Reflections - 6/5/20
Major U.S. Indices
Friday, saw the Dow Jones Industrial Average close +829.16 (+3.15%) to 27,110.98. The DJIA ($INDU) is now trading above its 200-day moving average (200dMA), a key technical level likely to provide near-term support and often indicating a confirmation in reversal of sentiment. There is too much momentum on the bid for us to ignore increasing equity exposure during the week of June 8, ceteris paribus, but do note we are less than 20% invested currently with an over 80% cash position. The Technology heavy NASDAQ Composite ($COMPQ, $QQQ) gained 2.06%, closing at 9,814.08 (+198.27), continuing its slow ascent. Not to be outdone, the S&P500 ($SPX, $SPY) gained 2.62%, closing at 3,193.93 (+81.58). The NASDAQ “regained” its 200mDA in mid-April, the S&P500 regained its 200mDA in late May. On the heels of a slightly upsized QE offering in Europe this week, Germany’s DAX Composite ($DAX) saw a gain of 3.35% (+415.75) to 12,843.85 on Friday – and we will closely watch the European “risk” bid on Monday (6/8) prior to the U.S. session.
The Dow Jones Transportation Index ($TRAN) saw considerable volume on Thursday and Friday, and also reclaimed its 200mDA on Friday, up 3.11% (+297.71) to 9,872.96. Considerable strength in airlines has helped push this index higher. Utilities ($UTIL) were unable to reclaim their 200mDA and were pressured into week’s end as flows slowed, but remain relatively strong. Consumer Staples ($XLP) reclaimed their 200mDA on Friday and are showing strength. Energy ($XLE) one of the top performing sectors on Friday (+7.43%) remained hot with West Texas (WTI) closing in on $40/bbl and OPEC just around the corner. With the amount of serious global economic strife, we don’t expect OPEC and CO to mess around here, preferring a stabilized price of oil, at least $30, with a $35 near-term target, and perhaps going to $40-$45 within the next 6-12 months (we shall see, some of this truly is an art). Lots of flow into Financials ($XLF), which gapped higher on Friday, only to be sold down all day. Early next week we will be watching on the Financials and the Transports trade – if Banks, Brokers, Insurers, Airlines, Trucking and Rail come off – then we’d view this week’s strong action, despite very strong momentum, to have weak underpinnings. Healthcare ($XLV) looking pretty flat and range-bound in here – which is fine, for now. Industrials ($XLI), Materials ($XLB) and Utilities ($XLU) showing similar patterns on Friday as the Financials, a big gap up and then a slow fade throughout the day. Flow is strong enough here that we will watch and look closer at individual issues. Technology ($XLK) showing more consistency on Friday, though on declining and light relative volume. Tech also pushing up against its pre-Covid February levels here. Light volume in Communications ($XLC) which are losing some steam. Biotech ($BTK) has started to turn down here. Semiconductors ($SOX) have been red-hot and we watch for signs of cooling, now above early ’20 levels here.
30yr UST finishes the week yielding 1.68%, in a dramatic steepening (2/10, 10/30). With the Fed on tap this coming week at the FOMC, USTs will be in focus.
Commodities, FX and Volatility
Gold ($GOLD) has been selling off along with other precious metals, a sign of more risk taking in the market. The bid in Copper ($CPER ETF proxy) looks legit, and ends the weekend snuggling up with its 200mDA – a dovish JPow, could see Copper climb another +/- 3% in here (so we wait to see how the world unfolds). Copper is a favorite economic tell-tale of ours – remember you can’t create the wind, but you can adjust your sails – and we are in some suspend your disbelief dot.com valuation, fundamentals don’t matter levels up here. Don’t look now, but the South African Rand ($ZAR) also seeing strength – another early tell-tale for us. Volatility continued its decline ($VIX, 24.52) and is almost to levels where we will seek to get fully invested – however, it seems to never go in a straight line, and 23-29 are levels we will continue to be cognizant of here. VIX seems* to not be going through its 20dEMA as overhead (O/H) resistance.
There is obviously no movements on U.S. Interest Rates next week, and we will spend a little more time jotting down some notes on what we might expect, when we get to the QE Alphabet Soup, that’s some PhD Econ and Policy beyond my arm-chair economics to even attempt to predict, so we shift to interpretation as best as possible.
Is anyone else super tired of 2020? Enough with the lock-down, COVID, trade war, unemployment / firings, rioting – can we just get back to Sports, Entertainment and courtship.