1. Moving the markets

Here’s an analysis of the market idiocy we saw over the past couple of trading days. A tip of the hat goes to ZeroHedge for this explanation:

In a mirror image of yesterday’s last 10 minutes action, when the S&P dumped by 40 points in seconds, when a $2.4BN “market on close” (MOC) sale imbalance was announced at 3:50 pm ET…moments ago, at exactly 3:50 pm again when the market on close imbalance was unveiled, and revealed that there was $2 billion left to buy, the Emini future (i.e., the S&P 500) spiked higher by 20 points, from 2,732 to 2,752, which was also the session high as algos scrambled to front run the residual buy orders in the last minutes of trading.

And then the conclusion:

As a reminder, this is at least the 4th time in the past two weeks – it started on March 26 – that the MOC imbalance announcement has led to a stunning move in the market, a striking phenomenon which is attributable to one simple thing: there is absolutely no liquidity in the market, and as a result the headline MOC announcement is sufficient to send the entire market surging or tumbling…

Despite yesterday having been the deadliest virus day in the world, optimistic comments by Dr. Fauci about a turning point with lower total deaths than expected, was enough to shift the headline scanning computer algos into overdrive. The day was saved with the Dow adding almost 800 points with the usual assist of another epic short-squeeze for the third day in a row.

Again, the rally of the past two days occurred despite neither economic nor earnings data having divulged the viciousness of the economic crisis that not only the U.S. but also the world has plunged into.

Analyst Bill Blain offered these succinct and true words:

“The greatest idiot is a man who thinks strong stock markets are an indication of economic health.”

As I mentioned before, this kind of volatility is typical in bear markets, and we may see more of that tomorrow, when the jobless claims numbers are sure to extract their pound of flesh from the markets.

1. Moving the markets

Signs of progress in the fight against the coronavirus in Europe and the U.S. kept yesterday’s rebound alive. Even though headlines were mixed, assumptions of a “plateauing” of the crisis prevailed on Wall Street, along with the idea that the markets are bottoming out.

While that is a hopeful explanation, however, expectations that economies are going back to normal within a short period of time are simply not realistic and are based on the commonly held view that markets and economies are connected, yet there is a reality gap, as analyst Bill Blain explains:

What Markets know is that Global Central banks are going to do whatever it takes… to keep markets high… The reality gap between financial assets and the real word grows ever wider…

While powerhouse Nomura added this for color:

The steep rally in global equities is nothing more than a giant “bear squeeze” rally, driven by panicked exits from shorts that investors accumulated during the downturn…

I have been pounding on this Central Bank theme for a long time. This morning, in order to keep the markets from dropping, administration officials came out with some well-timed and appropriate jawboning with Kudlow and Mnuchin both insisting that Trump is looking to re-open the US economy “as quickly as possible.”

As Zero Hedge pointed out, Kudlow took things a step further by dismissing worries about another drop to new lows by saying the Fed is sitting pretty with what he called “the ultimate bazooka.”

In other words, the Fed will come and rescue markets at all costs, even if it means eventually buying junk bonds (they already are buying corporate debt ETFs) and stocks, just like happened in Japan.

Despite all the above efforts, the markets ended up giving back an 800-point Dow rally and closed slightly in the red.

Did we just witness the end of another dead-cat-bounce?

1. Moving the markets

The futures markets jumped out of the gate, as Trump presented an upbeat outlook during Sunday evening’s press conference with officials in New York and Italy reporting notable declines in new cases and deaths:

“We are beginning to see the glimmers of progress,” Pence said at a White House news conference on Sunday. “The experts will tell me not to jump to any conclusions, and I’m not, but like your president I’m an optimistic person and I’m hopeful.”

It’s impossible to tell which news headline valid and which ones are hype, but the computer algos simply ran with it and pumped the major indexes to solid gains with the Dow adding some 1,600 points for the day.

On other hand, the virus news what not that great with one analyst commenting:

“The virus is continuing to spread unchecked, especially in the US. US President Trump has warned that the population should prepare itself for two very tough weeks. This will further delay any normalization of public life. The economic impact is already very serious.”

Of course, whenever markets make a huge rebound move as we saw today, there’s bound to be a short squeeze involved. And indeed, ZeroHedge identified it as the second-biggest short-squeeze ever.

Additionally, a $6.5 billion MOC (Market On Close) order propelled the indexes into the close in a simply mind-numbing melt up. Given the bullish response, you would have expected gold to take a dive and tank, but we’re not living in ordinary times. Things are so twisted and non-sensical that gold soared to 8-year highs (above $1,700) totally in sync with the direction of equities. Huh?

Even JP Morgan seemed to have some doubts and suggested that “investors should prepare for a coronavirus-induced ‘vicious’ spiral more than twice as bad as the financial crisis.”

It’s impossible to say how this plays out, although I am personally more aligned with JP Morgan’s statement. However, right now, at least for this day, the buy-and-hold crowd has something to cheer about by having reduced some of their steep losses.