Stocks across the board are being sold off in a mad dash to raise cash and reduce risk amid uncertainty as headlines of the coronavirus spread and the pathogen causes a rising number of deaths.
What’s more interesting is that this year’s strain of the domestic flu has already hospitalized more than 180,000 people and caused 10,000 deaths in the United States. It is sometimes challenging to make sense of certain situations when compared with a similar set of circumstances.
The coronavirus has infected more than 17,200 people and taken the lives of 362 as of Monday, Feb. 3. Regardless, it is all negative news because of the unknown nature of how fast and far the virus could spread — and it has the stock market in full reset mode, erasing all the gains for January.
From the chart above, the heavily traded S&P 500 SPDR ETF (SPY) is testing its 50-day moving average (yellow line) as of Friday since most of the 11 market sectors are undergoing a “garden variety” selloff, with the exception of the energy sector. It is incurring some serious wholesale liquidation.
The triple-threat of the coronavirus, the impeachment brouhaha hearings and the poor Chicago Purchasing Managers PMI read for January that was released last Friday have provided the perfect conditions for a “sell first, ask questions later” lightning strike of equity exposure. However, it is my view that, like with the Fed’s botched rate hikes in the fourth quarter of 2018, the trade war with China and the Iran crisis, this latest market turmoil will also culminate in a fearful capitulation which will be fueled by forced selling by the crowded exchange-traded funds (ETFs), over-margined portfolios and algorithm-based high-frequency program trading that dominate about 70% of the average daily volume.
So, what should investors do if they have cash on hand in the midst of this volatile sell-off? I say, go to those stocks whose companies crushed fourth-quarter estimates, are macro indicators of future business and are fundamentally, technically and institutionally the current “go-to” tech stocks in a hostile market environment.
“Wintel” is a computer trade industry term for personal computers that are based on the Intel microprocessor and the Windows operating system from Microsoft. Both Intel Corp. (NASDAQ:INTC) and Microsoft Corp. (NASDAQ:MSFT) reported stellar fourth-quarter results, while also providing solid forward guidance for Q2 and full-year 2020.
Shares of both Intel and Microsoft soared upon the release of their quarterly results, trading well above their 10-day moving averages into extreme short-term overbought territory. Now, with the market in a correction mode that could last into the first two weeks of February, investors might have been provided with a prime opportunity to buy both stocks at rising attractive key entry points, which are $62 for Intel and $164 for Microsoft.
These buy points aren’t formulated from massive selling, so when the market recovers, there should not be layer upon layer of overhead resistance for many stocks to overcome. Both INTC and MSFT are clean, high-volume, upside breakout situations that should be bought with confidence on this market pullback.
If the market declines further, they very likely won’t lose much ground, but will simply get to my most ideal buy points. If the skies clear of the virus fear and the market starts to turn higher — just buy the stocks and be glad you did.