The market is a forward-looking mechanism. Earlier this week we were pricing in some pretty dire scenarios. Now, as we end the week, we're seeing some optimism come back into play. Maybe our dire was too dire. Maybe the selling was forced selling causing a dislocation between prices and realistic expectations.
The truth probably lies somewhere in the middle, but right now we have the unknown impact of Covid-19 battling the (possibly limitless) power of Central Banks. At this point, it seems the Fed is going to throw trillions behind the economy. Where and when it goes are details that may not be entirely necessary for the markets to remain optimistic. At this stage, it feels comfortable saying we know it will come.
Will it be enough is anyone's guess. That's what trading and investing are about here. You are making your guess. My biggest takeaway from this is I believe we'll get the inflation the Fed has practically begged for over these past few years. The worry is it will be combined with zero growth thus pushing us into a period of stagflation. Yes, it's better than a depression, but inflation combined with a recession will still hurt many.
Seeing air come out of the Volatility Index is a big plus today. We're still not having the "boring" days I want to see, but we're getting closer on an indexing level. There remain too many individual stocks popping 10% to 50% for my long-term liking, but it makes for some great short-term trades.
I recommend putting together a watchlist of Covid-19 plays as a basket to watch. The market seemingly moves anti the basket. That doesn't mean the basket will be lower when the market is strong, after all, we're in a rising tide lifts all boat environment, but keep an eye on Clorox (CLX) , Chewy (CHWY) , Teladoc (TDOC) , Walmart (WMT) , Kroger (KR) , General Mills (GIS) , Campbell Soup (CPB) , Alpha Pro Tech (APT) , Moderna (MRNA) , Hain (HAIN) , United Natural Foods (UNFI) , and Kellogg (K) . If this group begins to outperform, then I'd use it as an indication of caution.
Despite being high today, and seeing more optimism out in Twitter-land, I don't think the coast is clear yet. If you have huge gains from the last few days, please consider protecting them or getting stops in play.
(Clorox is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CLX? Learn more now.)
