Commenting on today’s afternoon rally in stock trading, Gorilla Trades strategist Ken Berman said:
While the Dow declined for the third day in a row, the Nasdaq registered its highest close in history, even as safe-haven assets remained strong. Treasuries, the dollar and the utilities and industrial sectors were the best performing assets today, which is a very strange combination, but until the market-leading tech sector shows stability, odds will continue to favor the bullish case.
Q4 2019 hedge fund letters, conferences and more
The major indices finished mixed and flat thanks to a broad afternoon rally in stocks, as investors shrugged off the increasing number of coronavirus cases and the mixed earnings reports. The Dow was down 16, or 0.1%, to 29,160, the Nasdaq gained 19, or 0.2%, to 9,402 while the S&P 500 rose by 3, or 0.1%, to 3,326. Advancing issues outnumbered decliners by a 5-to-4 ratio on the NYSE, where volume was slightly above average.
The key sectors continued to diverge today, and while that's not unusual during earnings seasons, it could point to a pullback following such an explosive technical breakout. That said, small-caps finally had a positive session, despite a decisively bearish open, and in light of the Nasdaq's continued relative strength, investors still seem to be hungry for risk. The World Health Organization’s (WHO) cautiously optimistic report was primarily behind the afternoon rally, and should the epidemic remain limited in scale, we could see new all-time highs in the benchmarks as soon as in the coming sessions.
Worries over new deadly disease weigh on assets
The sharp decline in the price of oil continued in earnest today, with the WTI crude oil contract hitting its lowest level since early November, dipping below $55 per barrel. While U.S. crude inventories dropped by a tad more-than-expected, the fears of the effects coronavirus outbreak weighed on energy markets and other travel-related assets. The possibility of a coordinated global shift away from fossil fuels, which was one of the key topics of the World Economic Forum (WEF) also put pressure on the crucial commodity, despite the lack of a concrete plan.
The European Central Bank (ECB) held its scheduled monetary meeting today, and the euro declined significantly following the Bank’s press conference. While the ECB’s new President, Christina Lagarde hasn’t announced any immediate policy changes, the Bank will conduct its first complete strategy-review in almost two decades. The ECB is expected to focus on the fight against climate change while committing to easy monetary policies in the long run, which could further drive the value of the common currency lower against the dollar and its other major peers.
Tomorrow's session will be all about the global manufacturing and services PMIs, in terms of economic releases, and while the U.S. Markit PMIs might have a meaningful impact on stocks, the European indicators will likely make the biggest difference. Analysts expect improvements across the board, both internationally and domestically, but a few weaker-than-expected readings could be enough the revive the 'global economic weakness' narrative. The manufacturing sector continues to look the most vulnerable, although last week’s bullish Philly Fed Index could mean that the rebound is already here.
Afternoon rally in stocks as technicals give a sign
Technical Corner. The major indices continue to be in a ‘runaway’ bullish trend even in the wake of this week’s shallow dip and the tech sector seems to be ready to lead the charge again, as it has been the case ever since early-October. The benchmarks remain well above their rising 200-day moving averages of 8,220 for the Nasdaq, 3,001 for the S&P 500, and 26,951 for the Dow, and the indices are also clearly above their steeply rising 50-day moving averages of 3,192 for the S&P 500, 8,852 for the Nasdaq, and 28,334 for the Dow.
While the quarterly report of Texas Instruments (TXN) was far from stellar and the stock opened clearly in the red, the semiconductor giant finished close to its record high. The whole sector remains one of the leaders of the bull market, and the popular SOXX ETF remained upbeat even during this week's risk-off shift. The ETF is well above both its 50 and 200-day moving averages, and Intel's blowout earnings could carry the sector even higher tomorrow, judging by the euphoric market reaction in after-hours trading. Stay tuned!
