Week-In-Review: Big Outside Weekly Reversal On Wall Street
Stocks soared last week from deeply oversold levels after the one-two, punch from the Fed (monetary policy) and Congress (fiscal policy) sent stocks higher. Last week, the Fed announced unlimited QE and Congress passed a $2 trillion relief package. The market was deeply oversold and way over due to bounce and that was “enough” to send stocks higher. In Monday’s, intra-week update, I wrote, “The market is extremely oversold and way overdue to BOUNCE. So, as long as today’s lows hold, and a deal gets passed, I have to expect today to be a near-term low. If today’s lows are taken out, then, all bullish bets are off the table. If we bounce, we can be in for a very strong bounce.” That still stands. Last week’s lows are the next area of support to watch. On a weekly basis, the market opened lower, took out the prior week’s low, then reversed and took out the prior week’s high – which is also known as a weekly outside reversal to the upside. Normally, that is a bullish sign but this market is far from “normal.” The key now is to see if this bounce continues or if it rolls over and fails. Unfortunately, the number of cases continues to soar (even as most of the world is “locked down”) which is not ideal and the most important data point in the world right now. The curve must flatten first then begin to decline. When that happens, stocks will soar.
Stocks fell on Monday after the Senate failed to pass the much anticipated stimulus bill for the second time. The bill was supposed to be passed Sunday night and then many people hoped it would pass on Monday but it didn’t. Before the open, the Federal Reserve announced QE infinity which has never happened in the U.S. before. Stocks rallied on Tuesday after House Democrats introduced a $2.5 trillion coronavirus stimulus plan. Stock futures soared overnight and hit limit up in another volatile premarket session. On Wednesday the market soared another 5% but sold off by the close to close mixed. The Nasdaq lagged all day which was not ideal and the Dow was thrusted higher by shares of Boeing, which jumped 4% on Wednesday. Congress was supposed to sign the $2T deal but that was delayed – again.
Thursday & Friday Action:
On Thursday, stocks ripped higher causing some of the indices to jump 20% from their lows -which traditionally defines a new bull market. Weekly jobless claims soared to a few million as many people were negatively impacted due to the ongoing corona situation. Stocks fell hard on Friday after the U.S. has more cases than any other country in the world and Boris Johnson (UK Prime Minister) said he has Covid-19.
Market Outlook: Economy Is Locked Down
The short-term trend is down as the major indices imploded in late February after fear spread that the coronavirus will cripple the global economy and spark a world-wide recession (or worse). Global governments and global central banks stepped in with massive rate cuts to help “stimulate” markets. As always, keep your losses small and never argue with the tape.