The selloff has been sharp, it's been fast, and it's been severe. And it may not be over. Huge spikes in the Volatility Index ($VIX) establish major market bottoms and Thursday's VIX close at 39 certainly qualifies as that. The following chart shows you that the VIX, or "fear meter", has jumped up to challenge the fear levels reached during the trade war:
Those previous high VIX readings in February and December 2018 marked significant bottoms where you wanted to be in the market. The big problem right now is determining how much more downside we'll see before the stretched rubber band snaps back.
It's been roughly a week since this episode of fear really took off, so I thought it'd be interesting to look at which industry groups have performed best and worst during this selloff. Here are the Top 15 relative performers over the past week:
The top 2 I would have expected to see as gold mining ($DJUSPM) and mining ($DJUSMG) typically outperform when fear levels rise. I found it interesting that the two consumer discretionary groups (XLY) on this list included two retail groups, specialty retail ($DJUSRS) and apparel retail ($DJUSRA). Finally, one group that I'm expecting big things from in 2020 is biotechnology ($DJUSBT). While the DJUSBT fell along with everything else, its relative strength is actually improving. Check out this chart:
Biotechs are one of only a handful of groups that show current price above its January 2020 low.
Now, on the flip side, here are the Bottom 15 relative performers:
First, I see a lot of energy groups (XLE) on here. Energy can't seem to catch a break no matter what the headline news is. Clearly, recreational services ($DJUSRQ) has been severely impacted and for good reason. Cruise lines and other companies in this space like Madison Square Garden (MSG) and Live Nation Entertainment (LYV) are and would be directly impacted by a communicable virus.
I have an appearance this morning on Benzinga's PreMarket Prep show, which airs at 8:00am EST. My spot will begin at 8:35am EST, so I'd love to have you join me. I'll be discussing the current impact of the coronavirus fears and where we might find a bottom. To join the show, simply CLICK HERE any time after 8am EST.
Happy trading!
Tom
