The bulls gapped markets higher Wednesday and then slowly ground higher the rest of the day. All three indices closed near their highs and at new all-time high closes. The QQQ gained 0.97%, DIA gained 0.95%, and SPY lagged at a gain of 0.64%. At the same time VXX fell to 13.40 and T2122 inched closer to overbought territory at 79.81. In short, the bulls continue to run hard and although we are extended from the moving averages, they are only in the mood to hear good news these days.
On the news front, Fed Chair Powell testified in the Senate, largely reprising his Tuesday Congress testimony. Essentially, he said the economy is in a good place, the Fed has a close eye on the impact of the coronavirus and that no more Fed moves are needed in the immediate future. He also said that economists should have a better handle on the virus’ impact on the US economy “soon.” In other economic news, the Federal Deficit has jumped 25% in the last year and now stands at $1.1 trillion per year. Federal revenue (taxes) are up slightly over that period, while spending has increased 9.6%.
In the virus arena, China has changed the way they report new cases going forward. Under the new method, there must be not only a positive test, but also a fever before a patient is counted as a confirmed case. This has the effect of lowering the number of new cases reported on an individual day and may lead to erroneous optimism. On the other hand, it could lead to pooling of reports causing more jumpiness in the trend line. For example, the number of cases jumped 15,000 last night due to this effect. As of now, the confirmed count remains over 60,000 and the death toll 1,369.
As far as virus impact is concerned, more than 85,000 flights to/from China have been canceled so far (with BA claiming this is having a major impact on sales due to reduced travel and cargo activity). A major technology conference in Europe has also been canceled over virus fear (after most major companies had pulled out and forbidden employee attendance). Finally, OPEC has slashed its global oil demand forecast by 19%, citing virus impacts.
Overnight, Asian markets were in the red as the jump in reported virus cases spooked investors. Once again, Europe has followed Asia as we see red across the board. As of 7:45 am, U.S. futures are again pointing to follow the rest of the world with a gap lower of between six and eight-tenths of a percent.
Major economic news on Thursday is limited to Initial Jobless Claims and Core CPI (both at 8:30 am). In terms of earnings, AIG, BWA, DUK, FIS, HII, IPGP, INCY, IRM, KHC, LH, PEP, R, WM, and ZTS all report before the open. Meanwhile, ANET, DLR, EXPE, LBTYA, LBTYK, MHK, NVDA, and RSG report after the close.
What a difference a night makes. Today it seems Mr. Market is saying "on second thought, let's worry." Certainly, the signs of risk have been there with OPEC cutting global oil demand forecasts and companies left and right decrying the impact on their expected operations. However, we (or at least I) cannot predict the market's reaction.
The trend remains strongly bullish and all the major indices are now in blue sky territory (if maybe a bit extended). It sure hasn’t paid to be short lately, despite the risks, All I can do is continue to tell you to keep locking in profits, being cautious and remaining nimble or hedged. Don’t get complacent and let a profitable position (or several) go South on you.
Swing Trade Ideas for your consideration and watchlist: SPGI, TWTR, XPO, AAPL, TGT, APO, SPXS, TZA, THC, SQQQ, VXX. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.
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