China Recovery Looking V-Shaped

The bulls put in a very nice day’s work Monday, resuming the rebound as they closed markets near the highs after following through on the gap up open.  As a result, the SPY closed up 3.21%, the DIA up 3.06%, and the QQQ up 3.64%.  JNJ, MSFT, FB, AMZN, and GOOG led the way while BA acted like an anchor.  However, Oil (WTI) took another 6% beating as it traded below $20 and closed at $20.20/barrel.  The 10-year bond yield also closed down to 0.72%.

During the day, Moody’s cut their outlook on $6.6 Trillion of US Corporate debt from “stable” to “negative” as it predicts the US has entered a recession.  Goldman Sachs also gave markets some bad news as it announced a survey that finds that over 25% of planned 2020 stock buybacks have now been scrapped by companies.  In addition,  V (Visa) lowered its outlook a second time this month, saying consumer spending has declined sharply.

In employment news, St. Louis Fed President James Bullard told CNBC that his economists are now estimating that unemployment could reach 32% as a result of the virus.  However, he also said he expects the massive loss of jobs to be short-term (months).  An online survey of 250 companies also found that 49% were considering layoffs as March 26.  However, NY Governor Cuomo made a nationwide appeal for medical personnel to come to his state as existing personnel are already overworked and the peak in cases is still to come the next couple weeks.  CA Governor Newsom made a similar plea, announcing they are trying to hire thousands of new health care workers.  Both of the Governors said they would temporarily waive licensing requirements and even offer free malpractice Insurance.

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In virus treatment news, F and GE announced that they plan to produce 50,000 ventilators per month. However, this will not be until after early July.  Richard Branson’s rocket company also joined this effort but did not offer details on its own ramp-up plans.  In terms of lock-downs, more states issued “stay at home” orders including both Virginia (through June 10) and Maryland.  The San Francisco Bay Area also extended its “shelter in place” order through May 1st.

The global headline virus numbers continue to grow exponentially, now at 799,723 confirmed cases and 38,720 deaths.  Meanwhile, the US remains the epicenter and now has 164,359 confirmed infections and 3,173 deaths.  Still, not all the virus news is bad, as the growth rate of cases in NY has slightly slowed for the first time. China also announced its PMI reading was 52.0 for March, indicating they are starting to see some economic expansion again.  For reference, the Feb. PMI was a record low 35.7, so this indicates a V-shape.

Overnight, Asian markets were mixed but mostly green on the China data.  In Europe, markets are following Asia, hoping for their own V-shaped recovery. The major European bourses are all green, with the exception of France at least at this point in their day.  As of 7:30 am, after another choppy overnight session, the US futures are pointing to a mixed, mostly flat, but slightly red open. However, Oil (WTI) prices did make a major rebound overnight on the China data.

Tuesday’s major economic news includes Mar. Chicago PMI (9:45 am) and Mar. Conf. Bd. Consumer Confidence (10 am).  Major earnings are limited to CAG and MKC before the open.

While it looks like the bulls are back in “only see the positive” mode the last week, it is still a very volatile and uneven market.  We should expect news cycles about the US (and most of the world) are going to continue to be terrible for at least another 30 days.  The impact on quarterly numbers is also likely to drag on for two more reporting cycles.  However, as we’ve said, a lot of bad news is already “baked in” to markets.

So, it might be time to slowly start looking for setups to enter again.  However, expect erratic trading to continue and size any positions you take correctly for the risk being taken. As always, don’t try to predict reversals, don’t chase runners, and wait for the trades to come to you.  We need to continue to either be very fast (day trade), very slow (long-term holds) or just wait.

Ed

Swing Trade Ideas for your watchlist and consideration: VIAC, FMC, NXPI, AVGO, NLFX, QCOM, V, ALGN, DHR, WDAY, C, HON. 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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