• Christopher Hall

Understanding the COVID-19 volatility and opportunities it presents

With markets falling quickly to probe out a low, Gary Glover from Novus Capital looks at how much of the previous rise the market has fallen and what the trading ranges look like from here.

[00:00:00] s wild times in the share market, and the man dissecting the charts and guiding us through is Gary Glover from Nova's Capital. Good morning, Gary. How are you? [00:00:07][7.2]

[00:00:08] Yeah, I'm good, Chris. Certainly not wrong about the wild times, and it definitely is wild times. [00:00:14][6.3]

[00:00:15] And you're going to walk us through the charts and some insights that you've got into previous market cycles where the possible ranges are, although very wild times are hard to call that. Before we jump to the shots, though, in seeing your portfolio at the moment, you've doubled up to almost 90 percent invested that you've picked up some positions. Are you fully invested or still about 90 percent there? [00:00:36][21.1]

[00:00:36] Yeah, and I still say market. So I'm just being dark as being probably busy with everything else actually. But to add possibly some stuff to balance it. But yeah, I was looking at a couple others but but you know, I've just sort of just sort of held but I've got it. So I'd like to sort of start to see it heading up here before we go. So I had to put a top Muffy. Yeah, I think it should be around the market. [00:01:01][24.5]

[00:01:01] So some definitely some interesting valuations there. Sort of never seen some stocks trading on rates Sunday as well. [00:01:07][5.6]

[00:01:07] So some amazing times. It is indeed. And amazing. You want to look at times like this. We want to look at the charts and get an understanding for how it's going. [00:01:17][9.3]

[00:01:17] So a lot of talks being out, whether we're looking for ranges, for probing, for lows. [00:01:24][6.4]

[00:01:25] And you have no idea of where we sit now relative to ranges from highs in this previous run up, previous lows in previous market movements. [00:01:33][8.0]

[00:01:33] Yeah. So I just like to look at the current range. And so let's see. Oftentimes we know we might pull back 54 percent or sixty one point eight. There's a little big retracement levels. And then also looking at previous sort of high the lows and even and even some old ranges as well as just to some level, sometimes you give a cost to the point. So there's just not always worth having a look at there. So obviously with we've come back more than 50 percent with sort of got back to that sixty one point eight, which is a pretty that's anomaly. A big correction normally sort of. I mean, you wouldn't do that. Probably one of a thousand might come back in three or four weeks, that sort of poof. So not not not very many come back. So no one's talking about this being the there's not been the fastest correction of all time. So we are definitely out of box here, but we should be looking for a few levels and software as well. So it's just I think I think using a liberal psychology here as well. I mean, obviously, markets kind of panicking here, sort of starting to think the worst. [00:02:38][64.4]

[00:02:38] And it's you know, it's just the uncertainty that's there. But the reality is sort of no one's really knowing what this is going to mean. Is it is it going to means in a slowdown or is it going to mean a recession? Is it going to. Is it to the people talking about depression? I would trust the government saying all this could be a depression right now. And I know it was coming up not prepared for any of this. So I just hope used to be the common sense, I think, for the trading. So at this stage, no one really knows. [00:03:07][28.8]

[00:03:07] So as we find more information comes out then. But I think you I just thought thought yesterday might have been a good, good clean out there. The fact that everyone sort of fun in locked down. So everyone's away from each other as well. So sometimes when you're on your own, you can come to think bit more logically as opposed to being in a roomful of dealers or old STEREOGUM. Everyone's been more calm. [00:03:31][23.8]

[00:03:32] So the. So, yeah. So you're basically panicky on your own rather than panicking around other people. [00:03:38][6.0]

[00:03:38] So we tend to say no insane in social distancing and self isolation might be a way to stop herd mentality. Is that possible? Yeah. Definitely. [00:03:46][7.9]

[00:03:46] I think it sort of does. It might coincide actually with that, you know, with a bit of a low here. So it might just sort of think we've we've had a pretty deep correction and we're 40 percent off. Know I know we can get lower here. Lawsuits, some still plenty of uncertainty, definitely some damage going to get done to the economy and the stocks and the business here. But no one knows how long this is going to last. Is this going to be shortly or is someone gonna come out with a vaccine pretty quickly or is this going to take a long time to roll out damage? It's done extensively. [00:04:15][28.7]

