EM Review: Risk Assets Get a Breather From Global Stimulus Plans

Emerging-market stocks had their best week since late 2018 and currencies rallied as stimulus measures from central banks and governments gave risk assets a reprieve following their battering from the coronavirus outbreak. India and Colombia were the latest nations to join a wave of global rate cuts, while South Africa and Indonesia announced measures to boost liquidity.

The following is a roundup of emerging-markets news and highlights for the week ending March 28.

Highlights:

  • The U.S. Federal Reserve unveiled sweeping measures as it raced to contain the economic and market fallout from the coronavirus. The central bank said it would buy unlimited amounts of Treasuries and mortgage-backed securities to keep borrowing costs at rock-bottom levels and help ensure markets function properly
    • Fed earlier last week offered to directly finance U.S. companies, jumping ahead of Congress, which is still arguing over similar assistance
    • Chairman Jerome Powell said the central bank will maintain its muscular efforts to support the flow of credit in the economy as Americans hunker down from the coronavirus
    • The House approved the stimulus package, the largest in U.S. history, on Friday, sending the measure to President Donald Trump for his signature
    • Trump said he’ll stop using the term “Chinese virus,” a sign U.S. and China want to deescalate their blame game over the pandemic, though his top diplomat kept up accusations that Beijing is waging a misinformation campaign about its origin
    • Finance Minister Tito Mboweni told local newspaper Sunday Times that he may approach the World Bank and IMF for funding to deal with the coronavirus fallout
    • The country’s local-currency bonds and the rand had rallied on Wednesday after the central bank said it will start buying debt in the secondary market in an unprecedented intervention to boost liquidity

    Lebanon kicked off talks to restructure its $90 billion debt pile on Friday with a promise to present a comprehensive recovery plan for its “broken” economy before the end of this year

    • Investors in credit insurance on Lebanon are set to receive a payout after a binding ruling from a CDS committee
    Asset moves last week (all in USD terms) Weekly
    MSCI EM stocks index +4.9%
    MSCI EM FX index +0.4%
    Bloomberg Barclays Global EM Local Currency bond index +1.6%

    Asia:

    • China’s government is talking up the prospects for a rapid economic rebound from the coronavirus, even as the global economy sees further lockdowns to curb the pandemic

      • As traders around the world struggle to get their hands on the dollar, liquidity in China is so plentiful that borrowing in yuan costs the least in 14 years
      • An unusual public spat between two top Chinese diplomats points to an internal split in Beijing over how to handle rising tensions with a combative U.S. president
      • Read: Second Virus Shockwave Is Hitting China’s Factories Already
      • Industrial profits dropped by 38.3% in the first two months of this year compared to the same period in 2019. Profits at state-owned firms, private companies and foreign-invested business all dropped more than 30%.
      • South Korea will loosen its rule on FX liquidity coverage ratio for banks to 70% from 80% until end-May, Vice Finance Minister Kim Yongbeom said
      • South Korea has become the latest country where yields on short-term corporate debt have surged due to the coronavirus
      • Bank of Korea will provide liquidity to securities companies via repo agreements with five non-banking financial institutions, according to a BOK official
      • Indian lenders bid for fewer dollars than the amount that the central bank offered via a swap line even as a global scramble for the greenback intensified. The central bank accepted bids worth $650 million for its second foreign-currency swap auction
      • Bank Indonesia is seeking a dollar liquidity swap line facility from the Federal Reserve, Governor Perry Warjiyo said
      • Indonesia should temporarily ease a legal cap on its budget deficit to allow the government to ramp up spending to counter the economic fallout of the coronavirus outbreak, according to an influential panel of lawmakers
      • President Joko Widodo ordered spending cuts across the public service so that expenditure can be reallocated to fight the coronavirus
      • Indonesia is considering issuing rupiah-denominated recovery bonds for the first time to finance incentives for private companies to counter the fallout of the coronavirus

      Malaysia announced billions of dollars in fresh support for an economy punished by the coronavirus pandemic

