ve spent over $16 trillion so far, and a full reopening is still months away at best.
Water under the bridge, of course. And maybe you’re one of the lucky ones who hasn’t yet been touched by COVID-19. Right now, one of every 34 Americans has an active case. One of every 13 people has been diagnosed. Former FDA Commissioner Scott Gottlieb said last month that about a third of Americans would ultimately be diagnosed. That was before the new, much more contagious strain was discovered.
Wouldn’t it be nice if we had taken it more seriously? Our current estimates call for over 450,000 deaths by the end of January and 500,000 by the end of February – at which point total cases should be around 30,000,000. Both might have already peaked; but, it will take a while for vaccines to get to market and for enough people to get vaccinated to make a difference.
Elsewhere in the world, things will unfortunately continue to get worse – especially for countries without the money and the healthcare infrastructure to stop the spread.
I’ll remove this “sticky” post from the front page for the time being. Coverage of the pandemic is very extensive now and there are many sources for great information. I’m praying there will be no need to return it to a place of any prominence.
UPDATE: October 20, 2020
Herd Immunity: Doing the Math
In June, we observed that the US had embarked on a herd immunity approach to dealing with the COVID-19 pandemic.With little public discussion or debate, the US has embarked on a herd immunity approach to the coronavirus. No one’s really describing it as such, but the label is accurate just the same. Over the past month, scores of politicians and business leaders have declared (from the safety of their home offices) that “getting back to work” is more important than saving the maximum number of lives from COVID-19… Bottom line, the decision to reopen the country was made out of political and economic desperation with suspect motives and dubious scientific backing. While the strategy was purportedly for the benefit of the American worker, it is those very same workers who will end up paying the price.It was a provocative thing to say at the time, and I received a fair amount of blowback, most of it along the lines of “you’re exaggerating” or “not even Trump would do something like that.” At this point, it is patently obvious that the Trump administration has embraced herd immunity despite the enormous loss of life it would entail. Let’s do the math. Most advocates admit that herd immunity would require 60-70% of a country’s residents to become infected before protection would be afforded to the general population. In the United States, this would mean between 199-232M people becoming infected. We’ll go with the average of 215M. Compare this to the total known positive cases of about 8.5M and the likely 35M who have already been infected but not diagnosed, and the implication is that another 180M would have to be infected. The death rate has obviously fallen greatly over the past few months as those infected have tended to be younger and healthier and more effective therapeutics have been developed. But, it still hovers around 2.7% of diagnosed cases and 0.6% of probable cases. Applied to 180M infected, this would mean total deaths exceeding 1.1M. Unacceptable. The number of cases diagnosed each day is increasing at an increasing rate (i.e exponentially.) The 3-day moving average of new daily cases a month ago was 43,253. Today, it reached 58,133. A month from now it will reach 175,000 new cases and by the end of the year it will total well over 250,000 each and every day. The current 8.5M diagnosed will have grown to over 20M. Deaths now stand at 226,000. Daily deaths, which averaged less than 300 in June, are now topping 1,000 again and will reach 2,000 per day within the next month. By the end of the year, we will see over 310,000 total dead – more than were lost in The Gulf War, Spanish-American War, Iraq-Afghanistan, Mexican War, War of 1812, Revolutionary War, Korea, Vietnam and World War I put together. Sometime in February, total deaths will exceed the 405,000 lost in World War II. I know what you’re thinking. What about a vaccine? While it’s true that several companies are making excellent progress, it will be well into 2021 before any vaccine is widely available. It will be too late for the hundreds of thousands who will die needlessly between now and then. At 1 of every 10 Americans infected and 1 of every 740 Americans dead, it will be unusual not to know many who were sick and a few who died. It’s hard to talk about COVID-19 without talking about politics these days. Two days ago, new White House coronavirus advisor Dr. Scott Atlas tweeted that masks were not effective. It’s an opinion counter to that of the vast majority of scientists and doctors – including more than 100 of Atlas’ former colleagues at Stanford Medical School. President Trump’s rallies are testament to the disregard he has displayed for masks and social distancing. “It’s the last two weeks. Fuck it,” one Trump adviser said. People are indeed tired of the coronavirus – including masks, social distancing, remote learning, closed businesses, restaurants and stores, unemployment and staycationing. It’s getting old, it’s harming the economy, and it’s taking a toll on physical and mental health. But, for most of us, it beats dying. Even if you’re willing to take chances with your own life, it still beats killing grandma. In 1970 a Stanford psychologist studied the effect of delayed gratification by offering children a marshmallow. If they were able to abstain from eating it until he returned in 15 minutes, they were promised a second marshmallow. The study found that those who were able to delay gratification tended to have better life outcomes such as higher SAT scores and fewer behavioral problems. Though the study has been criticized over the years, its conclusion is worth taking to heart. It’s tempting to follow the advice of those “experts” and political “leaders” who insist we can ignore the risks and get back to normal life right now. It would be great. But, it would result in millions more sickened and hundreds of thousands dead. By taking modest precautions, exercising patience and delaying gratification, we can do better. Let’s not fail the marshmallow test. UPDATE: September 2, 2020 This is an excellent summary of where we are and why. More importantly, it offers simple, clear solutions to America’s coronavirus disaster. Reprinted from The New Yorker, September 2, 2020. We Can Solve the Coronavirus-Test Mess Now – If We Want To by: Atul Gawande
To get out of this pandemic, we need fast, easy coronavirus testing that’s accessible to everyone. From the way people often talk, you might think we need a technological breakthrough to achieve this. In fact, we don’t have a technological problem; we’ve got an implementation problem. We could have the testing capacity we need within weeks. The reason we don’t is not simply that our national leadership is unfit but also that our health-care system is dysfunctional.
Many developed countries have met their testing needs, and ready access to speedy tests has been key to containing outbreaks and resuming social and economic activity. Whether you live in England or South Korea, scheduling is straightforward. No doctor’s order is required. Tests, where indicated, are free. And you typically get results within forty-eight hours.