[00:04:16] So with those uncertainties, we're obviously looking at probabilities, not certainties in the market and volatile times. If you were to look for ranges, I can see that you've if we're looking to very low maybe four thousand five hundred or four thousand two hundred, that kind of range, what kind of ranges do you think would be going up down in those wild swings? [00:04:36][20.9]

[00:04:38] Yeah. So just sort of marked the range. Just because, you know, my point sort of he was at once we sort of find a low here. It's going to happen quickly too. It's not. That's when you see a market that's moved this quickly. At some, it will tend to find the low. Yeah, it's going to happen fast. Not not going to be over six to twelve months. So I think once we. On the loading and they would probably be range bound as well. So we'll basically swing within that range for an extended period. So we'll look it out to longer term. [00:05:10][31.6]

[00:05:10] Sarkozy Lonely, lonely year 0 0 1 2 year. You're sort of bearish phases here. So potentially this might roll out to the end of 2022 here, sort of potential here. But you will see some some volatility in that range. You'll see. There'll be stories of know kills and stuff. [00:05:31][21.2]

[00:05:31] So, I mean, there's already a couple of tables around circles and myelin stocks broadly looking at, you know, chlorine and that hydro hydro oxy chloride chloride clean like it's called. [00:05:45][13.7]

[00:05:46] So they know that they're already basically getting some good results already. So some of those treatments already that are sort of not FDA approved. [00:05:52][5.4]

[00:05:52] But yeah, those companies are actually donating a lot of those attributes and so forth. Like she's looking at Kibali's biotech summer in the US because they've all come up, you know, all come up 50, 60 percent price. [00:06:06][14.4]

[00:06:07] And a couple of potentially got some treatments here which might eventually going up to fifteen people. So it's it's potential good market there. But I think they're so far the big farmers have actually been giving the tablets away and getting into. So are they're doing the socially responsible thing rather than try to make money out of it. So one. [00:06:27][20.3]

[00:06:28] But yeah, definitely some treatments out there. I mean, yes, I think you'll you'll you'll get some good news stuff here. And, you know, money keep into the to support the market. And then obviously there'll be there'll be medical advances made and we could just be a pair of uncertainty. And so I mentioned this sort of last week, the similarities between the tech boom and what what followed there, the uncertainty. Obviously, this is on a larger scale, but same sort of thing that no one knew what would take place. But the sort of firm, you know, what the Internet really meant for business and for, you know, who would be destroyed and who would prosper and what it meant to costs. And so, no, we knew at the time there. So that caused volatility. So I just think you'll see a period of great volatility here. But once the rain just kind of sat here, I think we'll be sort of stuck in that range. [00:07:15][47.1]

[00:07:16] Well, if we have a look at the chart that you've got here for the exchange on the monthly basis, there's a Redbox you've highlighted on the right hand side, which is price ranges that you're talking about. If we were to transpose that to the jfc and then that 2 year cycle where you're saying we might have maybe a low like 20, 22. Oh, sorry, come out of that. A phase like 20, 22. Could that be not too dissimilar from what we saw, 0 9 through 10, 11, 12 for the Australian market where we had a reasonably large moves in short periods? [00:07:45][29.1]

[00:07:46] Yeah, that's right. So many of the things to look, I sort of mentioned a couple of so to say we found out forty five hundred then normally we start that we might bounce back up to the midpoint which would be say from the high we get fifty eight fifty if we went as low as forty two hundred for example and found a low then maybe the midpoint would be a bit lower. [00:08:05][18.5]

[00:08:05] So I ran fifty seven hundred, but once that kind of low sort of set here will tend to be sort of in the stuck in the bottom half of that range. I think the Great Depression that twenty nine thirty three we still rallied up around 40, 45 percent. So we did get to the midpoint but we got we got near. So but you know, normally in sort of other most other even the more bearish market say it's some of the biggest corrections historically that's left us bounced back to at least so, you know, sort of 40 to 50 percent market. Oftentimes I might have gone for sixty one point. I even go high. [00:08:44][38.6]

