1. Moving the markets

Early weakness in equities prevailed throughout the session, but downward momentum accelerated leaving the major indexes in the red with the Nasdaq taking the brunt of the beating.

As we all know, the tech sector has been on a tear, so corrections are to be expected. Look at this chart below showing the dominance of tech within the S&P 500 composition:

What this demonstrates is downright mindboggling: The five largest stocks have returned 35% YTD; the other 495 stocks have declined by 5%. And as a composite, the S&P has gained +2% YTD!

Late in the session, the slide stopped, in part due to some Fed intervention, as ZH pointed out tongue-in-cheek:

Well, it took it’s sweet time, but at exactly 2:30pm the Fed fired a warning shot at all the racist criminals known as “sellers” when it announced that it had “broadened the set of firms eligible to transact with and provide services in three emergency lending facilities.”

… apparently the Fed decided that the only reason there is not even more demand, is because the program is too… limiting, and so it decided to expand the list of counterparties. The signal was clear: any more selling and the Fed starts buying stocks.

Today’s timeline of events was as follows:

0830ET *FIRST RISE IN INITIAL JOBLESS CLAIMS SINCE MARCH

1035ET *FLORIDA POSTS RECORD 173 DAILY VIRUS DEATHS AMONG RESIDENTS

1320ET *HOUSE ANTITRUST PANEL TO EYE AMAZON, APPLE, FACEBOOK, GOOGLE

1335ET *APPLE FACING MULTI-STATE CONSUMER PROTECTION PROBE

But then, in a panicked moment from The Fed as losses accelerated, the collapse stalled as this hit…

1430ET *FED BROADENS FIRMS IT WILL TRANSACT WITH ON THREE LOAN PROGRAMS

We will find out tomorrow if the Fed’s signal was received and accepted, or if the bears continue to have another day in the limelight.

1. Moving the markets

For most of the session, the markets engaged in directionless wandering but, as we’ve seen many times in the past, an afternoon ramp pushed the 3 major indexes solidly in the green, while pulling the lagging Nasdaq along for the ride.

Two concerns kept the indexes stuck in a range, namely fears that the pandemic is worsening and the rapidly deteriorating US/China relations. Regarding the latter, the US instructed China to close its consulate in Houston provoking consequences that are unknown at this point.

In the end, equities shook off all concerns, and we rallied into the close leaving all issues in the rear-view mirror—for the time being.

In terms of earnings, MarketWatch added:

Thus far, quarterly results have been better than feared. Of the 58 companies that have reported results thus far, 77.6% have reported above analyst expectations, compared with the average of 65% who reported above consensus estimates in prior quarters, according to data from Refinitiv, based on data going back to 1994. A little over 22% have reported results that fall below expectations, versus an average of 21% missing, the data show.

As announced yesterday, both of our Trend Tracking Indexes (TTIs) signaled a new “Buy.” We received confirmation this morning when the markets held steady and did not sell off. Our Domestic TTI took another jump today validating the current bullish theme. See section 3 for more details.   

Also, GLD, which we hold, turned out to be the winner of the day again with another solid showing of +1.52%. Thanks to the Fed, and its reckless money printing efforts, the precious metal has far more upside potential than what we have seen to this point.

1. Moving the markets

While equities and gold usually diverge, today both gained, but the precious metal put on a superior performance with GLD adding +1.22% vs. the S&P 500s meager +0.17%. After the Nasdaq’s outstanding outing yesterday, the tech sector was due for a time out, and the index surrendered -0.81%.

Market sentiment was cheerful after the EU reached a historic pandemic bailout deal, as ZH called it, with a massive $860 billion recovery plan for their coronavirus-throttled economies. The tug-of-war to come to a solution spanned some 5 days and included a variety of turbulent and seemingly endless negotiating sessions.

Despite early sharp advances, the gains ended up being muted with the S&P attempting to break out of a 6-week trading range.

“The S&P 500 is breaking out of trading range,” said Crista Huff, founder of hedge fund Freedom Investment Partners, told MarketWatch. “We are beginning a bull run.” But “Clearly we have some massive problems in the economy and there are so many people that are unemployed and 10 or 20 million aren’t going to have an easy time finding a new job,” she added.

Still, some sectors performed well giving our Trend Tracking Indexes (TTIs) the boost they needed to validate new Buy signals. Please see section 3 for details.

Analyst Lance Roberts shows the seasonal effects on the S&P 500 as an average of all years in this chart:

As you can see, we are still in the seasonally strong part of the year, and the obvious question to me is this one: “Will a potential correction in September be strong enough to trigger our trailing sell stops?”

Since no one has the answer, we will continue to follow the major trends and step aside should they get interrupted.

1. Moving the markets

Right after the opening bell, the Nasdaq took over and lead the major indexes via a steady ramp to a green close. The Dow barely closed to the upside, while the S&P 500 showed a decent increase, but that one paled compared to the tech sector’s chest pounding 2.51% surge.

Much of this was based on anticipated earnings during this week, somewhat helped by positive developments from vaccine candidates but overshadowed by coronavirus cases and deaths continuing to set records.

North Carolina, Louisiana, and Kentucky reported record infections of COVID-19 of 2,400, 3,119 and 979 respectively on Sunday, The Wall Street Journal reported, while Arizona registered a record high death tally of 147 deaths.

Meanwhile, Florida, the epicenter of the outbreak in the U.S., reported nearly seven-day average of 12,000 cases, surging by nearly a 30%, according to CNBC, citing data compiled by Johns Hopkins University.

However, this week will be all about earnings and how many companies can beat the sharply reduced expectations, despite realization setting in that the dream of a V-shape type of recovery may be exactly that—a dream. The question remains as to whether the “improved” earnings will be in line with what markets expect, or will they provide a dose of reality?

Added MarketWatch:

Although Wall Street is betting that earnings will start bouncing off the bottom in the third quarter, the beginning point for that bounce is unknown, and early indications suggest the rebound’s magnitude may not match investors’ hopes.

Today has sent Bloomberg’s Fear-Greed index to its highest ever—above March 2000’s previous peak, according to ZH:

The lesson is simple. You cannot be in this market without an exit strategy.