      • Malaysia extended its lockdown period by two weeks as the number of infections keeps climbing
      • Bank Negara Malaysia is rolling out additional measures to help those facing financial constraints from the pandemic, according to a statement from the central bank to Malaysian lenders
      • Malaysia has banned short-selling until April 30 to mitigate risks arising from heightened volatility and global uncertainties
      • Thailand said it’s mulling an emergency decree to enable the government to borrow more to support the economy over the next two to three months
      • Bank of Thailand left its benchmark rate unchanged after an emergency cut the week before, while projecting the worst contraction in the economy since the Asian financial crisis
      • Thailand’s foreign tourism receipts plunged in February to the lowest since 2015
      • Philippine central bank is infusing more funds into the economy, slashing big lenders’ reserve requirement ratio by 2 percentage points and flagging more cuts to come
      • Bangko Sentral ng Pilipinas will remit 20 billion pesos ($392 million) as advance dividend to the government to help support programs against the coronavirus
      • Philippines is prepared to tap all possible markets and widen its budget deficit to combat the coronavirus, Finance Secretary Carlos Dominguez said

      EMEA:

      • Egypt’s main stock index was among the world’s best performers on March 23 after news the central bank would support the bourse to the tune of 20 billion Egyptian pounds ($1.27 billion)
      • United Arab Emirates rolled out a slew of measures to contain the coronavirus — from suspending flights, shutting malls to adding more firepower to its stimulus package
      • Dollar pegs in the Gulf have proven effective even as the region now faces the coronavirus outbreak and the crash in oil prices, the International Monetary Fund said
      • Saudi Arabia locked down its capital Riyadh and holy cities of Mecca and Medina to prevent the spread of the coronavirus
      • The devastation of the coronavirus outbreak in Iran is raising pressure on the U.S. to ease sanctions on the country. So far, the Trump administration isn’t budging

        • Iranian President Hassan Rouhani wants to tap the country’s sovereign wealth fund for $1 billion to support a healthcare system overstretched by the coronavirus outbreak, state-run Islamic Republic News Agency reported

        Latin America:

        • Ecuador said it would hold talks with creditors to re-profile its liabilities and announced it would exercise a 30-day grace period on bond interest payments
        • Brazil’s President Jair Bolsonaro urged the population to resume normal life to protect the economy, even as cases of coronavirus rose, triggering a clash with state governments that imposed social distancing measures as Sao Paulo
          • Brazil posted the slowest mid-month inflation in more than a year in March and retail sales fell more in January than economists predicted
          • Central bank refrained from cutting rates more aggressively due to concerns about the interruption of a reform agenda, minutes of the latest meeting showed; officials expect the economy to stagnate this year
          • Inflation slowed in early March amid declining gasoline prices
          • Nation closed its borders until March 31
          • International Swaps & Derivatives Association received a request from an eligible market participant to consider whether a potential debt repudiation or moratorium occurred in Argentina
          Upcoming Data and Economic Releases:
          • For Asia, click here
          • For Eastern Europe, click here
          • For Latin America, click here

          — With assistance by Aline Oyamada, Colleen Goko, Selcuk Gokoluk, Philip Sanders, and Paul Wallace

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Mcdonald's Stock Likely to Hit New Lows

Dow component McDonald's Corporation (MCD) is likely to break March support in coming weeks and drop to the lowest lows since 2015. A variety of fierce headwinds have come into play in the first quarter, topped by the closure of restaurants and/or dine-in eating all across the world. The company is assisting franchisees under economic stress, but that's unlikely to forestall bankruptcies if sales don't bounce back in the next one or two months.

Mickey D has borrowed the $1 billion available under its credit agreement, highlighting a capital shortfall that will grow substantially if COVID-19 doesn't run its course in the first half of the second quarter. Making matters worse, Wall Street is pushing the fallacy that sales will rebound immediately when, in truth, customers will avoid public places for months after hospitals empty out. In addition, the industry has failed to convince many folks that restaurant workers and delivery drivers have taken the precautions needed to avoid virus transmission.

Americans will also come out of this crisis a lot poorer, despite massive government stimulus programs. At its core, casual dining is a cyclical industry, with consumers closing their wallets when the cash is needed to pay the household bills. A recent surge in meat sales also indicates that many folks are learning to cook at home for the first time, perhaps triggering a paradigm shift that generates fewer trips for Happy Meals.

