Bulls Come Back From 4th in Good Mood

On Thursday, bulls gapped markets up 1.25% on better than expected June Job creation and then got another half percent follow-through.  However, at 10 am the floor fell out and the rest of the day was a volatile selloff.  The session ended with ugly black candles that closed near the lows.  However, keep in mind this was after the gap-up and it was a pre-holiday “virtual Friday.”  At the close, SPY was up 0.55%, DIA up 0.43%, and QQQ up 0.68% to a new all-time high close.  VXX fell again to 32.32 and the T2122 (4-week High-Low Ratio) remains in the mid-range at 63.89.  10-year bond yields fell to 0.669% and Oil (WTI) climbed back about the magic $40 level to close at $40.29.

On Sunday, BRKB bought the natural gas transmission and storage assets of D for $10 billion (cash and debt assumption).  This increases the BRKB share of the US natural gas transmission market to 18%.  D says it will use $3 billion of proceeds from the deal to buy-back its own shares toward year-end, but cut its dividend immediately.  Later, in another story, D also canceled a joint venture with DUK on an Atlantic coast pipeline.

However, the main storyline remains the conflict between economic recovery and the spread of the virus.  Related to this, on Sunday, GS announced a revised the 2020 US GDP forecast downward again.  They now expect that new state-level restrictions and changes in behavior by the public will reduce Q3 growth from 33% to 25%, which should also result in a 4.6% contraction in annual GDP.  That number is down from their prior 4.2% contraction forecast. 

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In the US, the numbers show we’ve now had 2,983,155 confirmed cases and 132,571 deaths. The case count continues to surge unchecked, as the percent of tests that come back positive keeps climbing and we have about 45,000 new cases per day in the US.  For example, FL now exceeds 14% positive and TX exceeds 13% positive results on tests.  Two TX counties have reached full capacity on hospital beds and ICU beds and are urging residents to shelter-in-place in an attempt to avoid new cases.

Globally, the numbers have reached 11,586,780 confirmed cases and 537,372 deaths.  The W.H.O. reports this includes over 200,000 cases in a day globally for the first time on Saturday.  In Europe this weekend, ECB President Lagarde said she expects about 2 years of disinflation pressure caused by the virus. As a result of this, she said the ECB will also "keep monetary policy extraordinarily loose."  This comes as Spain locked down two regions again amidst a 20% increase in cases for the week.  In Asia, Australia is closing the border between its two largest-population states as outbreaks continue in many areas of those states.

Overnight, Asian markets were strongly green, with China leading the way (and on increased trading volume).  The only red came in Australia and Thailand.  Europe is following Asia’s lead as every European exchange is up at least 1% at this point in the day.  The big 3 bourses are averaging a 1.8% gain at their mid-day.  As of 7:30am, US futures are looking to follow the rest of the world to build on last week’s momentum. Right now, all 3 major US indices are pointing to a gap higher of over 1.1% at the open.

The major economic news for Monday is limited to June Services PMI (9:45 am) and June ISM Non-Mfg. PMI (10 am).  There are no earnings reports on the day.

As I said earlier, the market is torn between recovery hope and the virus.  However, bulls have not shown any real fear in months.  A Bloomberg talking head summed the market up nicely last evening.  “Good data is great and markets go up.  Bad news is great, because it means more stimulus and markets go up.  Short of Armageddon, the bears are can’t win this fight.”

That being the case, we can’t take too much away from Thursday's ugly candles.  Regardless of the way the candles looked, price continues to rise.  So be careful, but remember trading is a risk business.  Follow the trend, but don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go). 

Ed

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