Morning Comment: Suddenly Range-Bound

  • After retracing 50% of its decline, the S&P 500 index has suddenly become range-bound
  • Can Chevron (CVX) finally see a sustainable rally?
  • What does Invesco’s (IVZ) dividend cut tell us about the future?

After retracing 50% of its decline, the S&P 500 index has suddenly become range-bound

The rally in the morning yesterday hit a wall in the noon-time hour after reports that Gilead’s (GILD) drug Remdesivir “flopped” in its first trial hit the news-tape. The company quickly stated that the studies for the coronavirus treatment is still inconclusive…and several analysts stated that the drug still has a 50/50 chance of succeeding…but that was not enough to keep the stock from closing down 4% on the day. It also led the broad market to finish the day unchanged (and 1.65% below its morning highs). The big reversal came on a decent sized jump in volume…as the composite volume was 15% higher than the last nine trading days. (We didn’t go back a full two weeks because using 10 trading days would have included March’s expiration day.)

Since we started the week last week, the S&P 500 has traded in the relatively tight range of 5.8%. This means that the range of the last nine trading days has been smaller than the single-day ranges we saw on several occasions during the stock market crash of February and March! In other words, things have definitely settled down ever since the S&P retraced about 50% of its Q1 losses…and the market seems to be nearing an inflection point. As we’ve said many times, this is exactly where the “first bounce” stalled-out in the bear markets of 2000-03 and 2007-09, so if the market rolls over any time soon, it could/should raise the level of volatility once again. Either way, whichever direction we breakout of this recent sideways range should be important for how the market acts as we move through the rest of the spring.

Having said this, we don’t want to put too much focus on the recent range for the S&P. It could break above or below this range by a small amount…only to fall back within it rather quickly. Therefore, we’re going to have to a fairly sizeable move from the 2800 level in one direction or another before we can confirm which that a new trend has emerged. However, the fact that the market has lost its recent upside momentum at the exact level it frequently does in the middle of a bear market…does give investors a reason to be careful at the current levels.

Can Chevron (CVX) finally see a sustainable rally?

There’s absolutely no question that the energy stocks (in general) have held-up very well during this crazy week for their underlying commodity. The XLE energy stock ETF closed last night at it’s highest closing level since the March bottom…and the same is true for the XOP oil & gas E&P ETF…….Even though both of these ETFs have rallied very strongly (46% and 54% respectively), they have not become particularly overbought. In fact, if you look at their weekly RSI charts, they’re both still a lot closer to oversold than overbought. (Given how incredibly oversold they had become in March, this shouldn’t be a big surprise to anyone.)

HOWEVER, there are all sorts of reasons to question whether these groups can rally much further given the fundamental situation surrounding the oil markets. If the Saudis really want to break the back of several producers (including the U.S.), these stocks could be in for a very, very, very tough slog going forward. So the risks could/should be high for this sector. With this in mind, we thought it would be good to focus on the chart of one of the companies with the best reputations: Chevron (CVX).

The chart on this stock is very similar to that of the XLE (which is no surprise given that its 23% of that ETF). Therefore, if it can break above its recent highs of $87.20 in any meaningful way, it’s going to give it a nice “higher-high” and thus be quite positive on a technical basis. However, we’re looking at the $90 level as the more important resistance level for CVX. That was the intraday highs from earlier this month. Usually, we put much more weight on the closing levels on a chart, but in this case, the $90 helps us in another way. Not only is $90 the recent intraday high for the stock, it’s also the 50% retracement of the February/March decline comes-in. Therefore, a meaningful break above that level would be much more bullish…and give the stock more upside potential.

Again, the risks are high with this group, so any long positions should have very tight stops, but as we said above, there is no question that the this group is finally looks like it just might have some upside potential going forward.

What does Invesco’s (IVZ) dividend cut tell us about the future?

We’ll finish today’s piece by highlighting the action in Invesco (IVZ). This money management firm cut their dividend in half yesterday…which led to a 21% drop in the stock. Let’s look at this one from two different angles. First, not only did IVZ fall more than 20% in one day, but it is down more than 60% in just 10 weeks!!! They have more than $1 trillion in AUM…so this development is not a positive one at all. It goes back to the theme we’ve been pushing for much of this week which says when so many different markets see major declines over a short period of time, it has always seems to have a very negative impact on investors and companies alike. In other words, if history is any guide, the dividend cut by IVZ will merely be the first of many troubling announcements we’ll hear from lots of different companies (especially financial ones) over the coming weeks and months.

Second, on a technical basis, IVZ broke below its March lows last week, so that’s not good. That said, it was only a very slight break so far, so it would be more accurate to call it a “retest” of that March low. Therefore, if it can bounce off its current level soon, the technical situation will improve. However, we’d also note that its RSI chart is nowhere near as oversold at it was each of the last four times IVZ experienced a compelling bounce. Therefore, it’s reasonable to think that it’s going to have to fall further…and become more oversold…before it sees a “tradeable” bounce.

Longer-term, we’re sure Invesco will thrive (it’s a great company), but we doubt they’re the only company that will need to make some tough decisions following the powerful declines we have seen in many different markets/asset classes in 2020.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Apr 24, 2020 — 8:04 AM
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