UPDATE: June 17, 2020
On March 12, our local school district closed its doors after a fifth presumed case of coronavirus was detected in our Boston suburb of 28,000. At the time, 108 total cases had been identified in Massachusetts. No deaths had yet occurred. The US totals were 1,630 cases and 41 deaths (31 of which had occurred in Washington.) Within the next week, most Massachusetts businesses and schools had been shut down.
Three months later, Massachusetts has reached 105,885 cases and 7,665 deaths. We see another 300-500 new cases and 40-50 new deaths every day. US cases are increasing at a rate of 20-25,000 per day and total over 1,225,000 – more than the next 4 countries on the list combined. About 1,000 lives are lost every day for a total of 120,000.
Three months later, most businesses have reopened in Massachusetts and around the country. Wearing masks is passé, especially if you’re under 50 or a Republican. The administration insists there won’t be a second wave – that it’s just the media trying to scare people (but, sign a waiver if you’re attending one of their rallies, just in case.)
If 1,630 cases and 41 deaths were enough to essentially close down the entire country, why are the politicians and titans of finance so excited about opening it up with 1,225,000 cases and 120,000 deaths?
UPDATE: June 12, 2020
With little public discussion or debate, the US has embarked on a herd immunity approach to the coronavirus. No one’s really describing it as such, but the label is accurate just the same. Over the past month, scores of politicians and business leaders have declared (from the safety of their home offices) that “getting back to work” is more important than saving the maximum number of lives from COVID-19.
“We cannot let the cure be worse than the problem itself” tweeted President Trump. Before long, supporters appeared in statehouses across the country, sometimes toting weapons and often without masks or social distancing, protesting states’ shutdown orders and demanding their right to return to work, frequent their favorite restaurant, or host a pool party.
How most of us feel about this probably depends on their health, wealth or politics. Some consider reopening the country an economic and civil rights imperative that justifies the risk. While others, particularly those in front line jobs who can’t obtain or live on unemployment insurance, have little choice but to return to work, regardless of the risks involved. Many health care workers who have lived through the hell of a local outbreak are alarmed.
As one governor after another caved to the protestors and economic pressures, the nation held its breath. Would there be a resurgence in cases? Would areas which hadn’t previously experienced serious outbreaks be affected?
Now that all 50 states have reopened to at least some extent, the answer is clear: there has been a resurgence of cases, particularly in those states that took fewer precautions in the early days of the pandemic, closed down late, or opened up early.
Some states such as Washington, Vermont and Alaska, which had early success in limiting spread, are now seeing a resurgence. Others such as North Carolina, California, Texas and Arizona, which had been relatively unaffected a month or two ago, are now seeing rapid growth and new highs in cases.
The implicit bet being placed is that Americans, with more money in their pockets, will ignore the rising infections and deaths in their midst.
If the numbers become too alarming, the blame can be placed on Black Lives Matter protesters instead of those protesting to reopen the country or attending political rallies.
Sweden’s chief epidemiologist Anders Tegnell recently admitted that “there [was] potential for improvement in [Sweden’s herd immunity approach], quite clearly.” Asked if the country’s high death toll has made him reconsider having attempted herd immunity, Tegnell replied, “Yes, absolutely.” Looking at the continuing climb in Sweden’s new cases, it’s not hard to see why…
…particularly when compared to its Scandinavian neighbors.
Two days later, I watched incredulously as she was handed a swab and told to collect her own specimen by sticking it an inch or so into her nose.
Based on what I had seen, a proper nasopharyngeal specimen requires inserting the swab several inches into someone’s nose, so far back that it reaches the back of their throat. If a person isn’t very uncomfortable, it hasn’t been done correctly.
Her results were negative but, given that the specimen wasn’t collected properly, I assumed that she could easily be one of the 30% of those who were given false negative results. It’s now a month later, and for better or worse, I’m finally beginning to believe the test results.
But, there are two important takeaways from our experience. First, the US has utterly failed in its efforts thus far. By March 8, it had conducted a total of 1,707 tests. By contrast, Italy and South Korea had each tested hundreds of thousands.
Given that up to 50-60% of all infections are asymptomatic, how many of the current 1,350,000 known cases (1,035,000 of which are still active), 166,000 of whom were hospitalized and 80,000 of whom died could have been spared had widespread testing and contract tracing been more widely available?
My daughter had a persistent cough and arrived from a country with the second highest number of infections in the world, yet no one even jotted her name down for follow up. Nor was she able to get tested until 34 days later – 36 days after Trump insisted tests were available to anybody who wanted one.
The day she returned home, China led the world with 80,735 reported cases. Italy and South Korea were in a close race for second and the US was far behind. Two months later, the US is very far ahead of the others on both an absolute and relative basis. According to experts, US cases could be 10-20 times greater as the shortage of available testing has contributed to a significant undercount.
Likewise, deaths in the US have multiplied much more rapidly than in Italy or South Korea.
On both an absolute and population-weighted basis, South Korea’s aggressive testing, tracking, and quarantining measures have made a huge difference with 212 cases and 5 deaths respectively per million citizens. There have been many days over the past two weeks when South Korea reported no new cases and no new deaths.
There is some good news related to flattening the curve. The daily rate of growth in US cases and deaths continues to slow. The 10-day moving average is about 2.5% for cases and 3% for deaths. At this rate, cases will reach 1,500,000 around May 14 and deaths will reach 100,000 around May 18.
Global cases should reach the 5 million milestone by May 20 and deaths should reach 300,000 by May 14. Of course, the progression of global cases will depend largely on the US’ success or lack thereof in reopening the country.
Much has been discussed about the tradeoffs between saving the economy and saving lives. I’m neither a philosopher nor a religious scholar, so I won’t wade into the moral argument. I am troubled, however, by much of what I hear on the economic front.
To a family struggling to buy groceries or pay the rent, reopening the country is a matter of necessity rather than choice. Through no fault of their own, they must bear the economic brunt of their government’s failure to act in a timely manner to forestall the epidemic.