[00:08:44] So but our market loves the 50 percent range there. [00:08:49][4.4]

[00:08:49] So that's what we're probably looking at once once we get low in place and then we've got a bit of a range sort of set for the next year or two. So we're going to be caught in that. Bante, so different some damage done here. Don't take a lot to recover here. [00:09:02][13.5]

[00:09:03] So a volatile band with larger swings, higher volatility for a few years would be something where we look at different strategies and you probably address it. Next week, we'll be talking about covered calls in a covered 19 market. And that's sort of how to approach that market. Is that something you'll look at later? [00:09:18][15.4]

[00:09:19] Yeah, I mean, the bolt through the roof at the moment so the Premji can receive a couple calls is just down payments. [00:09:24][5.3]

[00:09:25] Well. So that's that's obviously one trend you'd look at. And then just aren't trading trading ranges as well. So tearing and tearing out as well as some other things to look at as well. [00:09:35][9.9]

[00:09:35] So yeah, to these ranges look like in the US market to charity with two green lines. Some call a broadening toepfer megaphone form a picture tells a thousand words. What's the thousand words? This one. [00:09:50][15.2]

[00:09:50] That's right. You know, sort of. Sometimes you got a Filipina. You get to say a lot to explain what's going on here. But yeah, this this is one of those cases where he. I have to say too much. It's pretty clear what's sort of what's happened here. [00:10:02][11.8]

[00:10:03] The size of the movie, how fast its brain system just. Just adults world in so many ways. I think we went down to, what, 18 to which is around that. [00:10:14][11.0]

[00:10:16] Getting close to that. [00:10:17][0.8]

[00:10:18] 2015. Hi there. So that's yeah, it's getting upwards around that 35, 37 percent correction. That's pretty nasty. So just goes back to sea levels there, sort of where we thought it might come back to a megaphone pattern there runs. [00:10:31][13.4]

[00:10:31] Looking at that moment can shape that. But I guess that's the first big level there is that is that old high. [00:10:42][11.0]

[00:10:43] There were only eight and a half block there. So, yeah. So something interesting, we sort of probably just stuck under that last night and then probably finished around the same mark. So but yes, that's a big level there for the market. They also I was thinking maybe 2022 for a second or third leg down. That might be where we might ultimately find a low and then maybe we'll be recovering here. But I do not fathom that being here within three weeks of the highlights. That's for sure. [00:11:12][29.6]

[00:11:13] So what you definitely when we were up at the top, she did have some very bearish out their forecasts. And we were discussing with your movie quite tentative about how large those numbers were in actually talking about them publicly. [00:11:24][11.2]

[00:11:25] Yeah. Look, I guess if you look if you look at the I mean, I know Kevin saying this is the cause of this correction here and it has definitely quickened up on the theme and stuff. But the reality was that the valuations in 2020 were equal to probably eighty seven and twenty nine type valuations. A just sort of look at Piggy's and just all sales ratios of all that sort of stuff. They sort of big numbers. Neal second. Yeah, we're talking about Microsoft and Apple having, you know, one hundred and ten percent returns for the last year and 70 percent moves in a year. That's up that's that's on the back of a, you know, 11 year bull market just the last year having that move. So it's just sort of does Europe get a little Skyland to this sort of thing here? So we definitely do for a correction. It's just just kind of rare that we take it. This happens fast. So, yeah, that's that's that's the scary part. Is US-South the speed of it, you know, so nobody can sort of buffer and hedge on the way down and go for a bear market. You can write a few calls and line off a bit here. And but, you know, this is just plain dishpan. Incredible suspense on different now. [00:12:36][70.8]

[00:12:37] It is very different to the other zero years. But this recession you've looked at a fair few times before a decade, patent size. It's 1990, the year 2000, 2010, now 2020. How is that probability patent looking and playing out for 2020 so far? [00:12:53][15.9]

