Markets gapped down 2% Monday as virus fears continued. However, the bulls then immediately started to fade the gap in a steady climb. About 2pm the Fed kicked that rebound into high gear, by announcing they will buy individual corporate bonds. After another 1.3% gain the roller-coaster was on for the rest of the afternoon. This resulted in Piercing Candle signals on the SPY and DIA. At the close, SPY was up 0.93%, DIA was up 0.63%, and QQQ was up 1.22%. VXX was down to 37.72 and T2122 (4-week New High-Low Ratio) climbed back to 67.65 (mid-range). The 10-year bond yield climbed a bit to 0.72% and Oil (WTI) also climbed back to $37.07/barrel.
In addition to the Fed announcement of actually starting the buying of individual corporate bonds (which had been previously announced, but started Monday), Chair Powell testifies the next two days on Capitol Hill. So, there seems to be hope this morning that he may say something that would buoy markets. There is also a rumor recirculating this morning that the White House will announce its previously rumored Infrastructure plan. This would obviously require Congressional approval and Senate Republicans have blocked several infrastructure packages on cost concerns the last year or so. Still, markets may well buy the hope of more spending.
In business news, HTZ made news by telling traders that it expects stockholders to lose all their money (as part of their IPO application). AAPL also said that consumers spent more than $519 billion in 2019 through phone apps in the iTunes store. (This includes all purchases made through the store, like UBER fares.)
On the Virus front, the global headline numbers are 8,141,521 confirmed cases and 439,713 deaths. A second vaccine candidate began human trials in the UK as their retail stores opened to lines of shoppers Monday. However, the new outbreak in Beijing has now increased to 100 cases. At the same time, Brazil (the current virus epicenter) reported almost 21,000 new cases Monday (more new cases than the US on a population two-thirds the size and much worse testing and medical infrastructure).
In the US, we now have 2,182,979 confirmed cases and 118,286 deaths reported to date. 23 states have seen an increase in cases over the last week. TX reported its 6th record-high number of hospitalizations in the last week on Monday, but the increase was lower than the 7-day average increase. CA saw a decrease in positive test results (to 4.5%) as of last Friday. Meanwhile, AR Governor Hutchinson issued executive orders protecting businesses in the state from virus liability.
Overnight, Asian markets were strongly in the green, with gains of almost 5% in Japan, over 5% in South Korea, and almost 4% in Australia. Europe is following suit, with the three major bourses up 2.5%-3% at this point in their day. At 7:30 am, US futures are pointing to a significant gap higher of between 1%-1.5%.
The major economic news for Tuesday includes May Retail Sales (8:30 am), May Industrial Production (9:15 am), April Business Inventories (10 am). As previously mentioned, Fed Chair Powell also testifies before Congress (10am) and FOMC Member Clarida speaks at 4pm.
It’s still early, but as of now, we’re looking at a significant gap up as the fear of virus impact is replaced with hope for more money from the Fed and government. The gap higher at the open should take us back to challenge Friday’s highs. If we can clear that, we’ll be back in the Island Reversal gap. Stay focused on the short-term chart. However, the bulls seem to be calling the tune this morning. As always, don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go).
There are no Trade Ideas for today. However, be aware that the normal distribution of trade ideas has been moved to the trading room and the Members Only App in the future anyway. Trade your plan, take profits along the way, and smart. 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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