Stimulus, Earnings, and Virus Top Agenda

We saw a gap down in the large caps and a small gap up in the QQQ on Wednesday.  However, most of the day was a rollercoaster until a late-afternoon rally closed markets near their highs.  This gave us a Bull Engulfing candle in the SPY and DIA as well as a Bullish Doji Harami in the QQQ.  On the day SPY gained 0.56%, DIA gained 0.63%, and QQQ gained 0.35%.  VXX was down a tad to 29.16 and the T2122 4-week High/Low Ratio remained deep in over-bought territory at 94.80.  10-year bond yields fell slightly to 0.599% and Oil (WTI) was flat, closing at $41.89.

The GOP continued to haggle over what their own proposal for the next stimulus bill will be, but they appear to be making progress. Among the key areas of disagreement is whether (and how) to extend “enhanced unemployment insurance.” There are GOP camps fighting for $400/week, $200/week, and $100/week as well as some who want to drop it altogether.  Still, the Senate Republicans announced overnight that they have reached a “fundamental agreement” on the basics on their side of the table. (Reportedly a $1 Trillion bill proposal.) So, now negotiations with the Democrats (whose own $3.5 Trillion proposal has been in place since May) can now actually get in gear. (As mentioned yesterday, Congress is not going to want to hang around DC long since most of them want to go home for politicking.)

In the US, the virus numbers show we have 4,101,308 confirmed cases and 146,192 deaths.  The country saw just under 72,000 new cases and a little over 1,200 new virus deaths on Wednesday.  CA also surpassed NY for the dubious honor of becoming the state with the most confirmed cases to date. IN, MN, OH, and Washington DC all joined the group of states ordering a statewide mask mandate in lieu of a Federal mandate.  The head of FEMA also told CNBC that the Federal Government still does not have enough PPE gear and his agency as well as the states are still aggressively trying to buy more.  He said that due to logistics issues and overall short supply, it is possible that virus hot-spots could run out on a temporary basis, but the continue to work on it.

Globally, the number of cases has reached 15,405,069 confirmed cases and 631,015 deaths.  Brazil reported a record of almost 68,000 new cases Wednesday, days after the WHO had said new cases had reached a plateau.  India’s exponential growth curve for new cases continues.  In Tokyo, they also saw a new record-high number of cases today, although the Japanese number is hardly worth mentioning in comparison to Brazil or the US.  South Korea also announced Thursday that it has fallen into a technical recession as of Q2 due to the virus.  Australia had said overnight that the virus had shrunk its GDP by 5%.

Overnight, Asian markets were mixed and showed a move of less than a percent both directions.  China, Japan, and Korea were down while Hong Kong and Australia were up.  In Europe, markets are mixed, but also broadly “modestly green” with just a few stragglers so far today.  In the US, as of 7:30 am futures are pointing to a modest gap higher of about a third of a percent with the exception of the QQQ which is looking at three-quarters of a percent gap higher. 

The only major economic news for Thursday is Weekly Initial Jobless Claims (8:30 am).  However, once again there are a massive number of major earnings reports, including AAL, AB, ADP, ADS, ALK, ALLE, AN, BX, CVE, CTAS, CTXS, DGX, DHR, DOW, FAF, FITB, FCX, GWW, HBAN, HSY, KMB, MTB, MTRN, NUE, ORI, PHM, PNR, POOL, RS, T, TECK, TSCO, TRV, TWTR, UNP, and WSO.  Then after the close ETFC, EW, FE, INTC, RHI, SKX, SWKS, and SIVB report.

Wednesday’s rollercoaster and late-day rally did nothing to break the bullish trend.  We should expect volatility to continue as virus news remains bad (but bulls will see only the rosy scenario) and stimulus negotiations are now beginning.  However, earnings news continued to be generally good as of last night (against extremely reduced expectations) and there will be more of that this in morning’s reports.  US-China relations remain the wild-card since the ball is in China's court at the moment.  

In this sort of environment, all we can do is watch the short-term chart and follow the trend.  Remember to keep an eye on those FAANG stocks as our “canary in the coalmine.”  Remain focused on your trades and don’t chase, don’t predict, and always take profits as you go.  Also remember that in earnings season, we should be wary of both reactions and re-reactions.

Ed

The Daily Swing Trade Ideas for today: AMD, NVAX, GDOT, WU, ABT, COF, MA, XRT, ALGN, CVX. 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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