July 18, 2020

Stock Market Update For The Week Ahead: ‘Cautious Attitude’


The Last Week In A Nutshell

What Happened: “U.S. stocks are closing in on record highs. But behind the scenes, uneasy investors are keeping their options open,” said Lindsey Bell, chief investment officer for Ally Financial Inc-owned (NYSE: ALLY) Ally Invest.

“They’ve bought gold at a historical pace, boosting the metal’s price to nine-year highs. Same goes for Treasuries, which is why yields are at all-time lows. Lately, we’ve seen that cautious attitude spread to the U.S. options market. A gauge of market worry (the CBOE Volatility Index, or VIX) is stuck at higher-than-average levels, even though stocks are hovering just below their own highs.”

Remember This: “You have monetary and fiscal policy pushing the economy out of a problem and that is very, very bullish,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley (NYSE: MS) Investment Management.

“When you have these extreme accommodative policies it is because there is a problem in the economy. Investors historically focus on the problem and are cautious, yet that’s when you want to get most optimistic.”

Pictured: Profile chart of the S&P 500 E-mini Futures

Technical: Broad-market equity indices balanced higher last week, as seen in the responsive, tight trading range.

Recapping Last Week’s Action: On Monday, the S&P 500 gapped higher, outside of a prior balance area, but failed to continue, rotating back into the prior week’s range. Tuesday’s session continued Monday’s selling activity, but reversed just short of the prior balance area low.

After news that Moderna Inc’s (NASDAQ: MRNA) COVID-19 coronavirus vaccine produced antibodies, Wednesday’s session saw prices pushing higher, gapping beyond Tuesday’s range.

Buyers attempted to burst through the resting liquidity at $3,230, but failed with prices later following the Nasdaq’s relative weakness lower to close the overnight gap. After some mixed economic data, Thursday’s session was dominated by responsive activity, balancing out near Wednesday’s V-bottom low, with sellers lacking conviction the most via the minimal excess low.

Alongside monthly options expiry, Friday’s session continued Thursday’s tone, with the intraday trading range remaining tight and responsive.

Looking beyond broad market indices, the innovation-driven, technology-based sectors are showing signs of relative weakness, while other sectors, such as industrials, energy and financials are rotating higher off recent support.

Overall, the market is in a three-day balance that it’s likely to break come next week. Positive news regarding a vaccine, earnings and stimulus may help further squeeze shorts as we look to fill the gap above, left from late February.

Scroll to the bottom of this story to view non-profile charts.

Key Events: Earnings; Existing-Home Sales; New-Home Sales; Initial Claims.

Fundamental: Airline industry demand projected to surpass 2019 levels in 2023.

  • Travel industry seeks government assistance, tax breaks to spur trips.
  • Rocket Companies expects profit to surge ahead of a U.S. IPO.
  • German finance minister sees proposals on tax reform by October.
  • Canadian wholesale trade posts largest jump in 17 years.
  • G20 officials pledge to keep cooperating to bolster global economy. 
  • Tesla Inc (NASDAQ: TSLA) shares may be stuck in a gamma trap. 
  • Flight to suburbs boosts homebuilding as consumer sentiment fades.
  • Europe meets on Recovery and Resilience Facility agreement.
  • 60% or large firms with sales over $2 billion expect growth to accelerate.
  • The U.S. ended Hong Kong’s special status to punish China.
  • Applications for new home purchases rose 54.1% from a year ago.
  • Options on the Micro E-Mini S&P 500 and Nasdaq-100 to arrive August, 31.
  • 84% of PPP loan recipients will exhaust funding by the first week of August.
  • 63% of small business owners say less than 75% of their revenue has returned.
  • $64 billion invested in North American startups, down 10% year-to-date.
  • Nasdaq optimism hits dangerous levels as tech becomes an attractive hedge.
  • $40-per-barrel not a sufficient clearing price for leveraged shale producers.
  • China bank lending hits record $1.72 trillion in first half after solid June.
  • Dominion Energy Inc (NYSE: D) to sell gas assets, cancel pipeline.
  • U.S. withdraws some underwriting requirements, a positive for payday lenders.
  • Increase in transactions suggests a rebound in Russia’s economy.
  • Acquisition of National General increases Allstate Corp’s (NYSE: ALL) leverage.
  • U.K. actions to buoy employment and businesses, mitigate prolonged shock.
  • Moderna Inc’s (NASDAQ: MRNA) vaccine elicited coronavirus antibodies.
  • Corporate credit quality improved in the week ending July 15.
  • U.S. and China tech cold war could cost the sector more than $3.5 trillion.
  • Canada is poaching tech talent from the U.S. via Express Entry program.
  • China shows economic recovery with 3.2% GDP growth in Q2.
  • U.S. manufacturing increased for the second month, by 5.4%.
  • The jobs market is poised to reverse May and June gains.
  • Charles Schwab Corp (NYSE: SCHW) made less money despite adding assets.
  • Coronavirus surge sparks worries over renewed lockdowns, global fuel demand.
  • China’s bull run could signal a Wall Street stampede.
  • Cuomo confirms New York City will enter the final phase of reopening Monday.
  • Brazil to allow citizens to withdraw from pension funds early.
  • Ally Financial Inc (NYSE: ALLY) delinquencies, charge-offs of auto loans improve.
  • Underwriting to come down according to JPMorgan Chase & Co (NYSE: JPM).
  • Copper-to-gold ratio suggests rates should be higher than they currently are.
  • Sentiment: 30.8% bullish, 23.8% neutral, 45.4% bearish as of July 18, 2020. 

Product Analysis

S&P 500 E-mini Futures (ES) | SPDR S&P 500 ETF Trust (NYSE: SPY)

Nasdaq-100 E-mini Futures (NQ) | PowerShares QQQ Trust (NASDAQ: QQQ)

Russell 2000 E-mini Futures (RTY) | iShares Russell 2000 Index (NYSE: IWM)

Gold Futures (GC) | SPDR Gold Trust (NYSE: GLD) | VanEck Vectors Gold Miners ETF (NYSE: GDX)

Crude Oil (CL) | United States Oil Fund LP (NYSE: USO) | Invesco DB Oil Fund (NYSE: DBO) | United States 12 Month Oil Fund (NYSE: USL)

Treasury Bonds (ZB) | iShares 20+ Year Treasury Bond (NASDAQ: TLT)

Photo by ThisIsEngineering from Pexels.

By Renato Capelj

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