MCD Long-Term Chart (1999 – 2020)

A multi-year advance ended at $49.69 in November 1999, marking a high that wasn't challenged for the next seven years, ahead of a decline into the new millennium. Selling pressure eased in the mid-$20s in the second quarter of 2001, establishing a support level that broke down in July 2002. Aggressive bears controlled the ticker tape into March 2003, when the stock finally bottomed out at a 10-year low in the lower teens.

The subsequent recovery wave posted steady gains during the mid-decade bull market, completing a round trip into the 1999 high in May 2007. A breakout ran into a buzzsaw of sellers after reaching the low $60s in December, yielding volatile range-bound action on top of new support. Even so, the stock exhibited relative strength compared to broad benchmarks during the economic collapse, underpinning a secondary breakout at the start of the new decade.

The uptrend topped out once again in January 2012, establishing heavy resistance at $100 that denied multiple breakout attempts into October 2015. The "all-day breakfast" initiative was introduced at that time, triggering a breakout that carved a broad Elliott five-wave advance. The bullish pattern finally completed in the summer of 2019, while subsequent downside posted the steepest correction in more than a decade.

The monthly stochastic oscillator entered a long-term sell cycle from the overbought zone in October 2019 and crossed into a buy cycle in January 2020. However, the stock has lost more 50 points since the bullish crossover, telling us the data isn't valid. Price action is currently testing the recent breakdown through 50-month exponential moving average (EMA) support, with the stock trading below that line in the sand for the first time since 2003.

MCD Short-Term Chart (2017 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator ended a multi-year accumulation phase in April 2018 and eased into a support line going back to May 2017. It dropped into that level for the third time last week, while seven days of higher prices have barely budged accumulation readings. This is typical behavior when short covering, rather than bottom fishing, drives price action.

Finally, the stock has reversed off the 50% sell-off retracement level after filling the March 15 gap. The .618 Fibonacci retracement level at $180 has narrowly aligned with the March 12 gap, marking a price zone that is unlikely to be breached at this time. However, there's no timeline on an inevitable test of the March low because the tape is still working off an extremely oversold short-term technical condition.

The Bottom Line

McDonald's stock is likely to break the March low and test round number support at $100.

Disclosure: The author held no positions in the aforementioned securities at the time publication.

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Stock futures trade lower on US job concerns

Dow ends off session highs

FOX Business’ Lauren Simonetti says a lot of Wednesday’s gains came from Boeing.

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U.S. equity futures are trading lower ahead of weekly jobless claims numbers.

The major futures indexes are indicating a decline of about 1 percent when trading begins on Thursday.

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Jobless claims are expected to surge to 1 million last week, with estimates running as high as 4 million as efforts to contain the coronavirus pandemic triggered a wave of layoffs and brought the U.S. economy to a virtual standstill. That would exceed by far the record-high number of 695 thousand claims filed in October 1982.

The Senate late Wednesday passed an unparalleled $2.2 trillion economic rescue package steering aid to businesses, workers and health care systems engulfed by the coronavirus pandemic.

The unanimous vote came despite misgivings on both sides about whether it goes too far or not far enough and capped days of difficult negotiations as Washington confronted a national challenge unlike it has ever faced.

The 880-page measure is the largest economic relief bill in U.S. history. Majority Leader Mitch McConnell appeared somber and exhausted as he announced the vote — and he released senators from Washington until April 20, though he promised to recall them if needed.

SENATE PASSES $2 TRILLION CORONAVIRUS STIMULUS BILL IN UNANIMOUS VOTE

In Asian markets, Tokyo's Nikkei fell 4.5 percent, Hong Kong's Hang Seng was lower by 0.5 percent and China's Shanghai Composite slipped 0.6 percent.

Prices have swung wildly as business shutdowns spread around the world. Investors say they need to see a decline in numbers of new coronavirus infections before prices can bottom out.

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 21200.55 +495.64 +2.39%
SP500 S&P 500 2475.56 +28.23 +1.15%
I:COMP NASDAQ COMPOSITE INDEX 7384.295089 -33.56 -0.45%

On Wednesday, the S&P 500 advanced to 2,475.66 and the Dow Jones Industrial Average rose 2.4 percent to 21,200.55. The Nasdaq lost 33.56 points to 7,384.30.

