D&D Note (4.22.2020) ~ Stocks Rally On Congressional Stimulus and Oil Rebound ~
Congress replenishes the PPP SBA program with an additional $320 Billion. The Congressional Stimulus coupled with an Oil rebound helped stocks rally with Mega Cap and Energy stocks gaining on the day. However the market gains were capped throughout the day struggling to fully break through 2800 on the S&P 500. In the last 90 minutes of trading the S&P 500 broke to the higher side of 2800 but only by 10 points. In the final minutes the Index pulled back to close under 2800.
DOW up 1.99%
S&P 500 up 2.29% (2799.31)
NASDAQ up 2.81%
VIX down over 7% to 42.09
NY Crude up 19% to $13.77 a barrel.
Global markets rallied overnight as Crude Oil stabilized with the new June Contract. Commodities in general rallied as well. Overall markets saw a reversal of yesterday. This is what is expected with the VIX still elevated meaning we will continue to see both downside and upside daily volatility.
We do look to still be in a wide-band trading range. The 50 week moving average being the “magnet” that pulls markets up when below and pulls markets down when above.
The USO ETF is still under pressure after the Oil ETF ran ry earlier this week not being able to fulfill sell orders.
California saw an uptick of 6.8% in Covid-19 deaths from yesterday registering 86 deaths today.
The 2-10 Treasury spread is at 40 basis points and usually that spread needs to be at 100-200 basis points to signal the end of a recession. Where conversely the inversion of that curve (which happened last year) signals we are going into a recession.
Markets can continue to trade volatile in current trading range through earnings season however will start to face headwinds in May after earnings are over. This is when we could potentially see a retest of lower prices. Markets tend to always see downward pressure after earnings this time of year which is where the term “sell in May and go away” comes from.
~ Dave James / Principal Trader and Market Strategist