[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures markets kept bullish momentum alive based on news that a live-saving steroid, dexamethasone, was found to cut the risk of coronavirus death by 35% for patients on ventilators, and 20% for those on supplemental oxygen without intubation.

How this will turn out is everyone’s guess at this time, but it was enough to ramp the markets higher. This momentum put a fire under the Dow, as the regular session got underway, with the index sporting a 700-point gain after the opening bell.

Giving an assist was Fed chair Powell’s testimony before Congress and his suggestion that more fiscal stimulus might be needed before the American economy can make a full recovery from the coronavirus pandemic.

With the Fed now having admitted to buying individual corporate bonds as well, stocks and equity ETFs are on deck and will most likely come into play after another 20% market drop.

Added Global Market Monitor:

The United States is on the fast track to a Japanese style zombie economy, where the Nikkei 225 is still 45 percent below its December 1989 high, even after massive fiscal stimulus and quantitative easing, which includes direct equity purchases by the central bank. Japan is also a net saver and the U.S. is not.

Technical analyst Sven Henrick saw it this way:

But it’s not just the Fed. Yesterday’s announcement was apparently not enough as the Trump administration suddenly tossed a trillion-dollar infrastructure plan soundbite on top of the liquidity fire. Also, on the heels of a 10% correction. How convenient. Whether that plan ultimately materializes or not is beside the point, futures reacted and squeezed vertically even higher. What a circus. Not a stable market and my mantra of the extremes getting ever more extremes continues to hold true.

In the olden days future growth came about because the system was allowed to cleanse itself and new business models sprung to fruition from the ashes. Inefficient businesses went bust; new businesses were formed. Corporate debt was reduced. That’s called a cleansing and new innovation.

Be that as it may, the markets rallied strongly also supported by soaring retail sales in May after a disaster number the month prior.

Thanks to today’s levitation, our Domestic TTI (section 3) rallied back above its long-term trend line thereby confirming our bullish position—at least for the time being. We are seeing market absurdity, and I am sure that increased volatility and sudden reversals are here to stay.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets took a dive this morning with the Dow skidding some 500 points, as fears about a resurgence of Covid-19 spooked traders around the world.

Analyst Graham Summers saw it this way:

Stocks have fallen hard over the weekend again. The media is pinning this drop on the potential for another COVID-19 pandemic, but the facts don’t support that theory.

My point with all of this is that today the market is literally a crap shoot. The easy money from the rally has been made, and the next trend is not clear yet. So now is NOT the time to be putting a load of capital to work.

Uncertainty in the markets needs to be eradicated with pointed action. That came in form of a 2^nd press release by the Fed that it will now finally start buying corporate bonds, which was announced some three months ago but not yet executed.

However, since they were already buying between $1-2 trillion in corporate ETFs each weak, according to ZH, today’s confirmation provided enough ammo to propel the markets not only out of a deep hole but also to a solid green close.

The Fed made it clear that it is expanding the scope of its $750 billion emergency corporate loan facility to include individual corporate bonds, while at the same time reducing the restrictions for potential borrowers. Huh? In other words, even companies with inferior credit are encouraged to apply.

In the end, the markets were saved for another day with all eyes now being on Fed chair’s upcoming testimony about the state of the economy before Congress this week.

Our Domestic Trend Tracking Index (TTI) improved and is now in striking distance of breaking back above its trend line again (section 3), which means we are holding on to our current positions for the time being.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures already had pointed to a weak opening, as traders, after digesting Fed head Powell’s news conference, despite being dovish in nature, saw more negatives than positives. Despite the recent bullish theme in the indexes, Powell admitted that not all is well under then hood of the economy.

Additionally, reports covering some 21 states that Covid 2.0 may have arrived was enough to bring out the bears in full force.

With the stock market being Trump’s report card, Treasury Secretary Mnuchin emerged and tried to calm down the nervous nellies on Wall Street by promising more money to be pumped into the economy. ZH summed up his appearance:

• MNUCHIN SAYS OVER NEXT MONTH ANOTHER $1 TRILLION WILL BE PUMPED INTO U.S. ECONOMY
• MNUCHIN SAID ‘WE CAN’T SHUT DOWN THE ECONOMY AGAIN’
• MNUCHIN ‘QUITE OPTIMISTIC’ IN MEDICAL PROGRESS THAT HAS BEEN MADE ON COVID-19
• MNUCHIN SAYS FURTHER AID TO STATES WILL BE SUBJECT TO DISCUSSION WITH CONGRESS

Unfortunately for him, the markets were oblivious to his announcements and proceeded to plunge lower.

Economic data points supported the downward theme with jobless claims continuing to surge as 1.542 million more Americans filed for unemployment benefits for the first time vs. expectations of 1.55 million.

Just as poorly received, and clearly demonstrating the aftereffects of Covid-19, was data showing that one third of renters are worried about making the next payment, while 17% did not pay their last month’s rent.

The survey showed 11% of households with a mortgage skipped servicing payments last month, and 16% said they wouldn’t be able to make payments in the future.

These are the true facts of what is happening in the underlying economy, none of which have been given consideration by the markets, where the relentless addition of liquidity paints a picture totally disengaged from underlying conditions. The open-ended question remains:

“Has recognition finally set in that the economy will not see a V-shape recovery this year as reflected by market levels?”

Author Michael Snyder sees it this way:

Sadly, the truth is that economic conditions will not be returning to normal.  Yes, some of the jobs that were lost will be recovered as states start to “reopen” their economies.  But more than 100,000 businesses have already permanently closed during this new economic downturn, and all of those jobs are lost forever.

And yes, the level of economic activity will rise as states end their lockdowns, but it will still be much lower than it was before COVID-19 started spreading like wildfire in the United States.

In the end, the markets got thrashed pulling our Domestic Trend Tracking Index (TTI) back below its long-term trendline. A one-day sharp drop could be an outlier and does not necessarily indicate a change in the major trend, but it could.

Only time will tell, but today’s action could very well spell the end of the March 15 rebound and the final bursting of the stock market bubble. Or, it could prompt the Fed to finally “japanify” the US markets via outright purchases of stocks and stock ETFs to keep the bullish dream alive.

Tomorrow will be crucial. I will watch market activity and, should the downward draft continue, I will start liquidating our more volatile holdings and/or those that are triggering their trailing sell stops. As of today, none were prompted.