For many, working from home is not an option and buying groceries means exposing oneself and one’s family to serious illness and death. One particular story caught my eye this past week.
Sixty-four year-old Rafael Benjamin worked at a Cargill meat-processing plant in Pennsylvania. Many of his coworkers were falling ill, so on March 25 a daughter gave him a face mask to wear at work. Two days later, a supervisor ordered him to remove it as it made other plant employees nervous. On April 4, Rafael called in sick. The following day, unable to move, he was taken by ambulance to the hospital. He died on April 19.
On April 24, President Trump classified meat plants as critical infrastructure, preventing local and state health authorities from closing them down regardless of health concerns. The business community is working with the White House and Congress to protect companies like Cargill from customer and employee lawsuits related to coronavirus.
If passed, such legislation would allow bad actors to pressure workers to report to work regardless of their health conditions and without providing common sense safeguards. Because it would ultimately result in more illness and death, it would ironically apply additional economic pressures on the very companies seeking liability protection.
Another industry singled out for special treatment is the oil industry. If the White House and Congress were primarily concerned with unemployment in the sector, they could more vigorously subsidize payrolls instead of artificially driving the price of oil and gas higher. First, artificial price support will do nothing to correct the imbalance between supply and demand. Second, higher fuel prices are a regressive tax on those who can least afford them.
As a disciple of the Cynical School of Economic Thought, I find the entreaties by many major corporations and billionaires (most of which have cheap, ready access to capital markets) to reopen the country now to be self-serving — focused more on inflating excessive equity valuations than ensuring full employment and economic well-being for society’s most vulnerable.
Perhaps quantitative easing and financial engineering have become so effective that the economic well-being of ordinary citizens is no longer relevant. Things certainly seem to be headed in that direction.
UPDATE: Apr 17, 2020
Word on the street is that the remdesivir story was planted by a rumor-for-hire outfit and that the drug has failed in previous trials in China. Gilead has since walked back the hype.
The other COVID-19 story to hit the wires this morning is that Moderna received $483 million from the government to fast track its vaccine efforts. It’s great news, as is all the other vaccine research going on at an unprecedented pace. In listening to the CEO’s interview, however, it’s obvious that this, like every other vaccine being developed, won’t be widely available until 2021.
I’m as hopeful as anyone else. But, in the absence of a therapeutic or vaccine, I believe opening the country back up will absolutely result in a resurgence of community transmission and a sharp rise in the number of deaths – particularly in those parts of the country which have yet to be affected in great numbers.
The problem continues to be testing. If all of us pack in to a basketball game or concert and even one of us is infected, many of us will become infected. We’ll then head home and infect our loved ones and go in to the office and infect our coworkers. Since 25-50% of infected people have little or no symptoms, there is absolutely no way to prevent this from happening unless we get a vaccine.
In the US, only 13% of the 680,000 diagnosed cases have been closed – meaning either a person got better or died. Of those which were closed, nearly 40% resulted in someone dying – 34,700 of them.
The chart below shows that the death rate (the orange line) has remained very steady since March 26, bouncing back and forth between 35% and 43%. This is not progress, and it hardly argues for easing up on efforts to prevent community transmission.
The US remains in 44th place in the world in testing per 1mm people. The chart below, sorted by tests per 1mm, shows some of the countries which have done much more. Not a great argument for opening up the country. The raw number of tests, BTW, is irrelevant.
In total cases per 1mm population, the US is in 20th place…
…while in deaths per 1mm, the US is in 14th place. Again, not a great argument for opening up the country.
We have had periodic declines in new deaths and cases and the rate of growth in each has definitely subsided. But, both are still occurring at an alarming rate.
If the proportions hold, 1,500 of the 30,000 people diagnosed today will die — and that’s without opening up the country.
Compare the data to a country such as Germany, which imposed a stronger quarantine much earlier than the US. Sixty-two percent of all diagnosed cases have been closed, and deaths account for a mere 4% of those. Remember, the US is running about 40%.
Even though active cases have clearly rolled over…
…Germany is still seeing 3,000 new cases per day…
…and deaths are still ticking higher.
By comparison, the number of active cases in the US is beginning to flatten, but is far from rolling over.
The most frightening report I’ve seen in the past week was this one from the UN which reveals that 74 million people in the Arab region lack access to a basic handwashing facility (i.e. clean running water.) It’s safe to say that most of those 74 million also don’t have a bottle of Purell handy.
Consider the 1.2 billion people in Africa who have been so susceptible to past epidemics which were much easier to detect. The 2013-2016 Ebola outbreak in West Africa infected 28,646 and killed 11,323. Almost 20,000 cases of COVID-19 have been detected so far, and it’s still early days.
I give President Trump’s political advisors credit for convincing him to give governors the responsibility for deciding when/how to reopen their states. Those who are aggressive about it will pay the price, while those who don’t reopen things quickly will continue to pay an enormous financial price. Without widespread testing and an effective therapeutic/vaccine very soon, there will be no happy ending for either.
UPDATE: Apr 13, 2020
I’ll start with the bad news, just to change things up. The US now has almost 600,000 cases, 1 out of every 587 people and almost as many as the next 4 countries combined. Deaths, now 3.9% of all diagnosed cases, total over 23,000. Sadly, 40% of all closed cases result in someone dying.
Fatal outcomes now account for 4% of all diagnosed cases. Another way of looking at it: for every 100 people who have been diagnosed, 90 are still sick. Of the remaining ten, 6 recovered and 4 died. Were these percentages to hold, we might expect the 26,641 new cases diagnosed just today to result in 1,065 deaths.
But, since deaths lag new diagnoses, it would be 4% of a larger number. And, since the mortality rate is climbing every day (it was 1.2% on March 22) it would probably be a larger percentage of a larger number of people. If one of those were a friend or relative, you’d might disagree with opening up the country just yet – regardless of the trends.
Many countries have had much better outcomes, such as Switzerland where deaths are only 7% of closed cases and testing has been conducted on 22,993 per million citizens versus 8,816 per million (43rd in the world) in the US. Even Italy, to which the US is often compared, has tested 17,315 per million.
