COVID-19 UPDATE: VIX 2D surge >40% + NYSE TICK collapse to worst reading since 1990 = capitulation signal

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STRATEGY: VIX 2D surge >40% + NYSE TICK collapse to worst reading since 1990 = capitulation signal
In one of the greatest signs of a “return to normal” Dr. Fauci, White House advisor and director of the National Institute of Allergy and Infectious Diseases, suggested the US could start relaxing indoor mask requirements.  This is another sign pointing to a sustained retreat in US COVID-19 cases.  Although he did suggest it might be a seasonal issue, like masks come back in the Winter.

Source: https://www.cnn.com/2021/05/09/health/us-coronavirus-sunday/index.html



And vaccination efforts seem to be improving, as we have noted, with weekly vaccinations now increasing. This is likely a bit of a lift coming from the re-introduction of the J&J vaccine, which is 1 dose.  As the chart below shows, the 7D average seems to be curling upwards again.

And going forward, we could see it rise further given the expansion of age ranges to 12 to 15 years old.

– the US CDC is also suggesting vaccine boosters
– and US govt will pay for these

Source: https://www.cnbc.com/2021/05/11/covid-booster-shots-cdc-director-says-us-planning-just-in-case.html



STRATEGY: VIX 2D surge >40% + NYSE TICK collapse to worst reading since 1990 = capitulation signal
Over the past few weeks, investors have become obviously wary, and something we addressed regularly over the past few weeks.  Tuesday, a combination of factors seemed to have triggered a “panic” among investors. 

– Was it the Op-ed and CNBC appearance by Wall Street scion Stan Druckenmiller?  He warned of dangerous actions by the Fed. 
– Or was it margins calls?
– Or just a tired tape?

In any case, two four-standard deviation events took place Tuesday.  These are events that would have occurred less than 20 times in the past 20 years (using daily data):

– VIX surged 40% over 2 days, only 20 instances since 1990
– NYSE Tick Index plunged to -2,069, and only 10 times was it below -1,800
**On NYSE Tick Index (thanks Spence Tobias for the heads up).  

…These “4 sigma” events are actually extremely bullish, as it indicates market panic
While many investors might view Tuesday’s plunge and the surge in the VIX as a negative sign, it might surprise you but these are actually bullish signals.  Foremost, keep in mind that bull markets “ride an escalator, and fall down an elevator” –> meaning, in a bull market, stocks rise steadily and then plunge suddenly.  Thus, a VIX surge and massive negative NYSE tick reading is positive.

Don’t believe us?  Take a look at forward returns for S&P 500 after both events:

– this is since 1990
– for VIX, this is looking at events outside of “recessions”

See the pattern?  Stocks usually soar after such readings.  We think this is case again.  Investors have been looking for “excuses” to sell.  And with Technology stocks becoming stale longs (per Druckenmiller comments) and vulnerable to the 5 risks we discussed Monday, is it any wonder investors might panic?

But we believe this is a great set-up for a surge in equities with S&P 500 likely reaching 4,400 before a pullback is possible.  

– additionally, small-caps, using IWM as a proxy, had a textbook bullish reversal at $214-$215, right where we expected
– IWM is now in a positive trend

VIX surges 40% over 2-days, only 20 times since 1990
The VIX surged Tuesday, rising 40% over two days. This is very rare.

This is only 20 times since 1990.  And of the 20 times, 16 occurred during economic expansions and 4 during “recessions”:

– this is evident by plotting those instances below

And as shown below, unless we are entering a recession, the VIX spike is simply a panic/reset.  And this washes out investor sentiment.  Look at the VIX forward returns.  Wow.

– stocks seem set for double-digit gains over next few months

…Spike in NYSE Tick Index sign of panic selling
Stocks also plunged at the open, and this is evident in the NYSE Tick Index which measures the net change in stocks (number up less down).  And as shown below, this led to a record decline to -2,069.

This is the largest ever negative NYSE Tick reading — at least from our data.  There may be some apples vs apples issue given tick data may not be as complete for the entire history of the series.

Source: Bloomberg



But as shown below, this surge at the open does stand out.  It is the worst reading since 1999 actually.

And before one gets too bearish, look at the other 9 worst TICK readings.  They all took place during bull market periods.  The lone exception is 2001.  

– so I would not jump to the conclusion this is 2001.
– but even in 2001, stocks managed to rally 20% before falling
– by the way, by 2001, stocks were already in a “downtrend” since 1999, or 2 years
– this is not the case Tuesday

And the forward returns are simply impressive.  Take a look below.

…it feels “capitulatory”
Bottom line, we see the VIX spike and TICK index collapse as signs of capitulation.  By the way, we think this means investors should rotate out of Technology and into our Epicenter recommended areas.  

ADDENDUM: We are attaching the stock lists for our 3 portfolios:
We get several requests to give the updated list for our stock portfolios.  We are including the links here:

– Granny Shots  –>       core stocks, based on 6 thematic/tactical portfolios
– Trifecta epicenter  –> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Technicals
– Violence in USA –> companies that are involved in some aspect of home or personal security. We are not “recommending” these stocks, but rather, bringing these stocks to your attention.

