[Chart courtesy of MarketWatch.com]

1. Moving the markets

Today, upbeat quarterly earnings results from Target and Lowe’s set a positive tone and sent the major indexes to 10-week highs. However, as soon as news of a bill to delist Chinese companies from the US exchanges cleared the senate, equities came off their best levels of the day.

The focus remained predominantly on the positives of the reopening plans, which vary widely from state to state, but many are trying to lift restrictions prior to the upcoming long Memorial Day weekend.

Throwing a big assist, as we’ve seen often in the recent past, was another giant short-squeeze right after the opening bell, as Bloomberg shows in this chart. This has been the go-to trade ever since the March lows, and it has been executed perfectly.  Also doing some of the heavy lifting were the FANG stocks, which rallied to new highs—again.

The positions of our Trend Tracking Indexes (TTIs) continues to improve, but it will take more of a bullish effort to pull the trigger for a new “Buy” signal. Right now, the S&P 500 (SPY) needs to gain over 2% from current levels, just to get to the point of where our February 27, 2020 “Sell” signal kicked in.

In the meantime, some of our sector ETFs, which run on their own cycles, are showing promising possibilities, and I intend to start nibbling carefully.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

While the jury is still out whether we’re experiencing a bear market bounce or have moved into a new bullish cycle, I was surprised to read that two-thirds of fund managers are saying we’re still in a bear market rally.

I agree with that but will change my mind once our Trend Tracking Indexes (TTIs) generate a new “Buy” signal.

Three-quarters of the fund managers expect a U- or W-shaped economic recovery with just 10% anticipating a V-shape rebound:

This pessimism is reflected in their current allocations, where overweight in defensive assets like health care, cash, bonds rules and cyclical assets like energy, equities and foreign investments are underweight, while emerging markets have been shorted.

In a follow up from yesterday’s ridiculous yet market moving story about Moderna’s coronavirus vaccine press release, and the effect of its result on 8 patients, it was concluded that much of it was simply a media blitz with some allegations of stock manipulation.

“Even the figures the company did release don’t mean much on their own, because critical information — effectively the key to interpreting them — was withheld.”

The pushback was fast and furious with Moderna’s stock dumping not only to session lows but also below its offering price of $76/share.

The rest of the market bobbed and weaved for most of the day until the last hour when heavy selling set in and wiped out just about half of yesterday’s gains, as the fallout from the Moderna saga was too much for the bulls to handle.

After Fed head Powell and Treasury Secretary Mnuchin’s grilling by the senate banking committee, it was Boston Fed Reserve President Rosengren, during a CNBC interview, who through some somber thoughts about the possibly “premature” business re-openings due to Americans continue to content psychologically with the Covid-19 pandemic.

With many traders still erroneously expecting a fast and furious V-shape type of economic recovery, these were the wrong words to utter by an official, and downside momentum accelerated into the close, and we ended up at the lows for the day.

The S&P 500 has now formed a triple-top with strong overhead resistance lurking at the 2,950 level. The earnings divergence in the Nasdaq continued, as this chart by Bloomberg shows, and makes me wonder how long this can go on, namely the Nasdaq being just 5% from record highs, while consensus 12 month Fwd EPS is down 11%? (Hat tip to ZH for this data)  

However, we’re living in times where anything nonsensible is possible, which is clearly supported by these words from Fed chief Powell that they will do “whatever it takes.”

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures started things out by rallying sharply based on Europe data showing new corona virus cases growing at the slowest rate in months. That was followed by the US markets jumping right after the opening bell, because of drug maker Moderna announcing positive early results from its first human trial of its experimental Covid-19 vaccine.

The press release said:

“All eight initial participants” in the Moderna trial developed neutralizing antibodies to the virus at levels reaching or exceeding those seen in people who have naturally recovered from Covid-19.”

Hmm. Eight participants? And that is a market moving occurrence?

All of this was prefaced by the main event, namely Fed head Powell appearing on CBS’s 60 Minutes and proclaiming, “don’t bet against the American economy,” even though unemployment could rise to 25%.

His thoughts about the likelihood for a rebound of an economy that is showing signs of extreme stress were hopeful but guarded, because a second wave of infections could rattle confidence further. However, his promise “to do whatever it takes,” sparked the greatest opening buying pressure in history this morning, as ZH demonstrates with this chart.

And to clarify, ZH added:

“We soared on the back of Fed fears and promises to print more due to bad news, and we soared on positive vaccine headlines which would end the bad news.”

Powell also admitted that the unemployment rate could shoot up sharply and reach levels not seen since the Great Depression. But he was not worried about a second depression and projected an economic rebound to materialize during the second half of the year.

In the end, it was only his upbeat tone that propelled strocks higher, as well as his insistence that the central bank still is in possession of tools to limit the economic fallout from Covid-19. Sure, continued money printing is and will always be the #1 choice.

We all know that the long-term effect will be hyperinflation, but before that condition kicks in, we might see the markets pushed to unthinkable levels, as inflation first shows up and manifests itself in bond and equity prices.

Today was a start in that direction, but we’ll have to see if these levels hold and can form a base for further advances. Our Domestic Trend Tracking Index (TTI) improved by a substantial percentage (section 3), but it will take another leg higher until a new “Buy” is generated.

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