Now, for the good news. The daily rate of growth (ROG) in cases has slowed significantly – presumably as a result of quarantining (aka social distancing.) The 10-day moving average for case growth has slowed from 15% a week ago to about 10%. The 10-day moving average for the daily ROG in deaths has slowed from 22% to about 14%.
More testing and continued quarantining should continue to bring the growth rates down. Opening up the country without more testing, however, will only serve to increase them. At a ROG of 14%, deaths will reach 100,000 by April 24. Slowing the rate to 10% (i.e. flattening the curve) would delay that milestone to Apr 28 and to 5% would delay it to May 13. This would buy scientists more time to come up with effective therapeutics.
Getting tested? It’s easier now but, based on my experience, not very accurate. I took my daughter (who returned from Italy with a bad cough) to a drive-through testing site run by CVS. It was fast and free, but they handed my daughter the swab and asked her to collect her own specimen.
She inserted the swab about 1 – 1.5 inches into each nostril, at which point the tech said “good job” and put the sample into a bag for assessment. This was completely inadequate and is probably responsible for the 30%+ false negative results being obtained.
An accurate nasopharyngeal specimen collection means sticking the swab so far back that most people would gag and tear up in the process. Here’s a video of the correct process. Bottom line, don’t assume that a negative test is correct. Continue to exercise caution – particularly if someone is exhibiting symptoms.
And, even if some politician gives you the all clear, remember that nearly 30,000 new cases will be diagnosed today. Don’t be one of them.
UPDATE: April 3, 2020
Out of curiosity, I took a look at mortality rate trends in a few other countries. While some are clearly better than others, every single one is rising consistently over the past week.
And, deaths are consistently rising faster than cases. Cases have risen an average of 2x over the past week, while deaths have risen an average of 3.4x. In the US, the numbers are 2.9x and 4.7x – a ratio of 1.64 deaths per every new case diagnosed. In Germany, deaths are rising over twice as fast as cases.
I have very little medical training, but I believe this is why we’re hearing so much about flattening the curve. The experts know that our hospitals will be overwhelmed if the ROG doesn’t slow dramatically. Overwhelmed hospitals and shortages of ICU beds and ventilators will translate into higher mortality rates.
In some cases, however, the higher mortality rate can be attributed to a drop in the rate of growth in new cases. Due to the lag between diagnosis and death, case growth can roll over as deaths are still rising. A good example is Austria. New cases peaked on March 26 while deaths peaked on March 30.
This has allowed its mortality rate to almost flatten: from 1.3% on March 31 to only 1.5% on April 3. And, its curve is definitely flattening. Note that Austria enacted nationwide restrictions on travel and gatherings on March 16 when there were 1,018 total cases and 3 deaths. This was 18 days after the first community transmission case was detected and two days after the first death.
The US, by contrast, has still not enacted a nationwide lockdown despite over 300,000 cases and 8,000 deaths since the virus arrived over two months ago on January 20.
The 10-day moving average of the daily rate of growth in deaths in the US dipped slightly to 27.3%. But at this rate we would still reach 10,000 deaths this weekend, 100,000 by April 14, and 1 million by April 24.
Some might feel this rate is too pessimistic, that something will happen to change the trajectory. I hope so. But, even if the rate were to plunge to 20%, we would still have over 1 million deaths before the end of April – one in every 323 people in the US. And, remember, this number is understated – though not as dramatically as the number of cases.
Don’t wait for the government to tell you what we already know: the only way to be completely safe is to stay at home, away from anyone who might be infected (including asymptomatic family members) and to wear a mask if you absolutely must go out – especially around other people. Assume that everything you touch might harbor the virus.
Yes, you might feel like you look really paranoid. But, your family will thank you. And, God willing, you can all laugh about it some day.
For those staying in this weekend, I just read that HBO is releasing 500 hours of programming for free, including every including every episode of The Sopranos, Veep, The Wire, Barry and Ballers. You can download the HBO NOW or HBO GO apps or visit HBONOW.com or HBOGO.com. #StayHomeBoxOffice.
Stay safe everyone.
UPDATE: March 31, 2020
Italy’s mortality rate continues climbing steadily: from 2.0% on March 1 to 11.4% as of March 30. I never see this data reported anywhere, but believe it’s very important as it confirms what should be obvious: An overwhelmed health system is not as effective in saving the lives of sick COVID-19 patients.
Those in the US who take comfort in its current 2% mortality rate probably shouldn’t. Reported cases – still an understatement of actual cases due to the continuing shortage of test kits – continue to increase at an average (10-day SMA) of 24% per day. But, deaths are climbing at about 30% per day – much faster in some states. Inexplicably, many states have yet to issue stay-at-home orders.
The top 25 states in terms of cases are shown below. Note that Louisiana, a relative newcomer to the top 10, is already at a mortality rate of 4.6% – topping Washington’s 4%. Virginia’s governor finally issued a stay-at-home order yesterday, as that state’s mortality rate reached 2.5%.
Several cities and counties in Georgia, which faces a 3.4% mortality rate, have issued orders; but, the governor has yet to announce a statewide order. Arizona’s governor, who had issued an order restricting the ability of cities and counties to issue their own orders without his approval, finally caved yesterday when cases topped 1,000.
As more hospitals across the nation are overwhelmed by cases that outnumber the available ICU beds and ventilators, the mortality rate is bound to rise. Those that restrict transmissions before cases get out of hand stand the best chance of not being overwhelmed. The rest will suffer the consequences. As Dr. Georges Benjamin, executive director of the American Public Health Association, said: “Waiting until you get a lot of cases is the wrong strategy.”
Currently, about 1/3 of closed cases – someone being either discharged or dying – result in a death. But, only 5% of total reported cases have been closed – again, a factor of the rapid growth in cases. In Italy, where 26% of all cases have been closed, deaths account for 44% of all closed cases and, as mentioned above, 11.4% of total cases.