Global central banks have cut interest rates and injected money into financial markets.

The number of known infections has leaped past 450,000 people worldwide, and more than 20,000 have died, according to Johns Hopkins University. Overall, more than 112,000 have recovered.

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For most people, the new coronavirus causes mild or moderate symptoms such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness including pneumonia and death.

The Associated Press contributed to this article.

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Stock futures trade higher as deal reached on coronavirus stimulus

Stock market surges on hopes of a stimulus package

FOX Business’ Lauren Simonetti talks about the Dow Jones gaining 2,000 points, making it the biggest point gain the Dow has ever seen.

Stock futures turned positive as White House and Senate leaders struck an agreement late Tuesday on a sweeping deal on injecting nearly $2 trillion of aid into an economy ravaged by the coronavirus.

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Dow futures are indicating a gain of 1.2 percent when Wall Street opens for business on Wednesday.

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The unprecedented economic rescue package would give direct payments to most Americans, expand unemployment benefits and provide a $367 billion program for small businesses to keep making payroll while workers are forced to stay home.

The final details had proved nettlesome. One of the last issues to close concerned $500 billion for guaranteed, subsidized loans to larger industries, including a fight over how generous to be with the airlines. Hospitals would get significant help as well.

A vote in the Senate could come Wednesday.

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 20704.91 +2,112.98 +11.37%
SP500 S&P 500 2447.33 +209.93 +9.38%
I:COMP NASDAQ COMPOSITE INDEX 7417.857035 +557.18 +8.12%

On Tuesday, the Dow Jones Industrial Average surged to its best day since 1933 as Congress and the White House neared a deal. The Dow adding 11.4 percent, rising 2,112.98 points, its biggest point gain in history. The S&P 500 index leaped 9.4 percent.

In Asia, Japan's Nikkei jumped 8 percent, Hong Kong's Hang Seng added 3 percent and China's Shanghai Composite gained 2.2 percent.

Tokyo share prices were boosted by the decision to postpone the 2020 Olympics to July 2021 in view of the coronavirus pandemic.

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Economists and investors expect to see some dire measures of the impact of the virus in coming days and weeks, and few believe markets have hit bottom. Rallies nearly as big as this have punctuated the last few weeks, and none lasted more than a day.

The Associated Press contributed to this article.

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Stock futures gain ground as Congress moves closer to a stimulus deal

Dow, S&P extend losses after worst week since 2008 financial crisis

FOX Business’ Lauren Simonetti says investors want Congress to pass the stimulus relief package as soon as possible.

U.S. equity futures are pointing to a higher open when Wall Street begins trading on Tuesday as congressional and White House officials emerged from grueling negotiations at the Capitol over the $2 trillion coronavirus rescue package saying they expected to reach a deal Tuesday.

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This comes after the Federal Reserve promised support to the struggling economy.

The major futures indexes are indicating a gain of more than 3 percent or around 600 Dow points.

The Fed promised to buy as many Treasurys and other assets as needed to keep financial markets functioning.

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That came as Wall Street fell 3 percent after Congress failed to approve an economic support package. It would send checks to U.S. households and offer support for small businesses and the hard-hit travel industry, but Democrats say it favors companies too heavily at the expense of workers and public health.

In Asia, Japan's Nikkei rose 6 percent, The Hang Seng in Hong Kong was 3.3 percent higher and China's Shanghai Composite rose 0.4 percent.

The Fed's promise goes beyond the $700 billion in purchases announced last week.

The central bank said it will buy a wide range of investments, including corporate bonds for the first time, to improve trading in markets that help home buyers purchase houses, state and local governments borrow and businesses to get enough short-term cash to make payroll.

Treasury Secretary Steven Mnuchin, third from left, and White House Legislative Affairs Director Eric Ueland, left, walk to a meeting with Senate Minority Leader Sen. Chuck Schumer of N.Y. in his office on Capitol Hill, Monday, March 23, 2020, in Was

As Congress was locked in stalemate, the number of known infections worldwide jumped past 380,000. After just a few weeks, the United States has more than 46,000 cases and more than 600 deaths.

