The trading action in recent days certainly shows that the smell of fear is in the air. The bears won last week’s battle, even as they’ve been losing the war for years.

The Standard & Poor’s 500 index had one of its worst few consecutive days ever, declining a stunning 12.8% in seven days. Such decline velocity was last seen in 2008.
Cue the panic. The mounting hysteria around COVID-19, and a growing consensus that “nothing is safe” is only amplifying the view that equities will not find a floor until the world is past “peak Corona virus” spread.

The fog of losses is obscuring investor vision, but I think that in the past month, and particularly in the past week, significant divergences between asset markets suggest that the SPX might see a catch-up trade that leads to a “V-shaped bounce.” This is consistent with our commentary earlier this week that I believe there is a 60%-plus probability stocks are bottoming about now.

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First, consider the stock market in China —the epicenter of coronavirus— bottomed three weeks ago (after falling 14%) and then had V-shaped 14% rally to within 2% of three-month highs. Think about this. China’s infections are still growing, with the economy at a virtual standstill, yet the eq...

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