Applying the same percentages to US cases would indicate that 2,313 of the 20,297 new cases reported just on March 30 will result in someone dying. At the current daily rate of increase, the US will reach 10,000 deaths by April 4 and 100,000 on or around Easter. My projections indicate total cases could reach 2.4 million by then, swamping the 924,000 beds in the 5,198 community hospitals across the nation.
If even 5% of those cases were serious/critical, the resulting 120,000 cases would far outnumber the 77,000 ICU beds in the US.
Bloomberg pubished an interesting article earlier today citing an Italian study that offered a theory as to why Italy’s mortality rate is so high. The study suggested that because Italy had such a mild winter, many of the deaths that might ordinarily have occurred due to flu were brought on instead by the coronavirus. The inference is that the mortality rate is much higher than it would otherwise be had the winter been colder.
While I certainly find the premise plausible, it doesn’t do much to move the needle. The study suggests that “the total number of older Italians spared death directly from the flu this season may have been in the hundreds, based on an annual average of 8,000 nationwide flu deaths cited in the paper.”
Italy has seen over 12,000 deaths. Subtracting 500, for instance, would lower its mortality rate from 11.4% a still very high 10.9%. Having had a daughter in Italy between late January and March 8, I followed the situation very closely. I think the high death rate is much more likely to have been the result of some bad luck (getting hit with the first burst of infections) and a failure to lock down the entire country.
Early on, several small towns in northern Italy were quarantined. Many who were able to simply left the area, returning to their homes in southern Italy or elsewhere in Europe. As cases spread, Milan was included in the quarantine. Again, this didn’t stop anyone from returning to their home. As I wrote at the time, 20,000 people were taking a train from Milan to Rome every day.
Eventually, the entire country was put on lockdown. But, by then, the spread had occurred and quickly overwhelmed the available hospital facilities. While cases increased 59X between Mar 1 and Mar 30, deaths increased 341X.
This is why I believe a nationwide lockdown is essential for the US. We all know someone who left a heavily infected area to go someplace “safe” such as a friend or relative’s house, a second home or just a hotel. Unfortunately, some of those people are infected and transmit the disease to people in the other location. It only takes a few to get the community spread ball rolling. This is precisely what happened in Europe.
True, there are some very efficient and tightly controlled countries in Europe with low mortality rates (so far) such as Switzerland (2.7%), Austria (1.4%) and Germany (1.1%). But, each of these took early, aggressive measures to limit the spread. Many other countries are slightly behind but on the same track as Italy: France (6.8%), Spain (8.9%), UK (7.8%), and Netherlands (8.6%.)
A March 30 study from Imperial College of London researchers draws a direct correlation between the number of deaths and the speed with which various countries took steps to intervene in the virus’ spread. All but one (Sweden) ultimately ordered a lockdown – typically as each country’s leaders realized they would not be spared.
While identifying and limiting the spread of US cases is incredibly important, note that I have focused mostly on the trend in deaths — which distills all the theories and practices into one defining, indisputable and depressing number every day. It’s where the rubber meets the road.
I printed a list of the top 25 states in terms of cases as of March 30 above. Mortality rates ranged from 0.5% to 4.6% with a median of 1.7% and a mean of 1.9%.
At the end of today, March 31, the range was from 1.1% to 4.6% with a median of 2.1% and a mean of 2.2%. While total deaths grew by 31% in that one 24-hour period, the average daily rate of increase among the 25 states was a stunning 47%.
Note that the order of the top 25 has changed. Florida has moved into the #5 slot, Illinois has moved ahead of Washington to #7, Louisiana moved from #10 to #9, Georgia moved ahead of Texas to #11, etc. I’ll continue to track these same 25 so we can stay abreast of the trend.
The important thing to realize is that deaths continue to rise sharply. As in Europe, the growth has tended to accelerate faster in states which were late to start testing, close schools and businesses, and issue stay-at-home orders. Those that have not restricted movement should expect to see deaths continue to outpace those that have.
With a total of 4,053 deaths as we goes to press, rising at a 10-day moving average of 29.8% per day, total US deaths should reach 10,000 by Saturday April 4, 100,000 by April 13, 500,000 by April 19 and 1 million by April 22.
I believe that this fate can be avoided only if: (a) everyone who should be tested is tested, (b) the entire nation is locked down, and (c) scientists can develop effective treatments in the next week or so. I hope to God I’m wrong.
A few reminders that I haven’t seen circulated nearly enough: Studies indicate that up to 50% of transmissions are from people who have little or no symptoms. Your kid or your neighbor who appears perfectly healthy can give you the virus.
And, studies now indicate that the coronavirus can remain aerosolized for up to three hours. You could be walking down a deserted aisle at the grocery store and stroll right through the viral mist emitted by someone who sneezed there 20 minutes ago. Wear a mask when out in public places and assume that everything you touch is infected.
* * *
UPDATE: March 22, 2020 Italy’s mortality rate increased to 9.3% on March 22, a steady increase from 2.0% on Mar 1. Though, on a positive note, the daily rate of growth in cases and deaths has ebbed somewhat: Neither has exceeded 20% since March 13. On a not so positive note, both are still doubling every 6-7 days.
The daily ROG in US deaths ticked lower on March 20-21, but pushed back up to 39% on March 22. At this rate, the 419 US deaths as of March 22 would exceed 1,000 by March 25, 10,000 by April 1, and 100,000 by April 8. Take a moment and let those numbers sink in.
Italy still has many active cases, 80% of the total. Fortunately, most are resolving as “recovered/discharged.” But, the 9.3% mortality rate – up from only 2% on March 1 – means that nearly as many die as are discharged/recovered.
Only a very small fraction of US cases are closed. Unfortunately, about 73% of closed cases have resulted in death rather than recovery.
This is up from 60% of cases just 4 days ago. Serious/critical cases as a percentage of active cases have more than quadrupled in that time. In other words, things are getting worse at an accelerating rate.