[00:12:54] Yeah. So just looking at a few of the cycles data sort of gone back to the basics here. So it's obviously not like the zero year is a bearish year. So obviously we've got kicked in the game now. So. So we know the next couple of years are going to be a bit of a struggle. So normally it's sort of the you know, he is ending one and two or sort of probably more making. And so we're just gonna be we are going to struggle for returns here for the next couple of years. But, you know, normally they're they're the much volatile years as well. So we should see a few ups and down to those years if you sort of skip along to that. The S&P 500, the the 10 year cycle, seasonality once all the years ending in zero. The good news is, is that, you know, a lot of time we either function like it's most of the lows sort of come in the first half. So the other by March or May. [00:13:41][47.2]

[00:13:42] So they tend to. So there's some hope there will get a bounce from March here and maybe retest in May and then we'll get a recovery after there. So we look, I think most the damage is done here. Maybe we should see the bounce here, maybe would come back and retest in May and then go from there. That's the sort of that's the normal seasonal pattern. [00:14:03][21.0]

[00:14:03] So I know that people will argue this is different. But, you know, these lay things recur over and over again. [00:14:10][7.2]

[00:14:11] So, you know, I was always looking from, you know, high probability of, say, at my low here. I just wasn't expecting it to be this, this, this. [00:14:19][8.6]

[00:14:21] And then the presidential cycle. [00:14:24][2.4]

[00:14:24] And you're just looking at that sort of obviously that's the other sort of cycle for us. [00:14:28][3.5]

[00:14:28] So it's not too different to get to the zero. [00:14:33][4.5]

[00:14:33] Yes, probably a little bit a little bit more cautious on the downside there. But yet typically around March is sort of when markets find the lows and then I sort of recover a bit. I was a bit more volatile, but typically there. So that one's probably less influence on market share with what's going on. I think that'll be in the backdrops. [00:14:52][18.8]

[00:14:54] But I guess the next chart there for the seasonality of the ASX on the ASX 200 day. So again, people will kind of dismiss this. But the reality is there, you know, we've got lots of dividends getting paid into super fund right now, so I guess so. Yeah. So, yes, a big dollars coming back into the market here. So. [00:15:15][20.9]

[00:15:16] So have all the funding that FEMA or all the shareholders will own, all the cash we're coming in here. So I think CBA on what, money seven or eight times here and yields of a percent or so. So ANZ yesterday the PPI was 6.6 and the guild was around twelve percent. So I know we're going to get a haircut on those. [00:15:40][24.2]

[00:15:40] But good to remember in the GFC, Chris, I think ANZ went down to a multiple of around 9.8 times and that was the lowest multiple it had ever tried on the last 15 years. So and the wholesale costs obviously went through the roof in that period. Banks basically their profit halved in that period. So that was on a PE of 9.8 times when it is profit at Hafen and the world was falling apart and that financial. So good. [00:16:09][29.3]

[00:16:10] So he has to say raising capital. [00:16:12][1.6]

[00:16:12] That's all I want to see. Yesterday, the ANZ P 6.7 up somewhat and the yield around 2%. I know you can take a hike up there, but land for a decent haircut. There's some value there. We want you know, we'll we'll look forward here. Twelve months time ago, Jesus said, remember when ANZ went down? They cost the money. Well, why the hell would we fill in our boots on a platter with Miss Gap? They would we might be saying that. That's definitely a possibility, sir. [00:16:40][28.0]

[00:16:41] Well, we'd have seen some of the stress tests come after the banks and extrapolating numbers filleting it. Unemployment in the Australian market is north of 12 per cent JDA pay to drop 3 per cent for this calendar year and then another another year of negative GDP, an impossibly small one. Thirdly, the yields on we can't take the haircut apply. They're cutting earnings to the banks. The yields are still north of 6 per cent when share prices hit a good 15 per cent from where they are today. So you put all that together and say, well, is it reasonable value in that? Quite possibly, yeah. [00:17:15][33.6]

[00:17:16] Yeah. I guess it's it's the it's the length of this thing. That's that's that's the big unknown here. So yeah. If if we knew the thing about markets that they love certain they get upset. [00:17:27][11.1]

[00:17:27] If the market knew now that we were going to this was going to last 12 months time and I knew that we definitely have a vaccine by then we'd be back to back to work in twelve months time that the market could do its numbers by then and then priced it in the name we move on. If it was six months, prosit! Better, I would say. Well, you know, if it's super tidy month's price then as well. So whether it's good or not so good or ugly market, if it can price it in. It will trade away. And then that's usually when you get its business back somewhere and we can get a recovery here. [00:17:58][31.0]

