[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early choppy ride turned out better than expected, as the bullish theme increased momentum and pushed the major indexes to a green close, with especially the Nasdaq showing a solid gain and scoring a new all-time high.

The Dow added a more modest +0.59% but was able to recapture its 26k milestone marker.

The advance was a mixed bag, however, with relentless optimism over a quick recovery for the economy colliding with an increase of Covid-19 infections in about half of the states and in many other parts of the world. This may turn into an ongoing tug-of-war, but at least for today, dreams of a fast recovery prevailed.

As we know, the actual referee deciding this revival will be the Fed and its supporting policies which, however, are limited in scope as financial author Charles Hugh Smith pointed out:

1. It can’t reverse the unprecedented wealth inequality its policies have pushed to the point of social disintegration and breakdown.

2. It can’t make people take on the risks and heartaches of starting new businesses.

3. It can’t force employers to hire more employees.

4. It can’t make unprofitable businesses profitable.

5. It can’t force people to buy assets at prices that no longer make financial sense.

6. It can’t make insolvent businesses and local governments solvent.

7. It can’t force people who now realize their priority is to save money to spend their cash, even if the Fed forces negative interest rates.

8. It can’t lower the unaffordable cost structure of the entire economy.

9. It can’t de-link all the financial dependencies in the financial system that make it so vulnerable to the first domino falling.

10. It can’t stop people from selling their assets.

After the opening last Friday, we saw a different type of decoupling, as ZH points to in this chart from Bloomberg in that Gold and stocks seem to have gone separate ways.

We’ll have to wait and see if this is just an outlier or a realization that reckless money printing will assist the precious metal, the price of which is now within striking distance of taking out Mays’ multiyear highs.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

A lack of commitment to push the markets one way or the other was noticeably absent today, as the major indexes vacillated aimlessly around their respective unchanged lines.

Not much was gained or lost, but the Nasdaq closed in the green. Today’s report on unemployment claims showed that 1.508 million more Americans filed for first-time benefits, which was worse than the 1.29 million expected.

This brings the total number of claims, since the lockdowns began, to 46 million with no end in sight, but Bloomberg’s chart shows that downward momentum may have slowed some.

ZH noted:

What is most disturbing is that in the past 13 weeks, more than twice as many Americans have filed for unemployment than jobs gained during the last decade since the Great Recession (22.13 million gained in a decade, 45.714 million lost in 13 weeks)

Finally, it is notable, we have lost 388 jobs for every confirmed US death from COVID-19 (117,717).

This story is far from being over because what happens when the stimulus and bonus checks stop arriving after July 31^st?

Noted Bloomberg:

Earnings dropped in the first quarter by 16%, the biggest decline since 2008, and are poised to fall again in the second quarter because of business disruptions tied to the coronavirus. Yet the S&P 500 has recovered most of its 34% plunge after setting a record in February.

Today’s tight trading range only had a small impact on our Trend Tracking Indexes (TTIs), which you can see in section 3. On deck is tomorrows huge option expirations’ day, the volatility of which will certainly push the indexes around more sharply compared to what we saw today.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After three days of gains, the major indexes traded near their respective unchanged lines but dove into the red during the last hour. The exception was the Nasdaq, which gave up mid-day gains but ended up in the green.

Contributing to the sell-off were reports that coronavirus cases were on the rise in at least 9 US states and China, but hope remains that a quick recovery will be still possible. Fed chair Powell continued with his second day testimonial before Congress, and while emphasizing the lasting toll of the pandemic, he also suggested that unemployment benefits should be extended.

Powell also said some form of unemployment insurance should continue past the expiration date of July 31 and defended the central bank’s more than $2 trillion slate of emergency funding to keep credit flowing during the pandemic.

Overall, the trading range of the indexes was relatively small, but that could change in a hurry with an uptick in volatility.

As ZH explained, first, there is a massive option expiration set for this Friday the 19^th with some $1.8 trillion in SPX options to expire, which makes it the 3^rd largest non-December expiration on record.

Second, there is massive pension selling ahead towards the end of the month, at the tune of $76 billion, due to outperformance of stocks over bonds this quarter. The required rebalancing makes this an unavoidable event.

The question is: “How much downside will come into play and will it affect our current bullish theme?”

Since no one has that answer, we will need to be prepared for either scenario.