Commenting on the deadline of Brexit talks and today’s trading Gorilla Trades strategist Ken Berman said:
Q3 2020 hedge fund letters, conferences and more
Morning Selloff Leaves Traders Scratching Their Heads
Today’s session was a polar opposite of what one would accept in a holiday season, but in 2020, probably this shouldn't come as a surprise. The scary morning selloff and the memorable recovery left traders scratching their heads, especially given the wild moves in the VIX, but from a broader perspective today’s intraday rally is just another proof of the underlying strength of this market.
We had a wild session at the level of the key sectors, as even though nearly all of the sectors closed in the red, the divergences between them were significant yet again. Tech stocks were the only ones gaining ground, on average, but financials, real estate, stocks, materials, and industrials all recovered well during the intraday bounce. Energy stocks, utilities, and consumer staples struggled to keep up with the large-cap benchmarks, as the most lockdown-sensitive issues remained under pressure throughout the day.
As it was widely expected, the two parties finally struck a stimulus deal, just in time before the holidays, and despite the delays, the bill could provide meaningful support for the economy. According to Treasury Secretary Steven Mnuchin, the $600 coronavirus stimulus checks could arrive as soon as next week, while the new federal unemployment supplements will provide longer-term relief. The nearly $300 billion in payment protection small business loans and the targeted grants to some of the hardest-hit industries could also be crucial until the impact of the vaccine efforts will become apparent.
Brexit Talks Deadline Is Approaching
Europe and the U.K., in particular, was at the epicenter of today’s early selloff, with especially the double-whammy of a possible no-deal Brexit and the new travel restrictions weighing on British assets. While it’s hard to judge the possible effect of the mutation, the December 31 deadline for the Brexit talks is quickly approaching, and even though another extension is possible, the lack of progress could be a warning sign for bulls. An unorganized Brexit could hit the still vulnerable European economies very hard, which, in turn, could slow down the global recovery.
Tomorrow’s session will be the first of two very busy ones, in terms of economic releases, and we will get important releases across the sectors of the domestic economy. The CB consumer confidence number could have the biggest impact on stocks, but the final reading of the third-quarter GDP print, existing home sales, and the Richmond Manufacturing Index will also be closely watched by investors. The main sectors all started showing some weakness in recent weeks, and while the stimulus agreement is a positive development, the current wave of outbreaks could lead to further short-term deterioration. Stay tuned!
Headlines
- The major indices finished slightly lower following an overnight plunge which was followed by a comforting intraday rally
- The fears of the new British COVID-strain swept through markets overnight
- Crude oil finished lower by more than 3% due to the new travel restrictions in Europe
- The two parties finally agreed on the details of the next stimulus bill, and the $600 direct payments could already start arriving next week
- The Volatility Index (VIX) surge to an almost seven-week high above 30 in early trading before finishing near 25, below its high from last week
Market Wrap
| Index | G/L | Current level | Year-to- date | 50-day | 200-day |
| Dow | 37 | 30,216 | 5.9% | 29,060 | 26,437 |
| Nasdaq | -13 | 12,743 | 42.0% | 11,918 | 10,332 |
| S&P 500 | -14 | 3,695 | 14.4% | 3,552 | 3,195 |
| Russell 2000 | 0 | 1,970 | 17.9% | 1,744 | 1,479 |
Decliners outnumbered advancing issues by a more than 7-to-3 ratio on the NYSE today, with 60 stocks hitting new 52-week highs and only 3 stocks hitting new 52-week lows, while volume was slightly below average.
Price Action Gauge ******** (reading for 12/21: 68)
Despite today’s losses, price action was encouraging on Wall Street, as the volatile global selloff wasn’t enough to reverse the bullish short-term trends, suggesting that the record-breaking rally could soon resume.
Oversold/Overbought Gauge ******** (reading for 12/21: 33 Color: green)
The major indices are still clearly overbought according to the most reliable momentum indicators, but a significant correction looks less and less likely thanks to the consolidation of the past weeks and resilience that the major indices have been showing recently.