Also Monday, trading on the New York Stock Exchange went all-electronic for the first time after the trading floor was temporarily closed as a precaution. The exchange announced the move last week after two employees tested positive for the virus. The number of floor traders had dwindled sharply in recent years as more trading become electronic.

Wall Street and some other stock markets have lost nearly one-third of their value over the past month as business shutdowns spread and airlines, retailers and other industries suffer rising losses.

Economists increasingly say a recession seems inevitable. Analysts are slashing their forecasts for upcoming corporate profits. Forecasters say they cannot project how deep the downturn might be or how long it will last.

Professional traders say investors need to see a decline in numbers of new infections before markets can find a bottom.

Congress debated through the weekend on the rescue plan, but White House officials and congressional leaders are struggling to finalize it. Democrats blocked a vote to advance the package Monday. They want to steer more of the assistance to public health and workers.

Even if the two sides find a compromise, Congress may need to go through more rounds of similar negotiations if the outbreak isn't brought under control.

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 18591.93 -582.05 -3.04%
SP500 S&P 500 2237.4 -67.52 -2.93%
I:COMP NASDAQ COMPOSITE INDEX 6860.673526 -18.84 -0.27%

On Wall Street, the benchmark S&P 500 fell 2.9 percent in another day of sudden swings. It was down as much as 4.9 percent and as little as 0.2 percent earlier in the day.

The Dow Jones Industrial Average fell 3 percent. The Nasdaq, which is dominated by technology companies, lost only 0.3 percent as tech shares held up better than the rest of the market.

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In energy markets, benchmark U.S. crude gained 97 cents to $24.35 per barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.59 the previous session to close at $22.63. Brent crude, used to price international oils, added $1.00 to $28.04 per barrel in London. It lost $1.49 the previous session to $26.98.

The Associated Press contributed to this article.

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Stock futures recoup some losses from biggest rout since 1987

Dow plunges nearly 3,000 points amid growing coronavirus fears

The White House announces tougher guidelines for the country to hopefully slow coronavirus’ spread, sending markets into a tailspin.

U.S. equity futures are pointing to a higher open a day after markets suffered their steepest single-day loss since 1987.

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DOW DIVES NEARLY 3,000 POINTS

Dow futures were up 101 points, or 0.5 percent, ahead of the opening bell, but had been higher by as much as 800 points in overnight trading. S&P 500 and Nasdaq futures were higher by 1.1 percent and 0.9 percent respectively.

Treasury Secretary Steven Mnuchin is making the rounds on Capitol Hill discussing further stimulus measures that could be taken to boost the U.S. economy amid the coronavirus crisis.

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West Texas Intermediate crude oil futures for May delivery were up 2.1 percent at $29.62 a barrel while gold futures for April delivery traded lower by 1.4 percent at $1,466 an ounce.

The Dow Jones Industrial Average plunged 2,997 points, or 12.9 percent, during Monday’s session while the S&P 500 and Nasdaq Composite lost 12.3 percent and 12 percent, respectively. The drop was the steepest for all three of the major averages since the 1987 Black Monday crash.

WHAT IS THE VIX?

President Trump, during the coronavirus task force update on Monday, signaled the crisis could wade deep into July or August.

In Europe, London's FTSE fell 1 percent, Germany's DAX added 0.4 percent and France's CAC gained 0.9 percent.

In Asian markets on Tuesday, Japan's Nikkei added 0.1 percent, Hong Kong's Hang Seng gained 0.8 percent and China's Shanghai Composite slipped 0.3 percent.

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US Steel Stock Hits All-Time Low

President Donald Trump touted the rebirth of the American steel industry after placing restrictions on foreign products early in his administration, but that hasn't help United States Steel Corporation (X), which has now sold off to the lowest low since the stock came public in April 1991. Even worse, the two-year downtrend is now picking up steam, raising fears that the company will head into bankruptcy or be forced to find an attractive suitor.

Cyclical and biological factors have taken control from trade and production constraints, with soaring bond markets telegraphing an economic contraction that could become a major recession. Industrial stocks live and die by this expansion-contraction cycle because their products aren't needed when other corporations don't invest in their businesses. It's even worse when companies choose to buy back stock rather than grow into new markets, as they did after the massive 2018 tax cuts.

