Commenting on Bank of England’s announcemnet of a £200 billion QE program today’s trading Gorilla Trades strategist Ken Berman said:
Q4 2019 hedge fund letters, conferences and more
Stocks had one of their most chaotic days in history, as the wild moves across asset classes and the global response to the crisis created a highly unstable trading environment. It would be a stretch to call a day with trading ranges wider than 5% in the major indices a calm one, but compared to the volatility in bond and currency markets, stocks were relatively stable, even as price action was extremely choppy amid the continued virus-related uncertainty.
The major indices all finished in the green following a very choppy and nervous session on Wall Street, as investors tried to gauge the impact of the rescue packages announced by central banks and governments across the globe. The Dow Jones Industrial Average (INDEXDJX:.DJI) was up 188, or 1.0%, to 20,087, the Nasdaq (INDEXNASDAQ:.IXIC) gained 161, or 2.3%, to 7,151, while the S&P 500 (indexsp:.inx) rose by 11, or 0.5%, to 2,409. Advancing issues outnumbered decliners by a 3-to-1 ratio on the NYSE, where volume was extremely high again.
BOE Announces A £200 billion QE program
It has been hard to keep track of all the monetary and fiscal steps that global authorities took this week, and since yesterday’s close, central banks fired several shots again. The European Central Bank (ECB) announced an $820 billion quantitative easing (QE) program, the Bank of England (BOE) cut its benchmark rate to 0.1% and announced a £200 billion QE program, while the Fed opened a new facility targeted at money markets. How much these measures will help with the very real effects of the lockdowns remains to be seen, but central banks are using all the tools that they have to boost investor and consumer confidence.
Walmart (WMT) hit a new all-time high today, confirming that cooler heads are starting to prevail on the Street, and a lot of consumer-related stocks also jumped, despite the much higher number of new jobless claims. Energy stocks also surged higher amid the calls for an embargo on Russian and Saudi Arabian crude oil, but tech stocks, services, and most importantly financials also showed strength today. Compared to the extent of the recent selloff, today’s gains are still minuscule, but should financials stabilize, the whole market could get a major boost.
Volatility Remains High
Volatility remained extremely high today on Wall Street, but the Volatility Index (VIX) declined substantially after topping 85 yesterday, which is a level only seen on the darkest days of the financial crisis. Yesterday’s positive breadth divergence and the behavior of the VIX could both mean that we reached ‘maximum panic’ yesterday and the markets will start to normalize in the coming days. While that doesn’t mean that we won’t see new lows, since the impact of the pandemic is still hard to judge, the era of major market dislocations might be over.
Despite the positive signs, credit markets continue to be under pressure. High-yield bonds declined again, as the 10-year Treasury yield fell back to 1%, meaning that the ‘flight-to-quality’ continues. The immediate liquidity issues eased thanks to the central bank’s steps, but credit markets will remain at the center of attention, due to the systemic risks. The economic calendar will be virtually empty tomorrow, with only existing home sales coming out just after the bell, and bulls hope that the rollercoaster week will end on a positive note.
Technical Corner
The technical picture hasn’t changed much in the past couple of days, despite the wild swings in the major indices, as even though the benchmarks found support yesterday, the key trend indicators are firmly in bearish territory. The indices all remain well below their declining 50-day moving averages of 3,133 for the S&P 500, 8,966 for the Nasdaq, and 27,270 for the Dow. The benchmarks are also well below their 200-day moving averages of 8,415 for the Nasdaq, 3,042 for the S&P 500, and 27,105 for the Dow, and the industrial average will likely complete the ‘death cross’ tomorrow, with its 50-day average falling below its 200-day one.
The price pattern that the Dollar Index (DXY) has been following in recent days resembles the short squeeze that the shares of Tesla (TSLA) experienced in January. A lot of analysts pointed out that the forced liquidations of the past weeks led to a short-squeeze-like dynamic in the dollar’s market, but there is at least one major difference. While it’s true that the forced liquidations will end, a lot of signs suggest that the dollar will remain strong after that too. The relatively closed nature of the U.S. economy and the U.S. financial system’s stability could fuel a sustained rally in the dollar against its major peers. Stay tuned!
