Optimism Reigns Again Pre-Market

The bulls ran wild Monday with a 4% gap up and follow-through to the upside.  This was impressive, even in the face of oil down hard on the postponement of an OPEC+ summit to discuss oil production cuts.  The market move breaks us out of a J-hook pattern, giving us now a low, high, high-low and higher-high.  So, we have a bullish trend now.  On the day, the SPY closed up 6.76%, the DIA up 7.45%, and the QQQ up 7.20%.  The VXX closed down as you’d expect now at 42.21 and as mentioned Oil (WTI) was back down to $26.37/barrel.  The 10-year bond yield rose to 0.673% on the day.

It seemed clear that markets are looking to the future, discussing recovery strategies and easing timetables, even though new cases and deaths continue to mount.  The same is true in Oil markets as the buzz Monday was not the postponement of a summit and name-calling, but the “fact” that the Saudis and Russians are “near” an agreement on production cuts to drive up oil prices.

In virus-economic news, BA closed its last remaining (South Carolina) commercial jet production facility on Monday.  AMZN also announced it is tracking warehouse workers and may fire them if they violate company social distancing rules.  Meanwhile, Former Fed Chair Janet Yellen spoke out during the day. In a CNBC interview, she said that a V-shaped recovery is still possible, but she is worried that will not be the case.  Specific issues related to high levels of debt (both consumer and small business), and rolling increases of acidity are more likely to cause the recovery to have “fits and stalls” rather than get back to pre-shutdown efficiency like flipping a switch back to the “on” position.

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The global headline virus numbers have now reached 1,359,398 confirmed cases and 75,945 deaths.  In Russia, the reported daily new case number rose 1,000 for the first time.  In Spain, the daily death toll rose 17% above the number of the previous day.  In the UK, PM Johnson was moved to intensive care after his Sunday hospital admission.  One of his cabinet members has also entered self-isolation. 

Meanwhile, in the US we now have 368,449 confirmed infections and just under 11,000 deaths.  In good news, there are signs that the infection growth rate is starting to flatten.  In fact, the mean model is now calling for “only” 81,000 deaths (versus 100,000-200,000 prior estimates).  However, for now, US death rates are still exponential, but there are some signs of peaking in early states (New York in particular).

Overnight, Asian markets were strongly green across most the board (the exception being a red Australia).  In Europe, markets are also strongly green across the board at this point in their day.  As of 7:45 am, US futures are pointing to another 2-3% gap higher at the open.

The only major economic news for Tuesday is Feb. JOLTS (10 am).  Again, there are no major earnings on the day.

Markets seem to have really latched on to optimism. We finally have a bullish trend in place on the daily chart. So, while we can expect much more bad virus and economic news, a lot of bad news is already “baked in” to markets.  So, it may well be time to be getting back involved in the market. Still, we have to assume there will continue to be a lot of gaps and volatility.  Remember, not to chase, not to predict turns, and to plan and manage your trades.

Ed

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