Treachery but not despair --> high-velocity decline means high-speed recovery

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STRATEGY: Incremental developments positive, but “buyers’ strike” creates despair

Omicron-wave has peaked in the USA

While a little more than half of US states (29) are facing rising COVID-19 cases, the aggregate figures are rolling over. To me, this bears watching, because the reach of the Omicron was so vast, it is possible that this could be the last substantial wave of cases for the remainder of 2022.

– USA cases peaked on 1/14/2022
– this was within the rough range forecast by tireless Ken

Bottoms are “V-shaped”

In the past 14 sessions, the S&P 500 has fallen 11%. As Mark Newton, Head of Technical Strategy, has warned of internal deterioration of the overall market and thus, equities were vulnerable to a larger correction — that is, many individual stocks have been correcting since February 2021. Thus, this last decline in the market is the result of the large-caps finally reflecting this fallout.

And this explanation makes sense to me. There are contributing fundamental factors such as Russia/Ukraine, and inflation and pending Fed hike jitters, but ultimately, investors have been on a buyers’ strike and it cascaded into an 11% decline in 14 trading days.

…The faster the decline the faster the recovery

Many of our clients might recall that in 2020, one of the key elements of our base case for markets was the notion of symmetry. The faster the decline, the faster the recovery. The median ratio of this speed is 0.7X.

– we do not know when the market will bottom

– so far, the S&P 500 has fallen 11% in 14-days
– thus, any recovery should take 0.7X as long as the decline

In other words, we expect a violent bounce to ensue, once stocks have bottomed. And it seems like our strategists are seeing this incremental possibility:

– Brian Rauscher, Head of Global Portfolio Strategy, issued his “buy the bottom” on Monday
– Mark Newton, Head of Technical Strategy, believes a tradeable bottom might emerge this week

Take a look at his comments below. Mark believes a low might materialize this week

What is the point of this?

– if the correction lasted 14-20 days
– the bounce to recovery highs will be 10-15 days
– meaning a low in Jan
– points to new highs in February

AAII sentiment is the worst since March 2020
To lend more credence that we are near the tradeable lows, the latest AAII (American Association of Individual Investors) % bulls less % bears shows we are near maximum pessimism:

– AAII % bulls less % bears is -25%
– this is the worst readings since March 2020
– there are only 3 weeks worse in that timeframe
– all around the start of the pandemic

We have written in the past about the usefulness of the AAII sentiment indicators at the extreme. And when investors are bearish, this often points to positive forward returns. The rationale being that by the time everyone is bearish, a lot of bad news is baked in. And thus, equities can form a tradable low.

The takeway for 2022 so far is that 1H2022 is looking treacherous. This has been the base case as outlined in our 2022 Outlook. And as we noted, this is due to a combination of:

– mounting inflation headwinds
– Fed jitters
– Overbought conditions
– other risks

And in this context, investors should remain wary but not in despair. That said, we see significantly improved risk/reward in the last 14 trading days.

STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)
Our 2022 themes are shown below. And in not in any order:

– Bitcoin + Bitcoin Equities BITO-2.84%  GBTC-2.83%  BITW-3.50%
– Energy
– FAANG FNGS-0.82%  QQQ-1.16%

Combined, it can be shorted to BEEF.

– Homebuilders (Oct – Apr aka Golden 6 months) XHB

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30 Granny Shot Ideas: We performed our quarterly rebalance on 10/26. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 426,305, down -680,272 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 426,305 vs 1,106,577 7D ago, down -680,272
– 7D positivity rate 26.1% vs 27.9% 7D ago
– Hospitalized patients 141,163, down -5.1% vs 7D ago
– Daily deaths 2,305, up 31% vs 7D ago
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The latest COVID daily cases came in at 426,305, down -680,272 vs 7D ago. The sharp drop in 7D delta is expected. As we noted yesterday, the daily cases last Tuesday (1/18) were “artificially” high due to MLK Day. That said, the overall COVID trends in US are encouraging. All metrics except daily deaths have rolled over from their peaks:

– Daily cases (7D avg) 614,851 now vs. 775,931 (the peak was on Jan 14)
– Positivity rates 26.1% now vs. 28.5% (the peak was on Jan 15)
– Current Hospitalization 147,467 now vs.149,155 (the peak was on Jan 22)

Although daily fatalities are still rising, we learned from the prior waves that there tends to be a lag between daily reported COVID cases and deaths. And if it holds true, we should start to see declines in daily fatalities soon. While some regions in the US are still facing outbreaks, we believe that we may have passed the worst moments of the Omicron wave.

7D delta in daily cases see a sharp decline yesterday due to the data distortion 7D ago…
As we noted above and yesterday, daily cases were distorted last week due to the MLK Day holiday. And it caused the sharp jump and fall in 7D delta. Overall, the downward trends in daily cases and 7D delta should still be intact.

29 states are seeing a rise in cases while 21 states + DC are seeing cases falling or about to roll over…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), and the other where cases are rising

In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.
– The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
– We also calculated the number of days during the recent case surge
– The US as a whole, UK, and Israel are also shown at the top as a reference

Daily deaths are still rising, while positivity rates and hospitalization seem to roll over now…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID

– Net hospitalization started to roll over. And more importantly, the daily mortality did not follow the same pattern as hospitalization, which shows Omicron is less deadly compared to other variants (at least so far).
– Positivity rate finally started to fall after plateauing for two weeks. It also confirms the recent decline in daily cases.

POINT 2: VACCINE: vaccination pace has slowed recently… Still more than half of eligible people have not received their booster shots…

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Current Trends — Vaccinations:
– avg 1.0 million this past week vs 1.2 million last week
– overall, 25.9% received booster doses, 63.2% fully vaccinated, 75.4% 1-dose+ received
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Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.

Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).

– Currently, all states are near or above 90% combined penetration
– Given the 2.5x multiplier, all states besides MS, WA, OR, TX, ID, MI, MO, and GA are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated

There were a total of 1,034,926 doses administered, as reported on Tuesday. The daily number of vaccines administered has been down over the past week. As we noted previously, the improvement in the case trend could play a role in influencing people’s willingness/urgency to get vaccinated. But given the benefits that vaccination provides (reduce severity –> reduce hospitalization –> prevent healthcare crisis), we believe the daily number of vaccines administered remains the most important metric to track.

Below we plotted the number of people who are eligible for the booster dose and the number of people who received the booster dose over time. As you can see, more than half of eligible people have yet received their booster dose (173 million eligible, 85 million received). Hence, to convince these people to receive their booster dose remains the key.

This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.

In total, 536 million vaccine doses have been administered across the country. Specifically, 250 million Americans (75% of US population) have received at least 1 dose of the vaccine. 210 million Americans (63% of US population) are fully vaccinated. And 86 million Americans (26% of US population) received their booster shot.

POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to show figures from the last 9 months, from this calendar day, in each of the last two years***

As evident by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.

The possible explanations for the seasonality we observed are:

– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors
– Opposite effects hold true in the winter

CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.

HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.

DEATHS
Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.