I regret to report that our original models posted on March 13-14 have not kept up with the actual results. The model which used the then 10-DMAs of daily rates of growth for cases and deaths (34% and 18%) had forecast 23,410 cases and 247 deaths for March 22.
The model which borrowed the 10-DMA of Italy’s daily ROG with an 11-day lag had forecast 23,410 cases and 481 deaths.
As of last night, total acknowledged US cases totaled 33,546 (still undercounted) and deaths totaled 419.
* * *
UPDATE: Mar 17, 2020 For those interested, here is an update on the current case and death data for Italy and the US as of Mar 16. In Italy, the current mortality rate has ticked up even higher to 7.7%. The 10-day moving average for mortality rate has increased to 6.3%. The 10-DMA for the ROG in cases and deaths has eased slightly to 21% and 28%.| Italy | ||
| date | cases | deaths |
| 21-Feb | 21 | 1 |
| 22-Feb | 79 | 2 |
| 23-Feb | 152 | 2 |
| 24-Feb | 229 | 6 |
| 25-Feb | 322 | 11 |
| 26-Feb | 400 | 12 |
| 27-Feb | 655 | 17 |
| 28-Feb | 889 | 21 |
| 29-Feb | 1,128 | 29 |
| 1-Mar | 1,701 | 34 |
| 2-Mar | 2,036 | 52 |
| 3-Mar | 2,502 | 79 |
| 4-Mar | 3,089 | 107 |
| 5-Mar | 3,858 | 148 |
| 6-Mar | 4,636 | 197 |
| 7-Mar | 5,883 | 233 |
| 8-Mar | 7,375 | 366 |
| 9-Mar | 9,172 | 463 |
| 10-Mar | 10,149 | 631 |
| 11-Mar | 12,462 | 827 |
| 12-Mar | 15,113 | 1,016 |
| 13-Mar | 17,660 | 1,266 |
| 14-Mar | 21,157 | 1,441 |
| 15-Mar | 24,747 | 1,809 |
| 16-Mar | 27,980 | 2,158 |
| 17-Mar | ||
| 18-Mar | ||
| 19-Mar |
The US, unfortunately, has managed to keep pace with our forecast from March 13 which was based on a moving average of growth rates. On March 13, our model predicted 5,444 cases and 80 deaths for March 16. Actual results were 4,663 cases and 86 deaths.
Again, the continuing lack of testing kits renders the number of cases essentially meaningless. Many experts feel it could be off by a factor of at least 10X, possibly much more.
The number of deaths, unfortunately, is probably accurate. The 10-DMA for daily ROG in deaths has risen from 18% on March 13 to 19.2%. The chart below reflects these data and uses the most recent 10-DMA in daily ROG for each category to forecast future results (in italics.)
| US: 10-DMA | ||
| date | cases | deaths |
| 3-Mar | 124 | 9 |
| 4-Mar | 158 | 11 |
| 5-Mar | 221 | 12 |
| 6-Mar | 319 | 15 |
| 7-Mar | 435 | 19 |
| 8-Mar | 541 | 22 |
| 9-Mar | 704 | 26 |
| 10-Mar | 994 | 30 |
| 11-Mar | 1,301 | 38 |
| 12-Mar | 1,697 | 41 |
| 13-Mar | 2,269 | 48 |
| 14-Mar | 2,943 | 57 |
| 15-Mar | 3,680 | 68 |
| 16-Mar | 4,663 | 86 |
| 17-Mar | 6,102 | 103 |
| 18-Mar | 7,984 | 122 |
| 19-Mar | 10,448 | 146 |
| 20-Mar | 13,672 | 174 |
| 21-Mar | 17,890 | 207 |
| 22-Mar | 23,410 | 247 |
| 23-Mar | 30,632 | 294 |
| 24-Mar | 40,084 | 351 |
| 25-Mar | 52,451 | 418 |
| 26-Mar | 68,635 | 499 |
| 27-Mar | 89,812 | 595 |
| 28-Mar | 117,523 | 709 |
| 29-Mar | 153,784 | 845 |
| 30-Mar | 201,232 | 1,008 |
| US: It ROG | ||
| date | cases | deaths |
| 3-Mar | 124 | 9 |
| 4-Mar | 158 | 11 |
| 5-Mar | 221 | 12 |
| 6-Mar | 319 | 15 |
| 7-Mar | 435 | 19 |
| 8-Mar | 541 | 22 |
| 9-Mar | 704 | 26 |
| 10-Mar | 994 | 30 |
| 11-Mar | 1,301 | 38 |
| 12-Mar | 1,697 | 41 |
| 13-Mar | 2,269 | 48 |
| 14-Mar | 2,943 | 57 |
| 15-Mar | 3,680 | 68 |
| 16-Mar | 4,663 | 86 |
| 17-Mar | 6,102 | 114 |
| 18-Mar | 7,984 | 135 |
| 19-Mar | 10,448 | 213 |
| 20-Mar | 13,672 | 269 |
| 21-Mar | 17,890 | 367 |
| 22-Mar | 23,410 | 481 |
| 23-Mar | 30,632 | 590 |
| 24-Mar | 40,084 | 736 |
| 25-Mar | 52,451 | 837 |
| 26-Mar | 68,635 | 1,051 |
| 27-Mar | 89,812 | 1,254 |
| 28-Mar | ||
| 29-Mar | ||
| 30-Mar |

As in Italy, once hospital beds and ventilators are impacted the mortality rate will go up. By slowing admissions, we can reduce overcrowded conditions and keep the mortality rate lower. At least, that’s the theory.
