11May11:45 amEST

Pricing in the Unpriceable

If we had had social media back in 1929-1932, it would have been fascinating to see how the post-October 1929 crash price action and policy decisions would have been met. Not long after the crash, history seems to overlook that both The Fed and President Herbert Hoover took considerable action to try to stem the tide of unemployment as well as market dislocations. Stocks eventually settled down and rallied for five-six months (!) from the October 1929 lows before finally exhausting itself around June 1930. At that point, stocks then took an 80% haircut on the major indices for the next two full years until the summer of 1932. 

One can only imagine the sorts of tweets we would have seen during the initial post-crash rally. "How could you fight The Fed and President Hoover and short the rally?" "The pain trade is obviously still higher!" "The worst is behind us!"

Granted, each cycle is unique. As an example, the 1987 Crash never retested the crash lows. And that was a big crash where many expected a repeat of the 1930s afterwards, given the prior run-up throughout the 1980s. 

The bottom line is that the current cycle is very early in its stage of playing out after a shocking event like what we saw in March. Staying flexible is not just some trading platitude but rather a necessary survival mechanism for those trading with actual capital, since the market action at times seems to catch plenty of traders off-guard with respect to heavily-shorted stocks (e.g. BYND PTON TWLO, etc.) over the last few weeks as well as the general sense of detachment from the economy and especially unemployment. And with AMC skyrocketing 35% on merger rumors with AMZN today, this market seems like one massive mousetrap more than anything right now. 

So is the market now pricing in a stronger-than-expected recovery pending the many re-openings across the country? Possibly. But there is now way of knowing exactly what consumers will do at-large when push comes to shove in terms of frequenting various businesses and having the stomach to spend money they have in the past. And, of course, the dreaded second and third wave outbreaks of the virus are always a distinct possibility at any time. 

For those reasons, now more than ever seems like a good spot to focus on a specific thesis for any given trade idea. We want to have as many factors in our favor. CODX is a name we sold into strength earlier. But the chart and thesis were squarely aligned. And it is a name I will likely revisit after the firm's earnings. 

NET, or Cloudflare, already reported. Below on the daily chart, we can see the software security play flagging nicely. Web security will be as important as ever in the new world we are in, as conducting business online and digitally becomes part of the new normal the market may or may not be accurately pricing in at the moment. 

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