The news that the Trump administration was going to come forward with a fiscal stimulus plan that includes a payroll tax cut (and maybe even some relief for the energy industry) helped the stock market (which had become quite oversold on a very-short-term basis) bounce strongly yesterday. The rally came on strong volume (6.3bn shares on the composite volume) and breadth that was quite positive (17 to 1 positive on the S&P 500 and almost 5 to 1 positive on the NYSE composite index). However, these strong “internals” were not as extreme as we saw in Monday’s big decline, thus it’s going to be hard for the stock market to see some strong upside follow-through today.
Of course, it’s VERY easy to say that the market is not going to see upside follow through…given that the S&P futures are trading over 80 points lower as we write this morning. So we’re not adding anything compelling by saying this, but we just wanted to point out that the “internals” were not as good yesterday…as they were bad…on Monday. Therefore, it’s not a big surprise that the futures are giving back much of yesterday’s gains…..…Sharp bounces are very normal during deep corrections and even bear markets. So we’re probably going to have to see the situations with the two black swans we’re dealing with right now calm down significantly before we see a sustainable rally.
As we all know, more rate cuts from the global central banks and big stimulus packages on the fiscal side are not going to do anything to contain the coronavirus or help oil prices bounce in a substantial way. Therefore, the “sell the rallies” strategy that we’ve been pushing lately remains firmly in place.
Another key reason why the strategy remains in place is a very simple ...