Stocks Turn Lower Amid European COVID Fears

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Commenting on the intensifying COVID-related fears and today’s trading Gorilla Trades strategist Ken Berman said:

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COVID-Related Fears Intensifying Again

While this morning's bounce was encouraging for bulls, stocks ended the day on a negative note. Big tech stocks and several of the leaders of the recent months, such as Tesla (TSLA, -7.8%)  were hit hard in late trading today, and with the COVID-related fears intensifying again, bulls could be in for a bumpy ride this week.

We had a wild day atamong key sectors, as the conflicting COVID-related fears and stimulus hopes led to significant divergences. Energy and healthcare stocks finished in the green, while financials and industrial were virtually unchanged on the day thanks to the improving long-term U.S. economic outlook. The tech sector itself was divided as the growth-sensitive semiconductors enjoyed tailwinds, but the regulatory risks and the global worries put pressure on the giants of the sector, while the rising rates continued to weigh on real estate stocks and utilities.

While a lot of experts initially downplayed the threat of the new variant of the virus, the developments of the past couple of weeks in Europe proved that its higher transmission rate is a real issue. The pressure on several nations' health care systems has been increasing and, for example, Goldman Sachs (GS, +1.3%) now predicts a possible double-dip recession in Europe due to the grim numbers and the new containment measures. On a positive note, the major vaccine manufacturers continue to expect their serums to be effective against the new virus strain, but the full global economic recovery could be delayed by the current surge in infections.

Transition Of Power To The Biden Administration

The odds of an orderly transition of power to the Biden administration increased significantly last week, but tensions remain high in Washington in the wake of the violent protests. House Democrats introduced articles of impeachment against President Trump for the second time, and it seems likely that he will face a second process with only a bit more than a week being left of his term. From an investment standpoint, the tax and stimulus plans of the new administration will be more important than the impeachment, but the political tensions could lead to higher volatility in risk assets.

The economic calendar will be quite busy tomorrow morning and we will get several key indicators from some of the most virus-sensitive sectors of the economy. The NFIB Small Business Index and the JOLTS job openings estimate are both expected to drop, reflecting the delayed stimulus package and the resurgence of the virus, but the IBD/TIPP economic optimism number is forecast to tick higher. The "snap" impeachment process against President Trump will also remain in focus, so investors could be in for another active session. Stay tuned!


  • The major indices all finished lower following an active and hectic session on Wall Street
  • House Democrats got close to impeaching the President for the second for his role in last week’s riots
  • Treasury yields pushed higher for the fifth day in a row amid the continued stimulus speculation, and the 10-year yield closed at its highest level since mid-March
  • The dollar hit an almost three-week high due to the global risk-off shift, with the euro being hit by the deteriorating European COVID picture
  • The World Health Organization (WHO) issued a warning about the new strains of the virus, while analysts already fear a double-dip recession in Europe

Market Wrap

Index G/L Current level Year-to- date 50-day 200-day
Dow -89 31,009 1.3% 29,670 27,037
Nasdaq -166 13,036 1.2% 12,263 10,688
S&P 500 -25 3,800 1.2% 3,629 3,275
Russell 2000 -1 2,091 5.9% 1,842 1,534

Decliners outnumbered advancing issues by a 3-to-2 ratio on the NYSE today, with 116 stocks hitting new 52-week highs and no stock hitting a new 52-week low, while volume was slightly above average.

Price Action Gauge ******** (reading for 01/11: 73)

Price action deteriorated following last week’s improvements today, but even though the weakness among mega-cap tech stocks was worrisome, small-caps closed the day in the green and even the short-term bullish trends remain firmly intact.

Oversold/Overbought Gauge ******** (reading for 01/11:47 Color: green)

The large-cap benchmarks are still in overbought territory, despite today’s pullback, and that increases the chance of a more substantial pullback in the coming weeks.