X Long-Term Chart (1991 – 2020)

The company came public in its current incarnation in 1991, opening in the mid-$20s and gaining ground into the 2003 top at $46.00. It then entered a multi-year downtrend, ticking lower at a steady pace into the new millennium and 2003 low at $9.61. Bulls took control through the middle of the decade, driven by China's rapid infrastructure expansion, lifting U.S. Steel stock in a historic uptrend that ended at 2008's all-time high just below $200.

The stock plunged during the economic collapse that year, descending in a straight line that relinquished an astounding 96% of the five-year uptrend into the March 2009 low at $16.66. A recovery wave into the new decade made little progress, retracing about 30% of the prior decline before posting a 2010 high at $65.44. That marked the highest high in the past 10 years, ahead of range-bound action between that resistance level and the prior low.

A 2015 breakdown picked up steam into the first quarter of 2016, bottoming out at $6.15, which marked the lowest low in the stock's public history up to that time. The subsequent bounce gained momentum after the presidential election, topping out at a seven-year high in the upper $40s in February 2018. The subsequent decline broke short-term support in July, signaling a downtrend that has continued to post new lows into last week's 100% retracement of the two-year uptrend.

The sell-off hit an all-time low at $5.85 on Mar. 9, while price action in the past two sessions has been testing four-year support. Although this is a high-odds price zone for a reversal and multi-week recovery wave, the coronavirus has triggered intense volatility that has broken strong support levels on more resilient issues. U.S. Steel stock is unlikely to buck the tide, given its lowly status, suggesting more downside in coming weeks.

X Short-Term Outlook

The monthly stochastic oscillator has now dropped to the most extreme oversold technical reading since August 2000, highlighting historic weakness that could easily expand into a death spiral. Bullish contrarian signals are going off at the same time, insisting that current losses will be unsustainable. It is best to err on the side of caution given current events and set aside available capital to buy more resilient equities in coming months.

The Bottom Line

U.S. Steel shares sold off through the 2016 low last week, posting an all-time low. The stock has fallen a stomach-churning 87% in the past two years, raising the threat of bankruptcy or the need for a fire sale acquisition by a well-heeled suitor.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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Stock market not so sickly — rebounds 13% after tanking over coronavirus fears

The stock market corrected some 13 percent last week — a large move by any measure.

The impetus behind this sell-off is primarily China’s mishandling of the coronavirus outbreak, which has now spread to numerous countries.

Infectious disease experts have said that while the virus is highly communicable, its mortality rate is very low when compared with SARS, bird flu and other recent nasty diseases circling the globe. The most susceptible are the elderly and those with impaired immune systems.

While I do think much of the selling in the market was triggered by the spread of the coronavirus, much of what made us so vulnerable is that we were extremely extended and overbought by almost every technical measure.

While it was painful to watch the decline, the good news is that bear markets, which are defined as much by duration as price drop, rarely start from all-time highs.

Instead of putting this sell-off in the proper context, most of the Wall Street doomsayers being paraded out by the media just feed the selling frenzy, leading to an outbreak of investor anxiety.

Heart-wrenching and scary as a global health crisis may be, let’s not lose sight of the fact that historically, times like these have always proven to be excellent buying opportunities.

It is important to remember that years after SARS, bird flu, MRSA and Ebola all wreaked havoc on the market, when they subsided the market marched to new highs each and every time.

So do yourselves a favor: Be smart with your health and wise with your wealth, because whether it’s two, five or 10 years from now, this will just be another page in the history of financial market turbulence that investors will likely look back at as a buying opportunity.

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Amazon Stock Could Fail Major Breakout

Amazon.com, Inc. (AMZN) fell sharply with broad benchmarks on Monday, bringing a two-day decline to 6.6% while dropping under the 2018 and 2019 highs in a potential failed breakout. The 50-day exponential moving average (EMA) near $1,950 marks the major inflection point in this downdraft, with a sturdy bounce at or above that level having the power to reach last week's all-time high while a breakdown would set off all sorts of sell signals that could mark a major top.

The stock fell in sympathy with the falling market, but more specific headwinds may have contributed to the downturn. Some retailers are reporting Asian supply chain disruptions as a result of the coronavirus outbreak, raising the potential for higher prices or lower margins in the first quarter. In addition, the negative news flow may be having a destructive impact on consumer sentiment, potentially translating into lower sales.

