Hard to complain. Why would one, unless one was short equities as equities ran away, thus creating the unwelcome cycle of completion going into a weekend... at least for some. A short squeeze? Sure, that was at least part of the story. Certainly not "the story" though. We told you here that the Nasdaq Composite had given us a signal now two weeks old that in "normal times" would ramp up some more aggressive behavior on behalf of the bulls. We also told you the week before that we saw a similar but less trustworthy such signal being emitted by the S&P 500. A couple of weeks later it should not surprise just how far the broader equity indices have come. Actually nothing should surprise at this point.
I have often cautioned investors not to trust the parameters used by most of the financial media to determine just how much distance an index must cover to reach the "textbook definition" of a correction, of a bear market, or of a bull market. There is no textbook. There never was, but the generally accepted levels (10%, 20%) were created for a time where everything, and I mean everything happened far more slowly. Price discovery is much faster, and far less efficient in 2020 due to the lack of available depth at the point of sale. On top of that, this far more erratic market model relies upon a much quicker news cycle to drive this pricing.
What I am trying to communicate here is simple. Price is truth. That said, the only two prices that matter individually, are entry and exit. Understand that everything in between is nice (or maybe not so nice) to look at, but it's not money. What you see pictured in any snapshot of any portfolio is merely a reflection of this market driven by momentum that itself is as reliant upon short-term headlines as anything else. The function of building the right price at the right time? There was a time...
Seeking Glory
"Don't fight the Fed." I have been told this since my earliest days in the industry. How about putting the forces of both fiscal and monetary policy together to support efforts to maintain lines of liquidity everywhere the potential for frozen credit lurks, and just for good measure... to bridge periods of insolvency everywhere cash flow stops. Of course, funds have not reached everywhere they were intended. One only has to look at the numbers to see not just the negative impacts of a global pandemic upon the condition of public health, but upon the public's ability to earn a living wage... or any wage for that matter.
So, what we stare at, those of us who try with varying levels of success at different times, is an economy (I speak domestically, but the condition applies globally) brought to it's knees by mandate, and then put on life support by the financial authorities that be. Then, there is talk of allowing various parts of the economy to reopen in a staged fashion that appears to have been met with differing degrees of "open arms" by state governments in areas less impacted by this virus.
One would think that reopening parts of the economy would come after testing for the virus itself or at least a broad implementation of testing for antibodies created by the virus could get started. Easier said than done, with so many out of work, and so many small employers denied the loans/grants provided through the $350 billion SBA program that ran out of dough last week. Funny (not at all) where some of that dough landed, while we all know small businesses that have closed shop since being denied these funds last week.
What I See
On the surface, equity market "up days" have come on higher (actually much higher) trading volume of late than we have witnessed on "down days". The same is true whether one measures this volume through daily comparison of either indices or exchanges. I tend to look at both. What I would like to convey here, is how I see market performance evolving over time. What investors must be fully cognizant of, is that fundamentals have become less meaningful than perhaps at any point in my career. For as long as I can remember, there has been friendly argument made over what was most important on a name by name basis... there had always been in almost equal numbers those who relied upon fundamental analysis, and technical analysis. Then there was the third, smaller camp, who believed that the whole ball of wax was actually controlled at the macro level. My view has always been that one has to stay in tune with all three camps, but right now... that's just not true.
Right now, there is no macro,, and therefore there can be no reliable fundamentals. At this point, technicals (driven by news flow) are the only game in town, and that's how markets are trading. That's why even without much in the way of earnings results (or guidance), and that's why even with the banks having warned the investing public that in aggregate, billions and billions of dollars worth of U.S. dollar reserves are being socked away to cover expected losses to be taken on credit gone bad, that markets still found buyers.
Am I Warning You?
Tough question. If I am warning you, then I am really just telling you what I think, for I am but one of you who also happens to write a daily column that expressing whatever screams through my middle ages cranium as the wee hours pass into morning. I see an S&P 500 that managed to take its own 50 day SMA on Friday. Will it hold? I see a Nasdaq Composite that managed to take both its own 50 day SMA and 200 day SMA late last week, but I also see that the 50 day SMA crossed over that 200 day SMA last week. A death cross? That's what they'll call it if it is shortly followed by some pressure from above. Does that mean that we will see a spate of profit taking as Monday opens? It does mean that there is at least a technical reason should the cards fall that way.