[00:17:59] But when there's uncertainty here, that's that's the thing. Markets don't like you. And that's why we've seen some stocks really fall in a billionths like seen like bubbles just announced. It's looking at such conduct to say things like, you know, there's a lot of food below the valuations of the GFC, but this is pricing in a lot of doom and gloom here. So is that substantiated? At the moment, we don't know which sits. That's the uncertainty. That's the that's what the market's pricing in such some bull market doesn't know. So it's pricing. [00:18:29][30.0]

[00:18:29] And possibly the worst case scenario we're reading from the analysts, mills, multiple analysts about the banks, the well-capitalised. And going into this, they were far more started, so strongly capitalized and they were into the GFC. So that's part the reason why the RBA governor lies stepped up last Thursday knowing the capital ratios of the banks, and I worked with them for the current lending regime. But you talk about uncertainty those all times, and we're not able to prosody markets, not able to price it in. It's possible to say that we have seen this before in the year 2000 out of the tech wreck. What does it Dow Jones chart? What does that tell us? What can we learn from that cycle some 20 years ago about where we are today? [00:19:12][42.2]

[00:19:13] Yeah. So this is important because I think at the time that the valuations are pretty high, the risk was home. We had something new going on. No, no, no one really understood. And that was the that was what unfolded here. [00:19:23][10.1]

[00:19:23] So for me was sort of about a similar type valuation, similar type uncertainty, although different nature, but also got you in that sort of bear phase as well. So this this is what sort of happened in that period. They were just we just saw some big swings up and down, up and down as that uncertainty sort of. Sort of kicked on here, so I don't think this is gonna be as long. I don't see this being a twenty four month or so. The thing I think it'll be a bit short of that, but maybe, maybe around that 12, 18 months is sort of yeah, that's the expectations here. We're going to sort of make trading like this up and down here as soon as we get good and bad news sort of coming coming out. It's obviously we've had all the bad news come out here. So, yeah. So it seems pretty simply doom and gloom. But the thing about markets is, you know, if you go back and you measure the. The emotionality of the market, if not, don't measure the futility, look basically how bullish everyone is and how happy they are. That's usually the peaks there. [00:20:27][63.9]

[00:20:27] And then if you measure sort of the bearishness and the fear and how scared you are basically emotionally, then that's gonna be at the low end. So, you know, we think we can get more scared and more emotional here. Maybe we can come low. But potentially here we've seen the fever pitch, Nessa's, maybe it's subsided here. So, you know, I think that some having got a wife in there in the retail, in the food area. And obviously they know that's going gangbusters at the moment. There would some with everyone just buying up food and stuff there. But that's starting to come down a bit. [00:21:02][34.5]

[00:21:02] Now, Coles and Woolworths are saying, oh, into 20 percent above their pre-Christmas peaks. [00:21:07][5.3]

[00:21:08] So what I'm hearing more than that, but some is very conservative what they say. [00:21:13][5.5]

[00:21:14] Mark? Yeah, yeah. CEOs literally say otherwise. [00:21:16][2.8]

[00:21:17] You just you just need to go in there and say, what's going on there, you know? So, you know, you know, your spending habits in you know, if you're on a public step on up probably double or triple in the in the last last month or so. [00:21:31][13.9]

[00:21:32] So I'm not going to be Robinson Crusoe. [00:21:33][1.6]

[00:21:34] No, that's right. Well, there we are. That's the outlook and the market's volatile times. And coming back next week to get an insight into the trading strategies. [00:21:42][7.9]

[00:21:42] Gary gladder you'll be employing your clients at Nova's capital. And thank you very much for the insights, Gary. Thanks, Chris. [00:21:49][6.7]

[00:21:54] Stopped recording. Cool. Thank you. Now, we're not recording, what numbers are you hearing? [00:21:54][0.0]


Arrow Securities Group
Copyright © Arrow Securities Group Pty Ltd 2018
ABN  30 165 731 144   AFSL 448218