Commenting on yet another strong intraday bounce and today’s trading Gorilla Trades strategist Ken Berman said:
That stocks finished near their session lows yet again doesn’t bode well for bulls, at least from a short-term perspective. Stocks got extremely oversold by almost every short-term measure today, but the end of the session was outright ugly, so caution is still warranted, even as this kind of panicky conditions rarely last for long.
Q4 2019 hedge fund letters, conferences and more
Yet Another Strong Intraday Bounce
While stocks staged yet another strong intraday bounce today, the major indices finished substantially lower again following yesterday's neutral session, hitting four-month lows amid the continued rout. The Dow Jones Industrial Average (INDEXDJX:.DJI) was down 1191, or 4.4%, to 25,767, the Nasdaq (INDEXNASDAQ:.IXIC) lost 414, or 4.6%, to 8,566, while the S&P 500 (indexsp:.inx) fell by 138, or 4.4%, to 2,979. Decliners outnumbered advancing issues by a more than 4-to-1 ratio on the NYSE, where volume was well above average again.
While the CDC still hasn't confirmed an official 'community outbreak' on U.S. soil, California is on high alert, with over 8,000 people being monitored in the state. It seems that investors concluded that a global pandemic is inevitable, as the outbreak ins in South Korea and Europe are getting worse by the day. Although most of today's virus-related headlines were negative, China provided some positive news. Life is starting to get back to normal in some parts of the country, the number of new confirmed cases and deaths declined, and Starbucks (SBUX, -2.95%) announced the reopening of all of its Chinese shops.
The key sectors all lost significant ground yet again today, and even the defensive utilities and healthcare stocks got hammered, especially towards the end of the session, and only Treasuries continue to provide safety for investors. Consumer-related issues lost the most ground today, together with energy stocks which have been slaughtered this week, registering losses well into double-digits. Industrials fared relatively well, thanks to the better-than-expected durable goods report, while real estate stocks were boosted in an intraday bounce by yet another bullish surprise, this time from pending home sales.
The tech sector started the day on a negative note because of Microsoft’s (MSFT, -7.1%) profit warning that caused a selloff in equity futures yesterday in after-hours trading. The software-giant cited supply-chain-related troubles in China, but the overnight spike in the number of South Korean cases also put pressure on the sector, due to the country’s crucial role across high-tech industries. The Nasdaq was the clear leader of the runaway rally that started in October, but the tech benchmark has been hit especially hard this week amid the global growth worries.
The week will end with another busy session, in terms of economic releases, with the consumer economy taking center stage. Even though investors have been paying little attention to economic indicators this week due to the virus, the Core PCE Price Index, personal spending, and personal income could all serve with important insights. The Chicago PMI will also be out just after the bell, but since U.S. consumers have been behind the bulk of global growth in recent quarters, it will likely have a smaller impact on stocks.
Key Short-Term Trend Indicators Flashing Red
Technical Corner: As the major indices are on track for their worst week since 2008, despite the intraday bounce, it’s no surprise that the key short-term trend indicators are flashing red across the board, even as the underlying bullish trends are still intact. The large-cap benchmarks are now all well below their 50-day moving averages of 3,272 for the S&P 500, 9,252 for the Nasdaq, and 28,730 for the Dow. The relatively weak Dow adn S&P 500 are now also below their 200-day moving averages of 27,241 and 3,056 respectively, but the Nasdaq is still holding up above its long-term moving averages of 8,389.
The Volatility Index (VIX, +42.1%) is having its wildest week in years, with only the ‘volatility-apocalypse’ of 2018 February being comparable in recent memory. This time around, the VIX could remain higher for longer, as a more serious issue is behind this week’s spike. The index more than doubled since last week, topping the 39 level for a two-year high, and leaving behind its 50- and 200-day moving averages. The VIX’s short-term average also crossed over its long-term average today, for the frits time since September, with both of the averages turning higher as well, signaling a sustained trend change. Stay tuned!