It’s important to note that even a slight increase has a huge impact on resulting cases and deaths. The chart below shows deaths at Day 5, 10 and 30 for different daily rates of growth.
| ROG | Day 1 | Day 5 | Day 10 | Day 30 |
| 5% | 86 | 110 | 140 | 372 |
| 10% | 86 | 139 | 223 | 1,501 |
| 15% | 86 | 173 | 348 | 5,694 |
| 20% | 86 | 214 | 532 | 20,414 |
| 25% | 86 | 262 | 801 | 69,470 |
| 30% | 86 | 319 | 1,186 | 225,320 |
* * *
March 13, 2020 I saw something quite stunning this morning: Treasury Secretary Mnuchin describing the COVID-19 pandemic as “a great investment opportunity.” Tone deaf as ever, but no surprise there. He then went on to draw comparisons to South Korea’s experience where 200,000 people have been tested – only 4% of which were found to be infected, as though this meant there was nothing to worry about. Let’s unpack this, shall we? Actually, 222,000 people in South Korea have been tested — about .44%, or one in every 225 people. In the US, the number of people who have been tested was recently removed from the CDC website. But, many academics put it at approximately 13,600, about .0042%, or one in every 24,200 Americans.
In South Korea, the government can access data – CCTV footage, GPS tracking data from phones and cars, credit cards transactions, immigration records and other data to deduce who might be at risk of contracting the disease or passing it to others. Anyone who wants testing can get it, with drive-through testing in place since March 2.
The names of those Koreans found to be infected are made public so friends and relatives who might have been exposed can get themselves tested. Anyone who tests positive is self-quarantined and monitored through an app or by phone until a bed is available, at which point an ambulance delivers them to a hospital with air-sealed isolation rooms.
In the US, an acquaintance recently told me of arriving from an extended trip to Italy and breezing through customs with a noticeable, persistent cough. No one took their temperature, asked their health status or jotted their name down for follow-up. When they called their US doctor, they were told they couldn’t be tested unless their fever topped 100.4 degrees due to a shortage of test kits. The drive-through idea was just announced today.
All things considered, I consider South Korea a very poor comparison. For the past several weeks, I have focused instead on Italy. Like the US, they have a modern health care system, but were caught completely off guard when COVID-19 arrived from China. Italians are also used to a certain degree of autonomy and would presumably bristle at the intrusiveness of South Korea’s response.
About 11,500 Chinese travel to Italy each day compared to 14,000 who travel to the US. The US instituted a travel ban (with some exceptions) from China on February 4. Foreigners were mostly turned away, but others had their temperature taken and were asked to self-quarantine. Italy instituted a travel ban with no exceptions, and no flights whatsoever, four days earlier.
Italy locked down the northern part of the country, putting 16 million people on lockdown on March 8. The lockdown was extended to the entire country – 60 million people – on Tuesday, with essentially every establishment except grocery stores and pharmacies closed.
In the US, not a single city or state has been quarantined. Over the past few days, many schools, sporting events, concerts, conventions and the like have made the decision to close or operate online. I am not aware of a single enforced quarantine other than those who returned from a cruise or trip overseas and were clearly infected. Americans are asked to self-quarantine, which is fine in concept but doesn’t work very well given that the incubation period can be two weeks or longer, and few can afford to ditch their jobs for two weeks.
Italy has essentially been shut down, even though its response has arguably been much more robust than America’s. In my opinion, this doesn’t bode well for the US. I have been making predictions for the past several weeks based upon comparisons between the two: schools closing, stores closing, travel restrictions, runs on cleaning supplies and groceries. Many readers, not to mention friends and family, who initially scoffed are no longer scoffing. I get many texts and emails every day saying something along the lines of “can you believe they just cancelled…?”
I’m a numbers guy, so I’ve been working diligently to come up with a formula that expressed the path the number of cases and deaths was taking. The problem is that only a small number of cases have resolved in both Italy and the US.
Total cases in the US are (supposedly) 2,269. This is no doubt very far short of the actual number due to the lack of available testing. But, the outcome data are telling. Only 79 of these 2,269 are closed: 39% due to the patients’ recovery and 61% due to their death. This leaves 2,190 in limbo, whose fate is as yet undetermined. But, we can make some educated guesses.
While the cases are almost certainly undercounted, the number of deaths is probably fairly accurate. At 48 total deaths, the current mortality rate is 2.1%. Some might take solace in such a low number. But, that would probably be a mistake. The Italy data are below.
| Italy | ||
| date | cases | deaths |
| 21-Feb | 21 | 1 |
| 22-Feb | 79 | 2 |
| 23-Feb | 152 | 2 |
| 24-Feb | 229 | 6 |
| 25-Feb | 322 | 11 |
| 26-Feb | 400 | 12 |
| 27-Feb | 655 | 17 |
| 28-Feb | 889 | 21 |
| 29-Feb | 1,128 | 29 |
| 1-Mar | 1,701 | 34 |
| 2-Mar | 2,036 | 52 |
| 3-Mar | 2,502 | 79 |
| 4-Mar | 3,089 | 107 |
| 5-Mar | 3,858 | 148 |
| 6-Mar | 4,636 | 197 |
| 7-Mar | 5,883 | 233 |
| 8-Mar | 7,375 | 366 |
| 9-Mar | 9,172 | 463 |
| 10-Mar | 10,149 | 631 |
| 11-Mar | 12,462 | 827 |
| 12-Mar | 15,113 | 1,016 |
| 13-Mar | 17,660 | 1,266 |
| US | ||
| date | cases | deaths |
| 3-Mar | 124 | 9 |
| 4-Mar | 158 | 11 |
| 5-Mar | 221 | 12 |
| 6-Mar | 319 | 15 |
| 7-Mar | 435 | 19 |
| 8-Mar | 541 | 22 |
| 9-Mar | 704 | 26 |
| 10-Mar | 994 | 30 |
| 11-Mar | 1,301 | 38 |
| 12-Mar | 1,697 | 41 |
| 13-Mar | 2,269 | 48 |
| US – #1 | ||
| date | cases | deaths |
| 3-Mar | 124 | 9 |
| 4-Mar | 158 | 11 |
| 5-Mar | 221 | 12 |
| 6-Mar | 319 | 15 |
| 7-Mar | 435 | 19 |
| 8-Mar | 541 | 22 |
| 9-Mar | 704 | 26 |
| 10-Mar | 994 | 30 |
| 11-Mar | 1,301 | 38 |
| 12-Mar | 1,697 | 41 |
| 13-Mar | 2,269 | 48 |
| 14-Mar | 3,038 | 57 |
| 15-Mar | 4,066 | 67 |
| 16-Mar | 5,444 | 80 |
| 17-Mar | 7,288 | 94 |
| 18-Mar | 9,756 | 112 |
| 19-Mar | 13,061 | 132 |
| 20-Mar | 17,485 | 157 |
| 21-Mar | 23,407 | 185 |
| 22-Mar | 31,336 | 219 |
| 23-Mar | 41,950 | 260 |
| 24-Mar | 56,160 | 308 |
At today’s press conference / pep rally, President Trump insisted on shaking hands with nearly every one of the corporate executives who got up to tout his company’s efforts – each of whom also reached out and adjusted the potentially infected microphone.