Granny Shots:
Full stock list here –> Click here

Trifecta Epicenter (*):
Full stock list here –> Click here

Power Epicenter Trifecta 35 (*):
Full stock list here –> Click here

Violence in USA:
Full stock list here –> Click here

(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile.

POINT 1: Daily COVID-19 cases 31,752, -7,504 vs 7D ago… 7D delta accelerate to the downside, daily cases could drop sub-20,000 next week…

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Current Trends — COVID-19 cases: 
– Daily cases    31,752 vs 39,256 7D ago, down -7,504
– 7D positivity rate   3.2% vs 3.9% 7D ago
– Hospitalized patients   31,324  down -11.2% vs 7D ago
– Daily deaths    618,  down 11.7% vs 7D ago
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– The latest COVID-19 daily cases came in at 31,752, down -7,504 vs 7D ago.

– The US continues to see a steady decline in daily cases. The 7D delta has been negative over the past 3 weeks. In the past few days, the 7D delta has been accelerating towards the downside again. If this speed of decline persists, we could see the daily cases drop to sub-20,000 next week and sub-10,000 in two weeks.

– As we wrote before, at this stage of the pandemic, as long as vaccinations prove effective, the vaccine rollout will eventually lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally be arriving.

7D delta in daily cases has turned negative in the past 3 weeks...
The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 3 weeks. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop to sub-20,000 next week and sub-10,000 in two weeks.
  

US hospitalization and deaths significantly fell from the peak… Positivity rate fell to all time low…
Below we show the aggregate patients who are currently hospitalized due to COVID. After a mini-surge in March, the number of patients currently hospitalized starts to roll over again. Compared to the wave 3 peak, it has fallen significantly.

POINT 2: VACCINE: all states reached ~70% infected + vaccinated… Over one-third of Americans have been fully vaccinated…
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Current Trends — Vaccinations: 
Vaccinations ramping steadily
– avg 2.2 million this past week vs 2.2 million last week
– overall, 34.9% fully vaccinated, 45.9% 1-dose+ received
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Vaccination frontier update –> all states now near or above 70% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections).  As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity.  That is, the combined value of infections + vaccinations as % population > 60%. Currently, we see all states near or even above 70% combined penetration. This high penetration partially explained the recent decline of daily cases in US.

– Currently, all states are near or above 70% combined penetration
– RI, SD, MA, ND, CT, NJ, DE, NY, IL and NM  are now above 90% combined penetration (vaccines + infections)
– So gradually, the US is getting to that threshold of presumable herd immunity

All states have reached 60% combined vaccination + infection. Besides, 98.2% of US states (based on state population) have seen combined infection and vaccination >70% and 65.2% of US states have seen combined infection and vaccination >80%.  As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.

There were a total of 1,528,531 doses administered on Tuesday, up 57% from 7D ago. The rollout of the vaccination seems to speed up again. As we wrote before, the number of vaccines administered per day had been slowing down since the pause of JNJ vaccines. Four weeks after CDC and FDA lifted the recommended pause of JNJ vaccines, we finally start to see the pace of vaccination turning up (evidenced by the blue 7D moving average line). Although current number of vaccines administered per day is still ~40% lower than its peak, this is a good sign along with the falling daily cases across US.

96.0% of the US has seen 1-dose penetration >35%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 30%/35%/40% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 87.4% of US states have seen 30% of their residents fully vaccinated.   However, when looking at the percentage of the US with at least 35% of its residents fully vaccinated, this figure is 52.6%. And only 13.7% of US (by state population) have seen 40% of its residents fully vaccinated.


– While 96.0% of US states have seen vaccine penetration >35%, 73.4% of them have seen 1 dose penetration >40% and 49.2% of them have seen 1 dose penetration > 45%.
– 87.4% of the US has at least 30% of its residents fully vaccinated, However, only 52.6% of US has fully vaccinated >35% and 13.7% of US has fully vaccinated >40%.
– This is still a small figure but this figure is rising sharply now.

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

The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. 

– the 7D moving average is about ~50 for the past few days
– this means 50 vaccines dosed for every 1 confirmed case

This figure is rising nicely and likely surges in the coming weeks

In total, about 152 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 50% of the population by mid-May.  

POINT 3: Tracking “un-restricted” and “restriction-lifted” states
We are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates.  Keep in mind, easing/lifting restrictions can take multiple forms:

– easing indoor capacity
– opening theaters, gyms, salons, saloons
– eliminating capacity restrictions
– eliminating mask mandates

So there is a spectrum of approaches.  Our team is listing 3 tiers of states and these are shown below.  

– states that eased in 2020: AK, OK, MO, FL, TN
– states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD
– states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT


GROUP 1:  States that eased restrictions in 2020…
The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  Rather, the case trends in these states look like other states.

GROUP 2: States that have eased all restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  

– we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states
– that seems to be a function of vaccine penetration + infection penetration, leading to something akin to “herd immunity”

GROUP 3: States that are still easing restrictions in 2021…
These states have upcoming dates to ease restrictions.  The dates are indicated on each chart.  The cases trends in these states have been mostly positive, with perhaps the exception of NY state:

– NY state case levels seem awfully stubborn at these high levels
– weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases