Weekly unemployment claims came in at 3.28 million which was much higher than most estimates but market players were mentally prepared to be surprised and bought the bad news after some early pressure. One of the best signs of a better market is the ability to rally on bad news. In this case, that rally is being assisted by a short squeeze and poor positioning. This is a continuation of the two-day counter-trend rally and has to be given some further room to run to the upside.
Counter-trend rallies tend to be very powerful because they don't feel like they are just counter-trend rallies. They feel like a bottom and that is what brings in the aggressive buyers. I'd normally believe the odds a 'V-shaped' bounce are fairly good but this is a situation unlike any we have experienced before.
The big difference this time is the great uncertainty about both the coronavirus itself and its economic impact. Many market players are hopeful that the $6 trillion in stimulus and aid that is being created will ease the economic uncertainty but it is still impossible to quantify to what degree.
Last night a small company, Personalis (PSNL) , that I've discussed before as a top pick for the year, issued its fourth-quarter earnings. It was a good report but what was most striking was that management really had no visibility of how the coronavirus shutdowns would impact the company. They are confident that business will eventually return to normal but they have no idea when or how much of an impact it will have.
This is going to be the situation with almost every major stock out there as we go into first-quarter earnings season and it is going to be a challenge to effectively value what is happening.
For now, we have a counter-trend rally gaining some additional traction and I would not be in a rush to fight it. I believe it will fail and that there will be better buy points in the future but it is very easy to be impatient when so many others seem to be celebrating the end of the bear market.