Market Direction: BULLISH alert issued 4/10/2020
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Market Direction Week Review: Domestic
and global stocks declined last week as a sharp drop in oil prices sparked
market volatility. The May WTI oil futures contract price fell into negative
territory before expiring, and the June contract price continued to slide,
marking the first time in history that oil prices have gone negative. This was
a result of technical selling pressure before contract expiration, as well as
limited storage space brought on by the historic lack of demand for oil.
Sentiment improved slightly later in the week as President Trump signed into
law another coronavirus relief bill that includes additional funds for small
businesses and hospitals. We think the economy will start to exhibit progress
as restrictions are eased, but not without periodic setbacks along the way.
The
Shanghai Composite and CSI 300 large-cap equity indices tracked each other
closely in an uneventful week. Both indices closed higher on Monday before
easing gently to finish down 1.1% week on week.
China’s
industrial sector has largely completed its process of normalization, according
to the National Bureau of Statistics, which reported that over 97% of larger
industrial enterprises were operational as of April 9. Over half were operating
above 80% of their normal level, with more than 80% of enterprises operating
above 50%. There was some concern among investors after the State Council's
financial stability oversight committee met twice in 10 days to discuss
investor protection. This caused some speculation that regulators had uncovered
some problem, such as listed Chinese firms hiding coronavirus-related losses.
Investors
were encouraged, however, after China's central bank, the People’s Bank of
China (PBoC), cut the key loan prime rate (LPR) for banks by 20 basis points to
3.85%, causing the bond market to rally. A cut was widely expected after the
PBoC lowered a key interbank rate in the previous week. The five-year LPR, an
important reference for residential mortgage rates, was reduced by 10 basis
points to 4.65%. China has been slow to lower the cost of bank credit during
the crisis. It last reduced LPR by 10 basis points in February as part of an
earlier effort to counter the negative economic impact of the coronavirus
outbreak.
How
the market finished last week, the S&P 500 down 1.3%, the Nasdaq down 0.2%,
and the Dow down 1.9%.
Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 4/10/20 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies).
Earnings season kicks into high gear. About 140
S&P 500 (^GSPC) companies, a fifth of the index, are set to report
quarterly results this week.
“The
market response to [earnings] results has been generally positive,
ex-Financials,” Raymond James Chief Investment Officer Larry Adam said in a
note April 24. “Some of the best earnings reactions have come from
Technology-oriented stocks, as supportive results were needed following very
stable estimate revisions heading into earnings season (along with strong
relative performance this year). Overall, the S&P 500 is now expected to
see a 14.4% earnings contraction in Q1, with the majority of weakness coming
from the Energy, Consumer Discretionary, Financials, Industrials, and Materials
sectors. These stocks have, accordingly, felt the brunt of the weakness in this
bear market. Whereas, sectors with the most stable estimate revisions - i.e.,
Health Care, Technology, and Consumer Staples - have seen some of the best
performance.”
Investors will get a taste of the carnage inflicted
by COVID-19 on the U.S. economy with the release of first-quarter Gross
Domestic Product (GDP) on Wednesday morning.
“The
plunge in activity in the second half of March, as coronavirus restrictions
proliferated, means that the first-quarter GDP data will show output
contracting for the first time in six years, and worse is to come in the second
quarter,” Capital Economics said in a note to clients April 24.
GDP
during the first quarter is expected to have contracted 3.7%
quarter-on-quarter, down sharply from 2.1% growth in the fourth quarter. Following retail sales record plunge in March, Personal
Consumption likely contracted 2.3% in Q1, down from a 1.8% increase in Q4.
The
standard caveat still applies; “President Trump’s tweets still trump everything
else”.
Economic Calendar: Consumer Confidence Index (4/28), GDP (4/29), FOMC Meeting (4/29), Weekly Jobless Claims (4/30), ISM Mfg Index (5/1)
Some of the major earnings announcements on deck: MCD, AAPL, FB, MSFT, AMZN.
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