Volatility reigned Friday as markets gapped up 2.5% at the open, then immediately sold off back to the Thursday close and continued the roller coaster the rest of the day. Overall, there was a 3.5% range on the day and we closed with significant black-body candles, but the gap up left us green overall on the day. The SPY closed up 1.20%, DIA up 1.87%, and QQQ up 0.79%. The VXX was down almost 7% to 38.71 and T2122 fell dramatically to 30.43. 10-year bond yields rose to 0.707% and Oil (WTI) was flat at $36.48/barrel.
On Saturday the President’s Trade Advisor Navarro said the White House is looking for another $2 trillion stimulus package focusing on aid to manufacturers. However, at the same time, Chief Economic Advisor Kudlow was saying we are likely seeing a v-shaped recovery, are into the recovery phase, and its time to end individual relief. Of course, the White House and Senate Republicans declared the House-passed stimulus bill (that focused on unemployment benefits, relief for state/local government, and extending the PPP program) as DOA. In fact, Senate Majority Leader McConnell said the Senate will not even take up the topic of additional stimulus until at least July 21, after the Congress returns from summer recess. So, it is very unsure if, when, or what type of additional stimulus we might see anytime soon. That leaves the Fed.
On the Virus front itself, the global headline numbers are 8,017,847 confirmed cases and 436,125 deaths. On Monday, the EU reopened its internal borders, albeit under a patchwork of rules and exceptions. On Sunday the UK reported its lowest daily virus death toll since March, opened stores to the public, and PM Johnson said he may well end social distancing rules on July 4. However, things are not going as swimmingly in other parts of the world. In China, a district of Beijing has locked down again after tests at a wholesale market found 49 positives out of 517 people tested (9% positive rate) and now there is a race to test 200,000 other workers in that market who have high-touch, public-facing jobs. India is also seeing a significant spike in cases in consecutive weeks even as reopening continues.
In the US, we now have 2,162,261 confirmed cases and 117,858 deaths reported to date. On Friday afternoon, the CDC said states and localities may need to reimpose strict measures if cases rise “dramatically.” At the same time, overall, there is a slowing of growth in the number of cases. For example, former epicenter NY, which was slowest to reopen, is seeing the lowest rate of new cases, hospitalizations, and deaths since the beginning of the crisis. However, 22 states are see increasing rates. This includes record jumps in FL, NC, SC, TX, and CA. Some states and cities have even paused their reopening plans.
Overnight, Asian markets were deeply into the red, with South Korea losing 4.76% and Japan down 3.47%. The best performer was Chinese Shenzhen, which was down only 0.29%. Europe is following suit for the most part, with the three major bourses down 1.30% on average. However, the minor Belgian and Swiss indices are eking out a green chart so far in the European day. At 7:30 am, US futures are pointing to a significant gap lower of between 1.5% and 2.5% (the exact opposite of Friday morning).
The major economic news for Monday is very limited, with only the NY Empire Mfg. Index (8:30 am) on tap. However, TTM, JKS, and MPAA report before the open.
It’s early, but as of now, we’re looking another significant gap down as the fear of virus impacts builds. With the uptrend broken and assuming the gap, we are now 7%-8% off the recent highs, so there is significant technical damage for bulls to overcome. The sky is not falling yet. We are still 35%-40% above the March lows. However, this is clearly the toughest test of the rally we’ve seen. Stay focused on the short-term chart. 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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