[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets bounced around aimlessly all day, with the Nasdaq scoring a new intra-day all-time high early on, despite deteriorating earnings, which apparently was more than traders could handle, and the index headed south for no apparent reason. The Dow and the S&P 500 joined the slide, but only the Dow managed to climb back to the unchanged line.  

Jobless claims were the center of attention, as we learned that “only” 1.87 million people started to claim unemployment last week. For sure, as Bloomberg’s chart shows, the trend is improving, however, the fact is that the eleven-week total of job losses has reached now 42.644 million, which is the worst ever in American history.

Still, this question, as posted by ZH, seems to be on peoples’ minds, although I have answered it on many occasions:

1. What is driving the swift recovery of equities?

a) Fed – 73%

b) Earnings Optimism – 0%

c) Labor market recovery – 6%

d) Further fiscal stimulus – 5%

And if Fed policy supports the bullish theme via its balance sheet expansion, that rally will continue—until one day, when it won’t. That’s why I keep harping on the importance of having a sell stop, just so you can be prepared for that moment in time when this party ends.

Effective today, our domestic “Buy” signal has been confirmed, and we will remain invested, subject to our trailing sell stops.

The whipping boy of the last few weeks has been the US Dollar, which has presented us with the biggest 14-day drop since October 2011, according to ZH. Could this be a precursor of an increase in inflationary trends?

Be that as it may, right now we will follow the major trends in the markets, which according to my work shows that we could be in the beginning stages of a new bull run. Could it reverse? Sure, that’s why we have trailing sell stops to help us with managing portfolio risk.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Yesterday’s levitation continued right after the opening bell with the major indexes storming ahead unabated. Today’s driver were improved ADP employment data, which solidly beat expectations. They remain negative but show a massive improvement from the prior month.

Even crashing April factory orders, by the most in some 10 years, could not offset the bullish momentum. As ZH pointed out, year-over-year, factory orders plummeted 22.3%, which was the worst since the financial crisis.

Despite the civil unrest throughout the nation, the prevailing opinion of traders is that the economy has bottomed out and is on its way to a strong recovery, possibly V-shaped—or so the hope goes.

Be that as it may, today’s upswing provided enough upward momentum to push our main directional indicator, the Domestic Trend Tracking Index (TTI), above its long-term trend line into bullish territory, thereby generating a new “Buy” for “broadly diversified domestic equity ETFs and mutual funds.”

In my advisor practice, as I posted, we already had selected positions in sector ETFs and will fill the bucket with more equity ETFs, which I got head start on this morning.   

If you are following along on your own, be sure to only invest in the markets, if you establish an exit strategy, and use your risk tolerance as a guide. The markets are at elevated levels, and the dangers of a sudden and massive reversal are always present.

The effective date of this signal will be tomorrow, June 4^th, unless I see a huge downturn in the markets, in which case I will delay the execution of my orders.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Today’s market theme was the same one like yesterday with traders focusing on easing Covid-19 lockdowns, while the ever-increasing civil unrest and riots were again ignored.

Destroyed businesses and subsequent curfews certainly will impact an economy under stress, especially one that is trying to slowly re-open and is now threatened again with new interruptions.

It’s hard to believe that the events of the past few days have not affected stocks, which seem oblivious to anything else other than being focused on taking out the old highs. Go figure…

“Most people on Main Street think it’s crazy where the stock market is trading, especially on a day where you have major protests happening in the U.S.,” Sam Hendel, president of Levin Easterly Partners, a New York asset management firm, opined.

For sure, it remains to be seen if this “hear no evil, see no evil” market attitude can prevail, which all depends on whether current riots can be brought under control quickly. If this dilemma drags on for any length of time, I believe that stocks will shift into reverse in a hurry.

As I have posted many times, liquidity is the oil that greases the wheels of the stock market. We saw a little hiccup, AKA lack of liquidity, into the close today when the S&P 500 surged 10 points in one tick, as a $3.2 billion MOC order (Market On Close) could not be have been filled otherwise. As luck would have it, it was a Buy order, thereby helping the bullish cause.

Zero Hedge had the best closing analysis about today’s events:

While we are constantly told that Black Lives Matter, Blue Lives Matter; in fact, truth be told, ALL LIVES MATTER; but, there is one thing that matters more… higher stock market prices…

Former PIMCO chief Mohamed El-Erian saw it this way:

“This notion that it doesn’t matter what happens to fundamentals. It doesn’t matter what happens to corporate earnings. It doesn’t matter what happens to economic growth… because The Fed will buy what I want to buy… that’s the mindset of the market right now.”

Whatever you decide to do, do not enter these markets without an exit strategy.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures started on a rollercoaster ride with a sharp opening drop being followed by a rebound, which was followed by a decline and then another bounce back, as this chart shows.

The regular session showed much less volatility when, after a weak start, bullish momentum appeared, and a slow but consistent ascent pushed the major indexes to modest gains.

The driver turned out to be hopes that the worst of the economic damage caused by Covid-19 is now in the rear-view mirror, while the current civil unrest, along with appearances of the National Guard, was simply ignored.

“The direct economic impact of the protests is small, at least so far,” Mark Zandi, chief economist of Moody’s Analytics, told MarketWatch. However, he said that the near-term damage to the psyche of consumers and the business community may be more substantial.

“Just when people were starting to come out of the proverbial bunkers, the protests may be too much for them, and they will go back in,” he said. “The protests also are symptomatic of just how deep the economic problems and racial tensions go in our country,” the economist said.

Besides a modest short squeeze, there was nothing to pump the markets, but we know that the Fed with its Quantitative Easing programs (QE) can at any time affect market direction.

To recap in simple terms what QE is, here’s analyst Bill Blain’s explanation:

“The way QE works is for a National Treasury to sell bonds in the morning, the government to spend the money by lunchtime, and the Central Bank to buy the bonds in the evening. The result is a liability on the Treasury and an asset on the books of the Central Bank.”

Can’t say it any more precisely.

Continue reading…

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