Irrational Market Gets Rational

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Posted: Jul 22, 2020 12:30 PM
Irrational Market Gets Rational

Source: AP Photo/Richard Drew

Investors displayed their angst into the close yesterday. The market which was described by many as irrational, is acting rational ahead of earnings on names that are up substantially. The selling of those big winners pressured the market and pulled the NASDAQ deeper into the red by the closing bell. There was never a sense of panic - just an orderly decline, as money came out of mega winners seeking new homes in underperforming stocks, sectors o the sidelines. 

Market breadth was very bullish with the up volume outpacing the down volume by more than 4:1 ratio. 

Market Breadth

NYSE

NASDAQ

Advancing

2,290

2,065

Declining

714

1,309

52 Week High

141

191

52 Week Low

3

13

Up Volume

3.69B

3.55B

Down Volume

880.54M

1.68B

Rotation: Deep Value Hunting

Yesterday, the winners on the day were the inverse of the 2020 year-to-date performance.

Sector Performance

July 21

YTD

Consumer Discretionary XLY

+0.15%

+8.60%

Consumer Staples XLP

+0.87%

-1.71%

Energy XLE

+6.04%

-36.13%

Financials XLF

+1.97%

-21.09%

Industrials XLI

+1.32%

-11.23%

Materials XLB

+0.87%

-0.21%

Real Estate XLRE

+0.03%

-9.57%

Utilities XLU

+0.45%

-7.18%

 

Oil’s Not Well

Crude oil finished off the highs of the session, but Energy still managed to rally more than 6%. West Texas Intermediate (WTI) needs to get above $42.00 and find a way to challenge $45.00.  Meanwhile, the Energy sector (XLE) is right at the 50-day moving average and poised to challenge the 200-day moving average upon closing above this hurdle. I’m so beaten in oil names that I only like them as trading vehicles right now.


The Ultimate Rotation

It might feel as though investors have been waiting for growth to rotate into value forever, but that’s not true. On the other hand, it’s been decades of waiting for bond money to flow into stocks. We’ll get an update on the latest, as investors continue to pour billions into taxable bonds while taking billions out of stocks.


Trump’s Virus Update

President Trump held a calm and steady briefing on COVID-19 and stated that the virus will probably get worse before it gets better. He was hopeful beyond near-term flare-ups and urged Americans: "When you are not able to socially distance, wear a mask, get a mask. Whether you like the mask or not, they have an impact, they'll have an effect and we need everything we can get."

So far this week, we are seeing small but encouraging signs on slowing increases in COVID-19 cases. We are also encouraged that rising deaths are not matching the same degree of increasing cases from the past two weeks.

To see the chart, click here.

Portfolio Approach

We only have 5% cash in the Model Portfolio, and I’m eager to put that to work.


Today’s Session

There is saber rattling between US and China, as China has vowed to retaliate if the decision to close the Chinese consulate in HousFor now, let’s not force the issue.