Nature Versus Nurture of the CoronaVirus Beast

No matter how mentally, emotionally, and physically ready most of us are to move on from the last several months of pandemics, lockdowns, social unrest, and, overall, one of the more glaringly negative steady stream of headlines in at least several decades in this nation, the proverbial all-clear signal is highly unlikely to come in one fell swoop anytime soon. 

The stark reality of the situation as summer unfolds is that the methodical re-openings in many states are subjected to various Governors deciding the case spikes are too menacing to ignore, thereby reinstating business closings and even lockdowns. Even if the hospitalizations and death rates are not alarmingly high, the threat of another outbreak and strain on the healthcare system still seems to clearly be on the minds of many Governors. 

As a result, I expect markets to align more with this volatile view going forward. While it is certainly true that short-selling since late-March has been "up against it" for the most part, often suffering at the hands of various squeezes, headlines from The Fed and government throwing what they can at markets and the economy, and perhaps a general pain trade higher, I remain short the small caps, for example.

On the IWM ETF daily chart, below, we can see the potential for a head and shoulders bearish pattern threatening to resolve sharply lower right here, right now.

In the context of the February/March selloff as the initial leg down, I consider this patten to be a bearish "continuation" pattern, merely the second act, if you will. Despite all of the hoopla surrounding the Nasdaq at new highs and 10,000 as mega cap tech seems to be a can't-miss safe haven (I took myself out of an AAPL short yesterday with a fairly tight stop on it, for example), the risk-gauge of the small caps is operating below a declining 200-day moving average (yellow line) and far from sanguine about our imminent economic prospects over the summer.