Commenting on today’s trading in which the equity bull market continued its run, Gorilla Trades strategist Ken Berman said:
The major indices all finished modestly higher following the second very choppy session in a row that saw heavy trading in stocks and across asset classes, with all eyes still on China and the coronavirus outbreak. The Dow was up 124, or 0.4%, to 28,859, the Nasdaq gained 24, or 0.3%, to 9,299 while the S&P 500 rose by 10, or 0.3%, to 3,284. Decliners outnumbered advancing issues by a 7-to-3 ratio on the NYSE, where volume was slightly above average.
Although U.S. stocks followed global risk assets lower today, the losses were relatively small, and it seems that the equity bull market remains bulletproof. While a lot of value investors likely decided to take some chips off the table this week, today, stocks refused to go lower following a bearish morning session, and that intraday strength shows how eager bulls still are to buy the dip.
The key sectors continued to diverge substantially today, as earnings, the coronavirus outbreak, the volatility in the bond market, and the GDP report led to tumultuous trading on Wall Street. Investors also continued to ‘price in’ Fed Chair Jerome Powell’s cautious words, even though the U.S. economy kept on growing at a solid pace in the fourth quarter. The market-leading tech sector was mixed in the wake of Facebook’s (FB, -6.1%) disappointing quarterly report, as Microsoft’s (MSFT, +2.8% ) upbeat numbers weren’t enough to save the day.
The World Health Organization (WHO) declared a global health emergency this afternoon as the death toll of the coronavirus hit 171 and the CDC confirmed the first human-to-human transmission of the virus in the U.S. The declaration could lead to a more coordinated push for containment globally, but the jury is still out whether or not the outbreak can be stopped without draconian travel restrictions. Tourism and trade-related issues continued to struggle today,
After declining on six out the last seven sessions, Treasury yields fell substantially across the curve today, hitting their lowest levels since early-October. The plunging rates, which signal a strong risk-off shift, put pressure on the dollar today, with the safe-haven Japanese yen and the pound gaining the most ground compared to the currency. The Fed’s cautious stance and the demand for safe-havens also boosted gold and silver. However, global equities got hammered, and the price of oil hit its lowest level in almost four months.
While according to today’s much lower-than-expected GDP Price Index, inflationary pressures are low in the U.S., despite the solid growth rate, we will have more information on the matter tomorrow. The Fed’s favorite inflation indicator, the Core PCE Price Index will be out in pre-market trading, together with personal spending and personal income, while we will get the Chicago PMI just after the opening bell. Even though the coronavirus is behind this week’s sharp decline in Treasury yields, should inflation remain low, the trend could accelerate in the coming weeks.
Equity bull market lead by Tesla
Technical Corner. Although, the major indices might be in for the first short-term trend change since October because of this week’s broad pullback, with the Dow being in the most vulnerable position, but the bullish long-term trends are still in no danger. The benchmarks remain well above their rising 200-day moving averages of 8,253 for the Nasdaq, 3,010 for the S&P 500, and 27,013 for the Dow, and the indices also closed above their steeply rising 50-day moving averages of 3,209 for the S&P 500, 8,927 for the Nasdaq, and 28,427 for the Dow.
Elon Musk’s crown jewel Tesla (TSLA, +10.3%) continues to punish shorts on almost a daily. Today’s blowout earnings report by the carmaker poured more fuel on the fire. Tesla equity bulls are making bank as shorts lick their losses. The classic short squeeze propelled the stock more than 50% higher this month, and the parabolic trend resumed today with yet another breakout to a new all-time high. With the stock’s short interest still at 18% and the firm’s value now exceeding $110 billion, a lot of shorts could soon face margin calls which might lead to a spectacular ‘blow-off’ top in the coming weeks. Stay tuned!