Last week marked one of the most aggressive, and orderly sell off’s that we have ever seen in the markets. It was however not a crash.

Market’s do crash, and when they do it is disorderly and pricing moves are vicious. Friday was the closest thing we saw to a crash, however the buyers stepped in (my guess is to cover their short positions) over and over throughout the day. If we drop more than 5% in a day we are in a real true crash type of situation – we have seen an orderly repricing of risk.

However, liquidity appears to be drying up, and the market for all intents and purposes appears to be ready to simply puke on itself sometime in the next few weeks. Futures this weekend opened with the /ES down another 30ish points; I wouldn’t be surprised to see that continue to have downside pressure unless something changes overnight – possibly bringing another 100 point down day in the SPX.

News of the COVID-19 spread is all negative. The United States experienced the first death directly related to COVID-19 and there appears to be a cluster of new cases forming on the east coast. Given that information, along with the news that the Washington cases could have been spreading for weeks it is a virtual certainty that we will have a massive spread of COVID-19 across the US at this point.

If the future response to the spread in the US looks anything like it has in other countries, we are in for severe demand shocks and quarterly earnings are going to tank for many, many firms. The market understands this, and appears to be absorbing this possibility; if it begins to materialize… look out below.

Markets are pricing almost 4 rates cuts in at this point – and honestly, I was a bit surprised that the Fed didn’t step in before the futures opened this weekend. While central banks can’t cure a virus, they can inject liquidity, lower rates and show accommodative policy to ease financial frictions.

The CME has a nice little tool called FedWatch – it’s pricing a 100% change of a cut at the next meeting…

My guess, in the next seven days – central banks across the global begin a coordinated effort to “ease” financial conditions. That leads to a wicked near term jump in the markets and a tremendous selling opportunity.

I’m planning to continue to remain nimble and trade the tape as it develops.