1. Moving the markets

The explosion in US Pending Home Sales was the tie breaker today after reports that New Home Sales soared, and Existing Homes Sales plunged. The computer algos went with the rebound of 44.3% vs. 19.3% expected Pending Home Sales and pushed the major indexes to a solid green close, However, it was not enough to make up for Friday’s drubbing.

Still, concerns about the economic outlook was on traders’ minds, but hope prevailed that some of the planned shutdowns may be focused on only those areas with severe Covid-19 increases.

Coronavirus cases world-wide surpassed 10 million, with more than a half-million deaths. A dozen states, including Florida, Texas, California, and Arizona — now hot spots in the U.S. — reversed reopening plans and implemented tighter restrictions to prevent a further spread of the viral epidemic, The Wall Street Journal reported.

Some of today’s push to the upside was end-of-quarter adjustments by mutual funds, pension plans and investment managers, an activity that is also known as window dressing, which could certainly increase volatility during this Holiday-shortened week.

Added Peter Cardillo, chief market economist at Spartan Capital:

“However, the trend is likely to remain negative ahead of this week’s key macro indicators and the upcoming earnings season,” he said, referring to corporate quarterly results that kick off in earnest in the middle of July.

In the end we saw something unusual, as ZH pointed out:

Stocks up, Bonds up, Dollar up, Gold up, Bitcoin up… COVID-cases Up…

That’s all part of the new normal.

1. Moving the markets

The markets did not show us a rebound this morning, so the Domestic “Sell” signal stands—at least for the time being.

We’re living in such uncertain times, that we can never be sure, nor does anybody know, if this was just one more head fake or the beginning of another devastating down trend, that could take out the March lows.

As a result, we are going the safe route and follow our signals. Some analysts contribute this week’s sell-off to quarter-ending rebalancing, but that is nothing but a guess.

Should the bullish theme prevail via another rally next week, we will pick a new entry point in accordance with our Trend Tracking Index. I believe in this environment of total uncertainty it is better to be safe than sorry, however, we will hang on to our current gold/sector positions subject to their respective trailing sell stops.

An early 200-point Dow drop was recouped with the indexes mainly vacillating around their unchanged lines in a tight range until, during the last 30 minute of the session, a massive Buy program kicked in and ignited a spectacular short-squeeze, which lifted the major indexes solidly in the green.  

Reader Gary suggested that “you can’t fight the Fed plus we are going into election. The market is being controlled by the government so normal movement is gone.”

This is correct, but you also must consider that there are opposing forces that want to make sure at all costs that the incumbent President will not be re-elected. That means we are engaged in a tug-of-war with the outcome being impossible to predict.

I follow our TTI signals, because I don’t mind erring on the side of caution, which is far better than going down with a sinking ship—just because it wasn’t supposed to be sinking.

1. Moving the markets

Yesterday, I was talking about the markets being stuck in a neutral zone regarding our Domestic Trend Tacking Index (TTI) and that more evidence of either bullishness or bearishness would determine our next cause of action.

We got that signal today when the major indexes plunged right after the opening bell with the Dow being down over 800 points at its worst, before recovering to close deep in the red and surrendering some -710 points.  

As the markets slipped early on, I took the opportunity to lighten up even more on our holdings and locking in some profits, while leaving us only with sector exposure and gold.

Here’s how our Domestic TTI has performed recently relative to its long-term trend line:

Increased worries, that continued rising coronavirus cases in many states would at least set back the nascent economic recovery, created such anxiety that all 11 sectors in the S&P index closed lower. Florida and California set records for new cases, while intensive-care unit beds were reported to reach the 97% capacity in Houston.

Not helping matters were news that Apple was re-closing another 7 stores in Texas due to the coronavirus spike.

The headline hit at time when stock uneasiness was “morphing into fright” as Bloomberg put it, after data showed virus cases spiking in Florida and Texas, California reporting a record 7,149 new cases, while New York, Connecticut and New Jersey said visitors would face a mandatory quarantine. The news sent the S&P sliding 2.7%.

“The latest coronavirus news is not positive for the stock market which was betting the worst of the pandemic recession was behind us,” said Chris Rupkey, chief financial economist for MUFG Union Bank. “Hopes of investors looking for a better economy to improve the bottom lines of companies shut down in the recession have been dashed.”

In the end, our Domestic TTI confirmed the weakness it had shown for the past 10 trading days and generated a “Sell” signal for “broadly diversified domestic equity ETFs/Mutual funds.”

This “Sell” signal will be effective with the close of the market tomorrow, June 25^th, unless a strong rebound is in the making, in which case I will postpone the effective date.

Have we now reached the point where stocks finally will catch down to bond’s reality, as ZH/Bloomberg posted in this chart?