Tuesday was a struggle between the bulls and bears. Markets gapped a bit over 1% higher at the open. After a morning follow-through for another percent, the bulls ran out of steam. Markets ground sideways until 3pm, when a strong selloff drove us back down to the gap at day-end. As a result, all 3 major indices printed high-wick candles that are at best indecisive. The QQQ and DIA look more bearish in flavor. On the day the DIA gains 0.58%, the SPY 0.92%, and the QQQ 1.13%. VXX fell back to 38.67, while the 10-year bond yield rose to 0.662%. Oil (WTI) continued its recent tear rising another 23% (5 consecutive days of strong gains) to close at $25.12/barrel.
During the day, US Household Debt was reported at $14.3 trillion. This was another record high, up 1.1% in Q1 on a 23rd straight quarter of increased borrowing. The debt remains just shy of the 2007 record (inflation-adjusted) $15 trillion. This increase came in-spite of creditors tightening standards in Q1 and most of the quarter coming before virus economic damage was significant. Fed Vice Chair Clarida also said more help may be needed, but his baseline forecast is that economic growth will begin again in Q3. However, he also said he expects the downturn to continue through Q2. It is possible that this view of Q2 (CNBC interview) helped spark the selloff at 3pm Tuesday.
After the close, the President confirmed he'll disband the coronavirus task force, maybe as soon as month-end. He said the US economy must open, even if more Americans get sick or die, which he also said was inevitable. So, he’ll be replacing the virus task force with one focused on economic growth. Clearly, he assumes the infection increases will not be economically crippling and losses will be acceptable.
In an unrelated story, a Los Alamos National Lab report raised concerns over future treatment and vaccines. The report said there are now 14 strains of COVID-19. The primary strain in the US (and world) came from a mutation in Europe. Two parts of this are concerning. First, the now dominant strain seems more contagious than the two strains that China sequenced and reported in late January. Second, any mutations are likely to impact the efficacy of treatments or vaccines that were based on the original genetic sequence.
On the Virus front itself, the global headline numbers are 3,747,400 confirmed cases and 258,973 deaths. In Europe, only 5 countries are still not reporting declines in the new case rate and of those, only Bulgaria is reporting an increasing rate. This lends more credence to European reopening timelines. Still, the EU reported that it expects its economy to shrink 7.5% for the year (down from a February forecast of +1.4%).
In the US, we have 1,238,083 confirmed cases and 72,285 deaths. Signs show that the economy is picking back up again as Weekly mortgage applications rose for the third straight week, up 7% week-on-week. WEN made a couple of stories. It reported same-store sales rebounded hard as customers come back in droves. However, they also reported that 18% of their stores have run out of beef. It is worth noting that COST and KR both implemented meat rationing for their customers in the last few days.
Overnight, Asian markets were mixed. In Europe, markets are mixed, but leaning more to the green side so far today. As of 7:45 am, US futures are pointing to a three-quarters of a percent gap higher at the open.
The major economic news for Wednesday is limited to ADP Nonfarm Employment (8:15 am) and Oil Inventories (10:30 am). However, AEP, ALXN, AXTA, BG, BWA, CDW, CVS, CNHI, DISCA, DISCK, FLIR, FMS, FTS, GM, GOLD, GPC, KKR, MEET, MFC, NI, ODP, OMI, PAG, SMG, SPR, TMUS, VMC, WM, and ZTS are among those who report before the open.
As said yesterday, the bulls and bears are still struggling. So, volatility and gaps will remain the standard. However, in the short-term it appears the bulls want to take us back up to at least retest resistance above. All we can do is focus on the chart in front of us. Continue to be cautious about longer swing trades, unless you can take some short-term pain.
Trade Ideas for your consideration and watchlist today: CVE, ABBV, PAGS, ABT, LMT, SNAP, EBAY. 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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