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Market Commentary

April 3, 2020
 
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Volatility remains high as Thursday's impressive rally regained about about half of Wednesday's bigger losses.  We're in a period where 2% moves are minor in comparison to what we've seen, but at least the 9% to 12% moves have backed off.  The Dow gained 470-points and a dramatic rally in oil was a major catalyst.

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The weekly initial jobless claim report certainly wasn't the catalyst as it came in at about 6 million - twice last week's disastrous report.  The futures initially fell after the release of that report but by the time the opening bell rang, the bulls were buying the beaten down stocks from Wednesday's decline.

The price of oil saw its largest one-day percentage gain ever yesterday  This jump in price had nothing to do with the economy, but instead it was because of an agreement to cut supplies between Russia and Saudi Arabia.  Granted, the biggest drop in oil back in early March was because of the price war between those two, but the peak was months ago, and the trend has been down since we had evidence of an economic slowdown / decrease in demand.  This could be a low, but there's doesn't seem to be a very good reason for it to rally too much at this point.  Is there even going to be a summer driving season this year?
 
        


With oil and bank stocks doing quite well yesterday, I'm not totally sure why the S-fund lagged so much.  A 0.80% rebound after a 6.1% loss isn't that impressive.

The March jobs report comes out an hour before the opening bell on Friday.  Briefing.com's consensus estimates are looking for a loss of 150,000 jobs and an unemployment rate of 4.0%, although the forecast are quite wide.

I had said in Thursday's report that I thought we could see a rally on the jobs report, even if it was bad, but after the post initial jobless claims rally on Thursday, I'm not as comfortable with that.  I figured we'd sell-off going into Friday's feared report, setting up a buy the news reaction, but that was flipped when stocks rallied on Thursday instead.

Since the recent downturn from resistance and the breaking of the rising channel we saw off the lows in late March, I'm now more inclined to think we could test those March lows.

           


Creating a bottom is a process, not an event in most cases, and with what the economy has in store for the next few months, and earnings season getting ready to start, not testing the lows after that breakdown seems like wishful thinking.  I've been surprised by the strength of the market before, but that was before the bull market ended.  If we do see rally back above that resistance, I could be convinced by the bullish case.  For now I'm in a sell the rallies / buy only very big dips mode.

 



The S&P 500 (C-fund) rallied on the Thursday to recapture about half of Wednesday's losses.  The positive reversal day formations are generally good signs, and we had one yesterday, but as you can see by the blue arrows, that hasn't been the case during much of this decline.  Each failed the following day.

           


The DWCPF (S-fund) lagged yesterday, and as I mentioned above, it didn't really react very well to the rally in oil and bank stocks as we might expect.  It's below resistance and nearly fell back below 1000 yesterday at the lows of the day.
          
         


The VIX fell sharply but remains above 50.  It did fall through some support and remains in a downtrend, but that could be a large bull flag forming. 
        
         

         
In 2008 we saw the initial rally in the VIX stall in mid-October, but it came back and actually closed at its highest point in November that year, despite some intraday spikes that were higher in October.  Bottom line, volatility may not go away that easily in this bear market environment.

         

         
The AGG (bonds / F-fund) has been much more quiet lately compared to the March madness.  The jobs report could change that since bonds are so sensitive to economic data.  A weaker than expected report could send yields down from their already historically low levels and send bonds prices higher.  On the other hand, if the report comes in line or better, we could see bonds sell off.

         

   
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Thanks for reading.  Have a great weekend!

Tom Crowley


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