It’s still about rotation, or in the case of yesterday’s session, re-rotation. Money came out of blue-chips names and back into mega-cap and momentum names. But the so-called Covid-19 stocks were mixed- and on balance, a disappointment.
Although the market bias is to the upside on any given session, your positions can be hit hard, and that is frustrating. That was the case yesterday with Main Street industries from restaurants to auto dealers. Under pressure from the opening bell, things didn’t get any better after New York governor Andrew Cuomo announced curfews for a number of businesses.
Cuomo’s action follows an even more strict lockdown edict in Chicago and reports of the Biden team wanting a universal nationwide lockdown for six weeks this spring.
Such a mandate would be met with stiff opposition and test the independence of individual states. For many, the issue isn’t - and never has been the wearing of masks, per se - but being ordered to do so by the government.
When the federal government assumes that much power, people become nervous.
Even if 100% of Americans agreed on the idea of wearing masks, the federal mandate is a slippery slope. The next time such a mandate takes place, the public might be in an 80% agreement with the course of action.
The time after that, perhaps it’d be 40% - but by then, there would be little room to push back since precedence would be established.
There are mental health issues, economic issues, states’ rights issues, and individual rights issues that will be ignored with a mandated order.
For investors (and I stress investors rather than traders), this volatility and hits to positions can be demoralizing. I would use the upside surge on vaccine news as a reminder these names will reverse higher quickly when the coast is clear. Right now, the bigger threat is locking down the entire nation for six weeks, which would lead to more economic carnage.
I am least concerned about the stock market as I am to what happens to the nation and what happens to our voices. Most publicly held restaurant chains and auto dealers will be fine and take market share by default, while smaller single family-owned businesses are pushed into the abyss of bankruptcy. The stronger public names will roar back, but too many small businesses will vanish forever.
As you might imagine, the NASDAQ enjoyed positive market breadth, although declining stocks were higher than what a 2.0% move would suggest.
52 Week High
52 Week Low
Hotline Model Portfolio Approach
We added a new position in the Hotline model portfolio. I am spying taking a few names for less than I initially wanted to raise funds and mitigate near-term angst.
It’s important to keep your head on a swivel under these circumstances and not panic. Note: managing risks and building cash is not the same as panicking.
Keep an eye on the bond market, which was closed yesterday in observation of Veterans Day. The ten-year yield has taken off like a rocket and is now racing toward 1.00%. Those folks that might have just climbed out of a time capsule from 2019, or any year before then, would be shocked this is even a conversation.
However, breaking out through a 1% yield on the ten-year yield has become a big deal. The yield flirted with 0.50% in early August, so it’s on the verge of doubling. There would be some psychological resistance there, but the next big technical test begins at 1.50% through 2.00%.
I think the move is good news for the economy and should help stocks, as big chunks of money come out of bonds seeking new homes.
The relationship between rising bond yields and ta higher stock market is remarkable. It’s not about day-to-day actions, but over a period of time, which is far longer than a year, the returns average 20%. Keep that in mind as you add the ten-year yield to your stock screen.
Right now, those yields are lower in part to rising concerns about Covid19 spread and the unrelenting reporting in financial media.
Moreover, the Biden team pushing for a six week nationwide lockdown is very worrisome stuff. Many of those nimble, hard working medium and small businesses that have held on would endure a final economic blow.
Chipping Away But Pandemic Red Flags
Initial jobless claims declined to 709,000 from 751,000 against consensus of 740,000. This is more positive news.
To see the chart, click here.
Continuing claims also came in better than expected to 6.79 million (the street was at 6.90 million).
To see the chart, click here.
There are still more than 21.0 million Americans on some form of unemployment benefits. Pandemic Emergency Unemployment Claims +159,776.
- CA +88,461
- IL +25,633
- MI +32,674
- NY +18,191
When indices open demonstrably higher or lower than where they closed, gaps are created in the charts. According to stock market technicians, those gaps have to be filled, which means at some point, the price returns to that prior closing price.
For example, on Monday the gap was actually filled on the same day (see arrow). The big run in the stock market since last week has left a trial of gaps (circles). I do not believe gaps have to be filled, but they are good guides for potential resistance and support points.
Key support for the S&P 500 is 3512.