Weekly Briefing 10/11/20


Stocks tried to move down into our correction target zone of October 5-7 but were denied. Not even a Covid diagnosis or a break in stimulus negotiations could help. We entered long positions last week after our danger period passed. There is unfortunately no way to consistently predict when the Plunge Protection Team will abort price early from reaching its correction. If markets were allowed to trade freely, a slight undercut of the 3200 low from Sept 24 should have occurred October 5-7. What this type of trading action does is add fuel to a more violent correction in the future. There are several signals one can watch to know when elite money is sniffing out a bottom. The leaders in this bull market include biotech and semiconductors. They will often turn prior to the broad market, SPX 500, like they did back in March, June and most recently September. 

September 24th low.


Bios putting in a bottom a week earlier.


Elite money will re-enter the market when they feel a bottom is close through sectors they have the most conviction in. Something to watch, but not foolproof as price can always turn back down and make a lower low. We will always defer to our proprietary system and wait until our projected danger periods have passed. We are willing to give up some potential profit for reduced risk.

Weekly market recap

Stocks had yet another active week despite the relatively empty economic calendar, as the President's quick recovery from his COVID-19 infection and the continued stimulus-related political struggle provided plenty of positive and negative catalysts. After returning to the White House on Monday, POTUS triggered a sudden but brief plunge in stocks when he shut down the talks concerning a comprehensive stimulus package and shifted his attention to several standalone bills. The fate of the fiscal measures remains unclear, but despite the delay and the still worrisome global COVID picture, stocks staged a broad-based rally, with cyclical stocks and small-caps spearheading the move thanks to the positive domestic economic outlook. The short-term technical picture turned clearly bullish as the major indexes hit new one-month highs and left their lows from September behind, and the advancing long-term trend is in no danger. The S&P 500, the Dow, and the Nasdaq are now all above their 50-day moving averages, and the benchmarks are also well clear of their 200-day moving averages. Small-caps experienced an explosive rally as the Russell 2000 finished the week significantly above both its moving averages after hitting its highest level since February. The Volatility Index (VIX) continued to be trapped between its short and long-term moving averages, and the "fear gauge" remains at a very high level compared to the price action in the major indexes despite hitting a one-month low on Friday. Market internals improved significantly thanks to the Russell's blowout week, and several key breadth measures reached their most bullish levels of the post-crash recovery in the wake of the broad-based rally. The Advance-Decline line surged to a new bull market high, as advancing issues outnumbered decliners by a 9-to-1 ratio on the NYSE and a 6-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased on both exchanges yet again, surging to 106 on the NYSE and 108 on the Nasdaq. The number of new lows declined in the meantime, plunging to 4 on the NYSE and 5 on the Nasdaq. The percentage of stocks above their 200-day moving average hit a new recovery high as well, blowing past 60% and closing the week near the 64% level. Short interest declined significantly on Wall Street, despite the still high level of economic and political risk, and the most-shorted issues had a memorable week as small-caps soared to new recovery highs. The week will be packed with key indicators, such as Tuesday’s Consumer Price Index (CPI), Wednesday’s Producer Price Index (PPI), Thursday’s Philly Fed Index, and Friday retail sales report on Friday. The earnings season will start to heat up too. Because of the extraordinary circumstances, the mega-cap banks' numbers will likely be even more closely-watched than following a normal quarter. It seems likely that the second presidential debate will not happen next week, but that does not mean that politics and the campaign will not take center stage. 

HFZ

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