D&D Note (5.5.2020) ~ Risk On Today With Rally ~
There has been a line drawn in the sand by the FED. The market sees that line roughly as 2800 on the S&P 500 as that is when the FED had stepped in to support the markets. While the FED hasn’t had to actually backstop Fallen Angel debt yet, the bankruptcies have started this week and will continue through the summer.
Can the market fall considerably below 2800? Of course it can, but there needs to be major headwinds as a catalyst. It was around 2800 on the way down that the NBA announced they were shutting down. Then we saw the panic selling down to the March 23 lows.
It will most likely take another big shock like the NBA to cause any meaningful retest of market lows. It could be further mounting cases and deaths from Covid-19. It could be colleges announcing they won’t reopen in the fall. It could be a 2nd wave of the virus causing economies to shut back down. It could be negative news on vaccine creation delays due to rapid mutations of the virus.
The market overall could stay in a trading range roughly between 2700 and 2900. Where we could see individual sectors correct or individual stocks correcting while the Indexes as a whole stay flat.
We are coming to the end of earnings season and will go back into a vacuum where markets will trade on virus and economic data. The next earnings season is likely to be absolutely horrible and could be the catalyst to drive markets lower.
In cash trading today markets rallied with a Risk On mentality. In the last hour all the major indices paired gains off the highs of the day.
DOW up 0.56%
S&P 500 up 0.90% (2,868.44)
NASDAQ up 1.13%
The VIX down -6.87% to 33.52
Oil up 20.35% to 24.54 a barrel.
Today D&D took further gains in TSLA (up 85%) and SHOP (up 105%). Both of these stocks are getting higher into overbought territory on a technical basis. We also took nominal gains in DIS to reduce risk ahead of earnings after the bell.
Overall D&D remains a net seller this year and looking for better entry points and price discovery in the coming months. Patience is tough but prudent.
In the food supply chain new reports have the fast-food chain Wendy’s now with 1/5th of their US restaurants out of beef.
The White House is combatting the CDC over recent new estimates given by the CDC saying they see 2,000 deaths a day and an increase in Coronavirus cases throughout May. The White House says that is not the projections the Coronavirus Task Force team have. A betting man would back the Centers for Disease Control and Preventions as that is exactly why they exist. New reports now suggest VP Pence might begin disbanding the Task Force.
Global cases now more than 3.6 million.
Global deaths more than 254,000
US cases now more than 1.1 million
US deaths more than 70,000
~ Dave James / Principal Trader and Market Strategist