A powerful relief bounce is taking hold this morning as market participants anticipate a fiscal bill that Mitch McConnell says is on the five-yard line. In addition to anticipation of this news, there is continued talk about returning to work faster.
President Trump just tweeted:
"Our people want to return to work. They will practice Social Distancing and all else, and Seniors will be watched over protectively & lovingly. We can do two things together. THE CURE CANNOT BE WORSE (by far) THAN THE PROBLEM! Congress MUST ACT NOW. We will come back strong!"
While there is much controversy over safety of returning to work, the discussion is helping to create a little clarity as well as some hope that there is a light at the end of the tunnel. The improved mood combined with the price action is creating some momentum.
The question now is how will the market react to the passage of the Senate fiscal stimulus bill. It is well anticipated and that is being priced into to some extent right now but there will be a barrage of criticism as it is studied and put into effect. Back in 2009, the major legislation passed to deal with the financial crisis did not mark the bottom for the stock market. There was a rally that eventually faded and was undercut.
This is a much different situation and it is a mistake to use historic comparisons but typically bounces of this sort do not lead to straight-up recoveries. Many market players will be fearful that they are not missing out but that is unlikely to be the case as the price action develops from here.
At this point, I'm more inclined to sell into this strength than to chase it but I will start to put more emphasis on building longer-term positions on pullbacks as we move forward.
This is a classic counter-trend bounce right now. The keyword is 'bounce' and not 'bottom'.