Trump then refused to admit he had shaken hands with or palled around with several individuals who were known to have tested positive, and was nonchalant about getting tested himself. Not a great example, to say the least. Do yourself a favor: Listen to the scientists and doctors and ignore the politicians.
I’ll continue to update the above numbers as conditions warrant. I hope I’m very, very wrong – but fear I’m not. Watch this space, and please be careful out there.
Futures are off moderately this morning in keeping with the algo signals we’ve been watching.
It remains to be seen whether the gentle flag pattern exhibited over the past week can hold past OPEX.
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The last time we were this bearish on oil and gas was on October 3, 2018 [see: VIX Takes the Plunge.] Our reasoning at the time:
CL and RB [have] not only reached overhead resistance by our measure, but must deal with inflation that’s too high, bearish API data, another round of Trump tweeting, and a large build in EIA inventory. I think the time has finally come to revert to short…
WTI and RBOB both tumbled about 40% over the next three months.
At nearly 3%, inflation had been too high – sending the 10Y to 3.5%. Highly correlated, both had recently broken out of long-term downtrends: CPI above the black dotted line and the 10Y above the blue dotted line.
Historically, this might have been perfectly acceptable. But, as we were shouting from the rooftops at the time [see: Why Rising Rates Are a Problem This Time] rising rates with a $1 trillion deficit and debt soaring past $20 trillion was completely unacceptable.
And, inflation was too high primarily because energy prices were too high. The correlation with the YoY rise in gasoline prices, in particular, has been quite strong over the years.
No doubt the Fed saw the writing on the wall – as did the White House. Trump had been tweeting about oil prices being too high for months. His tweets had taken on a decidedly desperate tone.
Yet Saudi Arabia politely ignored him, and oil prices continued higher – until Crown Prince Mohammed bin Salman slipped up in a very big way.
It took about 5 minutes for virtually everyone to connect Khashoggi’s murder with MBS – who suddenly found himself without friends. Except for one who, coincidentally, needed a favor. As we wrote in Coincidences and Consequences at the time:
It’s interesting how Khashoggi’s murder top-ticked oil and gas prices…and, so soon after Trump’s latest demand that OPEC lower oil prices. As Churchill famously said, “never let a good crisis go to waste.”
Some were aghast that we would insinuate such a thing. But, Bob Woodward’s excellent Rage recently shed some light on the topic…
But, we digress. Oil and gas prices crashed 40%. Inflation and interest rates receded.
The story might have had a happy ending, but the Fed and White House had apparently forgotten about the strong correlation between oil/gas prices and the stock market. When RB plunged 42%, SPX gave up 20%.
Not coincidentally, they both bottomed on Dec 24 (when Treasury Secretary Mnuchin convened the Plunge Protection Team – but that’s another story.) Trump probably texted to MBS…something to the effect of “jk!!! LOL!!!
” because oil and gas prices rebounded sharply.
Wait, you’re probably wondering, what about interest rates? Bond yields drop for all kinds of reasons. Sometimes it’s because inflation is dropping. Other times, it’s because a stock market crash scares the crap out of equity investors who sell everything that isn’t nailed down and pile into bonds.
While the PPT’s volatility crush gathered momentum, the Fed announced that the recent round of rate hikes was kaput and began cutting. Stocks were thrilled.
The occasional mini-crashes in the stock market helped drive rates even lower, until the 10Y finally bottomed out at 1.43% on Sep 3, 2019 – down sharply from its 3.25% October 2018 highs.
Oil and gas, which had nudged stocks back to their September 2018 highs, could take a breather. Their ascent had been way out of line with the fundamentals, and the charts strongly suggested a reversal. As we wrote on April 22, 2019 [see: Oil Fails to Rally Stocks]:
One of the more effective factors in prompting algos to buy stocks is the price of oil. Yet, as we’ve been discussing, higher oil prices are a double-edged sword as they can drive inflation to levels which prompt uncomfortably high interest rates. The oil and gas picture shows RB and CL have both run out of room. It’s time to short again.
CL, which closed at 75.04 that day, fell 15% over the next six weeks. It bounced around in in the 60-70 range until January 2020, when it finally broke down. RB, which closed at 2.13 on Apr 22, fell 32% before stabilizing somewhat. It finally broke down in March 2020.
The culprit this time, of course, was the coronavirus pandemic. As we noted on February 20 [see: Buckle Up] the stage was set for the algos to keep pushing stocks higher. But, as we had discussed on January 6 [see: Middle East Tensions Escalate] the repeated failure to break out in response to numerous opportunities was itself a strong sell signal.
CL has tagged its white .886 and, having broken out above the red TL, will threaten the April highs if it breaks 64.77. If it can’t break the April highs, it will be very susceptible to a downturn. Remember, if the rising white channel breaks down, we could be looking at a major crash. Meanwhile, RB failed to break out past either its SMA200 or the red TL from the April highs. For those not already short, this is the place.
It certainly was.
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It was a close shave, but ZN’s falling red channel has survived – at least so far. The runaway 10Y yield gave up all of its gains – and not a minute too soon for the bears.
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Quick note: BTC backtested the top of the broken pink channel as detailed in our Jan 7 post [see: Jan 7 Update on BTC.]
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