Monday, April 27, 2020

Morning Note

GM announced this morning that it’s suspending its dividend as well as its share buyback plan, Tyson foods says “the food supply chain is broken”, oil tumbled to below $13, Deutsche Bank “warns of loan defaults”, Apple delays production of 2020 iPhones on “supply woes” and economists Tom Orlik and Jamie Rush say that “a $6 trillion global recession is the optimistic scenario”. But wait, last night the Bank of Japan announced “more stimulus steps”.

Amid all of that bad stuff highlighted above (and that was the short list), that last line seemed to be all traders needed to take futures from notably red to notably green late yesterday afternoon. They’re notably green this morning as well, and some. 

Of course there's also the scheduled "opening up" in several jurisdictions, but that wasn't new news over the weekend. The COVID data has🙏on balance improved as well...

So, yes, the “hope phase” aptly characterizes the current state of market affairs.

Looking at the charts over the weekend, ironically, the last two bear markets (both were epoch, amid better than current economic circumstances) experienced strong restracement rallies that began in March (2001 and 2008). In each case the rally peaked in May (the 22nd in 2001, the 15th in 2008) after 8 week stints.

I’m thinking it would be too weird to see such a scenario in terms of date and duration play out a third time in a row. I wonder what savvy traders are thinking, or planning?

For sure, savvy or otherwise, futures traders are playing for a fall, evidenced by still large net short interest on SPX contracts. Of course, as long as that persists (short interest is huge on SPY as well), any rally here is going to receive a positive jolt as shorts cover.

Bottom line, central bank pumping aside, this is not a market to chase!

Asian equities rallied across the board last night, Europe is following suit this morning. The dollar, interestingly, is getting hammered. Gold and silver futures are up (although spot prices are in the red) while the rest of the commodity futures complex is mostly in the red. Treasuries are trading lower (yields higher), while foreign sovereigns are mixed.

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