1. Moving the markets

After its worst week since March, the tech sector managed to bounce back, along with the other major indexes, to end the session solidly in the green but off the intra-day highs.

The big jump happened right after the opening on news of corporate deal making and improved prospects for a Covid-19 vaccine involving a host of companies. The arrival of any product is uncertain, as is the question as to how quickly a successful vaccine candidate can be mass produced and distributed. In other words, I am hearing nothing but hype.

ZH added this:

Global stocks are coming off the back of the first consecutive weeks of declines since March and traders remain on edge given the recent reassessment of valuations and volatility in options markets, however late last week, analysts at Goldman, JPMorgan and Deutsche Bank all suggested the recent pullback in the U.S. is nearing an end. On Wednesday, the Federal Reserve is expected to maintain its dovish stance on policy as investors look for signs the global economy is recovering from the pandemic.

However, as important is the answer to the question whether the warring parties can agree on a stimulus package prior to the election. If not, there would be political fallout, as well yet to be determined effects on the markets, none of which I see as positive. On the other hand, we may just witness the usual political grand standing, after which one of parties will cave and compromise.

In the meantime, today’s advance was clearly supported by another short squeeze with “most shorted” stocks rebounding some 3% on the session. Gold had a nice showing as well with GLD adding +0.78%.

On a personal note, I will be out tomorrow afternoon and not be able to write the market commentary, however, regular posting will resume on Wednesday.

1. Moving the markets

The first part of the session showed the bulls clearly in charge when suddenly Brexit concerns hit the headlines, which was followed by news that the Democrats voted to block the Republican’s stimulus bill. That was enough send stocks, bonds, and gold diving, while the dollar enjoyed a rebound rally.

ZH summed up the 3 things that kept the bullish dream alive in the last few weeks:

• The Fed – hasn’t bought any HY/IG bonds in a while and balance sheet flat
• Stimulus – fail on any further deal (McConnell Senate comments and skinny bailout bill didn’t pass Senate)
• Vaccine – the AstraZeneca news did not help

The Nasdaq swung wildly between +1.5% and -2% causing one of our tech ETFs, which had been bouncing against its trailing sell stop point, to break through it, giving me a reason to sell it and take profits. The index has now moved back into correction territory, and we’ll have to wait and see if this was just another flesh wound, when compared to the recent enthusiasm, or if there is more injury to come.

At this moment, yesterday’s rebound looks like a dead cat bounce, but we are living in such uncertain times where anything is possible, so it pays to be more cautious and take some money off the table.

The much hoped for rotation from growth to value has not worked out so far, as both seem to be moving in sync.

Not helping the mood were Jobless Claims with the Initial ones staying about even with last week, while the Continuing Claims rose week-over-week.  

All this brings back the question as to whether the analog to 1929 is still valid. So far, it’s a remarkable development: