Commenting on the ‘buy-the-dippers’ returning back in full force and today’s trading Gorilla Trades strategist Ken Berman said:
Q3 2020 hedge fund letters, conferences and more
Buy-The-Dippers Are Back In Full Force
Today’s rally was just what the doctor ordered for bulls, once again proving the strength of the underlying bullish trend. It took only one bearish day for the 'buy-the-dippers' to be back in full force, and while tomorrow’s session could be wild, today’s positive intraday trend suggests that good things are ahead for bulls.
The large-cap benchmarks are still in overbought territory according to the key momentum indicators so a short-term trend change is still on the table despite today’s rally. Cyclical issues had a huge day on the heels of the bullish manufacturing PMI and the Saudi supply cut, with the energy sector gaining almost 5% and materials and industrials erasing yesterday’s losses. Consumer discretionaries also showed strength, while semiconductors led the way higher in the mixed tech sector. The most COVID sensitive stocks defied the negative European headlines and the doubts about the U.S. vaccine rollout, which is a great sign for the broader market too.
Germany May Extend And Broaden Its Containment Measures
Germany will likely become the next European country to extend and broaden its containment measures in the wake of the emergence of the new COVID strain, and others could soon follow. The feared post-holiday spike in the number of cases has been relatively muted in the U.S., so far, but the pressure on the healthcare system remains elevated in several states, and alarmingly, the domestic positivity rate is also up, which is something to keep an eye on in the coming days.
The Georgia runoffs remain too-close-to-call according to all sources, so investors are likely in for a very active overnight session across asset classes. While any correction in the stocks market is expected to be short-lived, the results could have a more lasting impact on bonds and currencies. Treasury yields rose across the curve today, due to the blowout manufacturing PMI, but bond markets could go haywire after the close as the results start to come in around 7 pm EST.
Important Economic Releases To Influence Stocks
Besides the election results, several important economic releases will influence stocks tomorrow, so trading activity could be extreme, especially in the first hours of the session. The ADP payrolls number is expected to come in at 60,000, well below its recent readings, while factory orders are forecast to increase by 0.7%. The minutes of the Fed’s latest meeting will highlight the afternoon session, while the Chinese Caixin PMI, and the Italian and Spanish Services PMIs will be out overnight.
The start of the year hasn’t changed the dynamics in one of the most important global markets, as the dollar continues to be under strong selling pressure. The dollar hit multi-year lows against several of its major peers today, despite yesterday’s risk-off shift, and it could soon surpass a five-year-old resistance zone, which could fuel another leg higher in stocks. The currency’s weakness means that investors remain hungry for risk, and that the most export-focused firms could outperform in the coming months.
After dropping sharply due to the new European lockdown measures on Monday, oil surged higher today thanks to the unexpected Saudi supply cut. The commodity broke out of a multi-week consolidation pattern despite the continued demand-related worries, and it managed to hit a new eleven-month high above the psychologically crucial $50 per barrel level. Oil has been a great indicator of sentiment throughout the pandemic, and should its technical breakout succeed, stocks should enjoy tailwinds globally. Stay tuned!
Headlines
- Stocks finished broadly higher ahead of the results of the runoff elections in Georgia, with small-caps leading the bounce
- The outcome of the elections remains uncertain, likely leading to a heated overnight session across asset classes
- Crude oil skyrocketed above $50 per barrel as Russia increased its output by less-than-expected while Saudi Arabia unexpectedly slashed its supply
- The ISM manufacturing PMI hit a more than two-year high despite the continued COVID pressure
- The Dollar Index (DXY) hit an almost three-year low, as investors are “pricing in” even more fiscal stimulus
Market Wrap
| Index | G/L | Current level | Year-to- date | 50-day | 200-day |
| Dow | 168 | 30,391 | -0.7% | 29,391 | 26,833 |
| Nasdaq | 121 | 12,819 | -0.7% | 12,129 | 10,575 |
| S&P 500 | 26 | 3,727 | -0.8% | 3,596 | 3,248 |
| Russell 2000 | 33 | 1,979 | 0.1% | 1,810 | 1,517 |
Advancing issues outnumbered decliners by a more than 4-to-1 ratio on the NYSE today, with 88 stocks hitting new 52-week highs and only 4 stocks hitting new 52-week lows, while volume was slightly below average.
Price Action Gauge ******** (reading for 01/05: 62)
The major indices bounced back hard following yesterday’s scary-looking selloff, with small-caps also erasing nearly all of their losses from yesterday, but it’s too early to conclude that the pullback is over as the Georgia runoffs could have a large short-term impact.
Oversold/Overbought Gauge ******** (reading for 01/05: 47 Color: green)
