Trading the coronavirus panic

Mark Hulbert made a terrific point last week. The coronavirus was not the real reason for the market sell-off. The real reason was excessively bullish sentiment. The coronavirus news was just the excuse.

That real culprit is market sentiment: Short-term stock market timers, on balance, have been extraordinarily bullish for a couple of months now. Even a few days of such excessive bullishness would normally lead to market weakness, much less a few months of such exuberance. So conditions were ripe for a pullback.

If it weren’t the coronavirus, in other words, something else would have been the straw breaking the camel’s back.

I had made a similar point in the past. Fast money positioning had become too extreme. Readings were at a crowded long, and portfolio leverage was highly elevated. The market was just ripe for a bearish catalyst.

In that case, how should you react to the coronavirus pullback?

The full post can be found here.