Hope Fades
The stock market started off positively in the morning after rallying on yet another terrible jobless claims report. This situation changed after the WHO reported disappointing results about remdesivir which Gilead countered. And this entire situation is very odd.
We never had conclusive proof that the drug worked, yet stocks rallied on hope. Now we don’t have conclusive proof that it doesn’t work, yet stocks fell. At least the market is consistent.
Another odd situation is when the news came out, stocks fell sharply. Next they recovered and then fell back to the initial point they sold off to. The market sold off 1.62% from its peak, closing down 5 basis points on the day. It seems like the market was using any excuse it could to selloff.
It's likely the stock market is due for a pullback because the number of new COVID-19 cases isn’t falling much. The economy won’t reopen in May with the pace we’re going at. Furthermore, when Georgia reopens, many businesses will stay closed. To me the entire plan is foolish. Let’s wait a few more weeks until the situation is under control.
It seems like the stock market has rallied sharply in the past few weeks, but it hasn’t recently. In the past 2 weeks, the S&P 500 is only up 0.29%. If you annualize that gain, it comes out to 7.5%, but that’s not the point. The stock market moved more than that in a few minutes over the past 2 months.
That’s as close to a stable market as you’re going to get. Some investors have been bullish for a few weeks, but are changing their tune. We can see the market drifting lower until we get better news on a COVID-19 treatment and more declines in cases. It's unlikely that the economy will reopen until June at the rate we are going at.
Very Bearish Investors
Sgnals differ as the CNN fear and greed index and NAAIM investor positioning survey are signaling modest fear, while the AAII survey came out of left field showing extreme fear. Specifically, the CNN fear and greed index is at 40 which is the top end of fear.
With the economy shutdown and the virus killing somewhere around 2,000 people every day in America, you can argue a 40 reading is as optimistic as you’re going to get. NAAIM investor positioning index spiked sharply from 28.71 to 45.34. It’s the highest since late February. It’s still relatively low, but it’s very far from its trough of 10.65.
AAII investor sentiment survey shocked me because of the optimism expressed in stocks. The stock market increased modestly from the previous report, yet there was a major negative sentiment shift. This gives near-term bears pause. As you can see from the chart below, the percentage of bears fell 10 points to 24.9% which is way below average which is 38%. That’s the lowest level since the start of the COVID-19 outbreak.
Percentage of bears rose 7.3% to 50%. Remember, the index going above 50% for 3 straight weeks was a huge buy signal last month. Personally, I wouldn’t be surprised if stocks fall in the next week and the percentage of bears falls.
Review Of Thursday’s Action
Thursday was a mostly flat day as the Nasdaq fell 1 basis point and the Russell 2000 rose 1.04%. VIX fell 0.6 to 41.38 which inched it close to my target of the 30s. Even with modest declines, we can see the VIX falling. It’s way too high. Speaking of too high, the Nasdaq 100 versus the S&P 500 is the highest since the tech bubble.
This ratio has had an RSI above 70 in 16 of the past 17 weeks. That’s because the big tech stocks like Amazon and Microsoft have done really well. Microsoft is 4% off its recent high, but it can still go lower. Amazon is almost at its record high. It needs to fall. Biggest bubble in the market is Shopify which is up 52% year to date.
Intel Disappoints Investors
Intel disappointed investors as its stock fell 6% after hours on top of the 1.76% decline during the day. Any inklings against the stock because of its hype pre-earnings on Wednesday were correct. Intel will probably hurt the Nasdaq on Friday. The firm had $1.45 in EPS which beat estimates for $1.28.
Revenues were $19.83 billion which beat estimates for $18.7 billion. Sales were up 23%. The firm guided for $1.1 in Q2 EPS which was 9 cents below the street. It guided for $17.97 billion in sales which was above estimates for $18.5 billion. The fact that they gave guidance is impressive. Tech is holding up relatively well which is why the sector is outperforming the market. Some of these stocks have obviously gotten overheated.
COVID-19 Update
Even though New York has been improving, the situation in America still seems disastrous. We were supposed to be seeing declines in new cases by now, but instead we are just stabilizing. There were 31,900 new cases on Thursday which was the most since April 17th. There were 2,342 new deaths which is tragic.
America has had over 50,000 deaths and will likely have over a million cases by early next week. The fact that anyone is discussing reopening the country is ridiculous. Italy set to start reopening on May 4th and it is 3 weeks ahead of America. The American economy might not be back to normal until the fall as it has been hit the hardest by this virus.
Current model is predicting there will be 67,641 deaths by August 4th. We will likely see that many by early May, meaning it is too optimistic. Just because America has reached a peak in new cases and new deaths doesn’t mean life will go back to normal soon. Life won’t go back to normal until there is a vaccine or a treatment.