[Chart courtesy of MarketWatch.com]

1. Moving the markets

On the last day of the quarter, bullish sentiment shifted into overdrive following the widely held theme of the past 90 days, that a V-shape recovery is in the cards.

Of course, this rebound off the March lows has nothing to do with economic progress but everything with the Fed’s reckless money printing efforts with some $3 trillion finding its way into the markets, which rode the liquidity train with utter abandon.

However, this latest 2-day levitation managed to not only wipe out last Friday’s losses but also threw another big assist to those Buy-and-holders, who toughed it out by being fully invested during the last quarter.

The headline propaganda of this having been the best quarter in about 20 years reminds me of the gambler, who only talks about his gains and never his losses.

Here’s the S&P 500 chart showing clearly that this quarter only served to make up losses and not create any gains when looking at the year 2020:

As you can see, the rebound was truly impressive, thanks to the Fed’s balance sheet explosion, but it merely bailed out those that were stuck holding on to their portfolios. For sure, there were some gutsy speculators, who had the nerve to try to catch this falling knife along the crash, so, congrats to them. They got lucky this time.

Most of today’s attention went to joint testimony from Mnuchin and Powell, which MarketWatch summarized like this:

Mnuchin said the Treasury and Fed were looking at extending the Fed’s established 11 emergency lending facilities, but also reiterated that additional types of COVID-19 aid likely will need to be addressed by Congress under the next phase of stimulus.

The Fed’s Powell stressed that the ‘overriding goal’ of the central bank’s facilities is to help get the roughly 25 million workers who lost jobs during the pandemic back to work, while also warning that the worst part of a second wave of COVID-19 infections would be if it undermines consumer confidence.

Of course, giving a huge assist to the bulls in Q2, was the biggest short squeeze ever, as ZeroHedge pointed to in this chart:

The question is will this continue or not? For sure, our Trend Tracking Indexes (TTIs) made up some lost ground from last week, but it will take another push to generate a new “Buy.”

Usually, after the quarter-ending window dressing is over, we may see a pullback, the severity of which will depend on the latest Covid-19 news followed by earnings announcements within the next two weeks.

I enjoy looking at historical chart overlays depicting potentially opposite outcomes. ZH presented it like this:

It’s anybody’s guess how this will turn out.

[Chart courtesy of MarketWatch.com]

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.

[Chart courtesy of MarketWatch.com]

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.