Until the Trend Ends…

Commentary

The SP-500 broke above a key-resistance level and made a new 30-day high while the Nasdaq-100 is close to retesting its all-time high. Also distinguishing themselves were the DJ-30 Industrials @ +0.03% and the Russell-2000 @ -0.36% both of which significantly underperformed the market. Technology and Consumer Discretionary stocks were the only gainers amongst the 11 major sectors. Typically, one would prefer to see a broader based rally to support a sustainable bullish trend.

Another observation worth sharing is volume or the lack thereof throughout every sector. This itself is bearish and could be indicating investor fatigue. However, because more investors will be taking cues from key economic data and earnings as the week progresses, this might partially account for the contraction in market liquidity. Trading on Tuesday, Wednesday and Thursday should be much more robust. Until then, we’ll simply have to wait.

Market Summary

Market Moving Events

Bullish

  • Coronavirus / Healthcare: AstraZeneca’s announced that results for its Covid vaccine candidate indicate “good antibody and T-cell response.”
  • Economy / Europe: EU leaders moved closer to agreement on a proposed  €750bn pandemic recovery plan after several countries rescinded opposition once it was determined that  €390bn would be allocated to grants and the balance as low interest rate loans. Regarding GDP, the ECB stated that more recent data supports the probability for less than previously estimated contraction @ -13%.
  • Mergers & Acquisitions: Chevron (CVX) will acquire Noble Energy (NBL) for $5bn.
  • Earnings Surprises / Energy: Haliburton (HAL) actual EPS @ 0.05 vs estimates @ -0.12.

Bearish

  • Coronavirus Pandemic / US: The surge in Covid19 cases could lead some states to re-enforce lockdowns to counter the spread of the virus. For example, Florida has experienced 10k or more new virus cases in 9 out of the last 10 days. California trails New York in total number of cases but the increasing number of positive tests almost all but guarantee it will become the number one state for Covid19. This is not the ideal scenario for the nation’s leading state in GDP if one is banking on a V-shaped economic rebound.
  • Trade / Japan: June-2020 Exports fell -26.2% vs estimates @ -24.9% and previous @ -28.3%. June-2020 Trade Balance shrank to -268.8bn vs estimates @ -35bn and previous @ -838.2bn.
  • Inflation / Germany: June-2020 Producer Price Index (PPI) (m/m) actual @ 0.00% vs consensus @ 0.2%; and (y/y) actual @ -1.8% vs consensus @ -1.5%. A positive highlight is that it was the first month prices have not declined since January.

Summary Analysis

That the market is technically and fundamentally overbought cannot be disputed, in my humble opinion. However, I’ll remind all to respect the bullish trends until they are no longer. It really is just a simple as that sometimes. Like I said last Friday, a lot of the support is dependent upon the strategy of “hope”. Most of this hope evolves around a breakthrough in a vaccine or treatment for Covid19 and that Congress will work in a non-partisan manner to coordinate with the Trump administration on additional stimulus aid for the millions of Americans enduring unemployment and disruption of business from small to large scales.

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