Fortunately for sector bulls, supply breakdowns and weak consumer spending shouldn't affect retail stocks once the outbreak runs its course. No one knows when that will happen, but warm spring weather ended the SARS outbreak in 2002, and the same thing could unfold this time around. In turn, this suggests that negative headlines will persist into April or May, keeping a lid on shares of Amazon and its rivals into the second quarter.

AMZN Long-Term Chart (1999 – 2020)

A vertical uptrend topped out near $100 in January 1999, while April and December breakout attempts failed, completing a triple top that marked the highest high for the next 10 years, ahead of a bear market decline that dropped the stock 95% into the 2001 low at $5.51. A bounce into 2003 stalled near the .618 Fibonacci sell-off retracement level, giving way to a shallow but persistent pullback that found support in the mid-$20s in 2006.

A rally into 2007 reversed about 12 points under the 1999 high, yielding a vertical but manageable sell-off into the mid-$30s during the 2008 economic collapse. This modest resilience paid off in 2009, when the stock finally completed the round trip into the multi-year peak. It broke out a few months later, entering a rising channel that booked historic gains into a 2017 channel breakout that confirmed support at $1,000.

The subsequent buying spree ended at $2,050 in September 2018, giving way to a fourth quarter decline that found support in December at an 11-month low just above $1,300. The stock turned sharply higher at the start of 2019, booking a 100% retracement into the prior high in July. It then rolled into a shallow correction, completing the final stage of a cup and handle breakout just three weeks ago.

AMZN Short-Term Outlook

The monthly stochastic oscillator entered a sell cycle in the fourth quarter of 2018 and turned higher in January 2019, stalling at a lower high in May. The subsequent downswing undercut the prior low but failed to reach the oversold level, turning higher once again in November. This bullish impulse has now reached a trendline of lower highs going back to 2018. This is unusual because the indicator carves few trendlines, but they tend to be extremely reliable when it occurs.

In addition, the monthly chart has posted a bearish gravestone doji with just four trading days left in February. This ominous-looking price bar will draw unwelcome attention from market technicians if it persists into next week, adding to growing odds that the stock has failed this month's breakout above 18-month resistance. Even so, it could make a final stand at rising trendline support near $1,850, which has narrowly aligned with the 200-day EMA.

The Bottom Line

Amazon stock has sold off through the 2018 and 2019 highs just three weeks after a major breakout, raising the potential for a pattern failure that signals a long-term top.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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Domino's Stock Breaks Out After Strong Q4 Earnings

Domino's Pizza, Inc. (DPZ) shares rose more than 25% during Thursday's session after the company reported better-than-expected fourth quarter financial results. Revenue rose 6.5% to $1.15 billion, beating consensus estimates by $20 million, and non-GAAP earnings per share came in at $3.13, beating consensus estimates by 16 cents per share.

Comparable sales rose 3.9% during the quarter, which was sharply higher than the 1.9% increase that analysts expected. On the bottom line, operating margins came in at 17.7%, which was 0.1% better than analysts expected. The company also boosted its quarterly dividend payout by 210% and forecast global retail sales growth of 7% to 10% over the coming years.

In an interview with CNBC's "Mad Money," Domino's CEO Richard Allison said that the company is trying to grow the takeout business to boost margins given the rising costs of food delivery. He also noted that only a handful of the company's 270 Chinese stores have closed and that it is using "contactless delivery" to mitigate the risk of the coronavirus.

From a technical standpoint, Domino's stock broke out from trendline resistance and prior highs of around $298 to fresh 52-week highs of nearly $382. The relative strength index (RSI) moved into overbought territory with a reading of 88.55, but the moving average convergence divergence (MACD) crossed above the zero-line. These indicators suggest that the stock could see some consolidation, but the long-term trend remains bullish.

Traders should watch for some consolidation between trendline support at $300 and highs of nearly $380 over the coming weeks. The key Fibonacci retracement levels include $355.30, $338.80, and $312.53. If the stock breaks below trendline support, traders could see a move to retest reaction lows and the 200-day moving average at $268.84, but that scenario appears less likely to occur given the bullish sentiment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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