From a sector specific perspective, the Health Care sector select SPDR ETF (XLV) also experienced such a cross-over, but the technology sector select SPDR ETF (XLK) ... not really even close.
Not that I know what happens, because I do not, but I do trade my own book, and that book had become far narrower as markets sold off six weeks ago than it had in a good while. I did of course increase exposure to areas that I saw as leaders as this market rallied, as relayed the best I can in this space. I tell you flat out, that I do not see this as a reason to get out of health care, but that it may foretell a coming era of increased volatility (if one can imagine) as that group will trade on headlines as much as ever. I will add to my more favored names in that group on weakness, but not just a little weakness. It would have to be a level of significant profit taking for traders like myself to add to what are at this point, large virus-related winners, such as Gilead Sciences (GILD) , Moderna (MRNA) , and Abbott Labs (ABT) .
Will tech continue to trend toward leadership? Who among us can remember when it has not? Information technology... oh you can still lose a ton of dough in the space, but this is where leadership will come from as a planet tries to reemerge from darkness. The world will be powered by what only the chip companies can do, and what they can do is make software more productive. Good? For investors. For laborers, there is no doubt in my mind that employers struggling with cash flow issues will try to replace payroll with software. That is one ongoing development that has been part of life for the middle class for a generation now. This virus may accelerate this evolution beyond the means of many human beings to adapt with the same rapidity. All is not lost, however.
Long-Term
While at first, this move toward increased use of technology versus broad use of available labor supply will result in an era of stagnant (if we're lucky) or negative wage growth. This truth will then result in a broad shift in sentiment where individuals will try to save when they can and will spend less. You all remember those who survived the "Great Depression", if you are my age. Those folks never stopped preparing for the next one.
Now, this is not all gloom and doom, Stay with me, because there will be help on the way. There will almost certainly now have to be a broad on-shoring of supply lines, as the risks of globalist economic models have become a reality far more expensive than were worth the savings that they had created. Nations can never again be left vulnerable in this way again. Beside having hollowed out the middle class over decades, extended and expansive supply chains have now cost the world not only a still to be totaled number of innocent lives, but the free world its very standard of living. Hope you kids enjoyed all that operating margin, and those high multiples.
But wait... forget the margin. That has to contract. High multiples? Maybe, just maybe you can keep those. In fact, maybe multiples eventually go much higher. This is at some level, still about aggregate supply and demand. Debt at the federal level is exploding. Same for the states and municipalities, even if there will be a fiscal package that targets this gaping black hole. Max-effort bailout of everything? We are getting there.
So... the monetary base will only grow. National debt will dwarf (a smaller) GDP that in percentage terms, may appear as something out of a monster movie. We just discussed the consumer. Forget the Keynesian Multiplier. Not this time, sport.
That consumer, after a time, more productive, but still unwilling to spend has evolved. Younger folks have now seen their families' livelihoods destroyed twice in a short amount of time. Economic growth may become very difficult, but borrowing costs will have to remain low as long as the public continues to maintain faith in fiat currencies. Basically, decreased velocity of transaction. Does this end up presenting as a TINA (there is no alternative) like environment for equity stake holders? Maybe. Because I really don't know anything. Stay agile, my friends.
Contango
Outgoing May futures for WTI Crude are now trading down 26%, below $14 per barrel as there is no demand, and no place to put the stuff. The contract expires on Tuesday (tomorrow). June WTI futures for that matter are still trading between $22 and $23 per barrel.
This >< Close
Rumor has it, and has had it for about 24 hours now that Treasury Secretary Steven Mnuchin and Speaker of the House Nancy Pelosi are very close to an agreement that would provide additional funding to the SBA program that ran out of money last week, as well as funding targeting the hospital system and increased testing for this coronavirus. More to follow.
Breakout or Resistance
Today may tell.
My thought here is that should the broader market pull back some early that AMD could see resistance as the shares approach a "would-be" pivot point at $59. Just understand that should a "handle" be added to this "cup" that the pivot will drop from the left side of the cup ($59) to the right side of the cup ($57), in turn that drops our target price to $68 from $71... but only if the handle actually develops. Obviously more to follow.
Economics (All Times Eastern)
No significant domestic macro-economic data scheduled for release today.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (ALLY) (.78), (CCL) (-1.63), (HAL) (.24), (LII) (1.09), (MTB) (2.51)
After the Close: (CDNS) (.54), (EFX) (1.28)
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