Relieve Rally Ending
Bear market rallies are short, sharp, and ferocious. That reflects uncertainty though for now mood has flipped from fear to optimistic.
Steve Sosnick, Chief Strategist Interactive Brokers
We noted last week that hope, fear, and greed moves markets. I added complacency to the list. By April 7, the Dow had dipped for 36,500 from February’s high of 45,000 (rounded). BY mid-month the rally took the Dow to just shy of 41,000. Another sell-off occurred and today resistance seems to be at 40,000. I suspect the relief rally is ending and next week offers more declines. Why you say?
Take a stroll through the headlines. Trump claims to be negotiating with the Chinese which they outright deny. Xi lays groundwork for long tariff battle reads the headline. And no wonder he does not have to run for office, nor does Putin. There is more.
Home Sales See Steepest Decline in Two Years
Chaos at the Pentagon
Intel Cuts Outlook
Airlines Withdraw Guidance, American Air loses $473 M in three months
Credit Card Companies Brace for Downturn
Nissan has $5B loss in Last Year
The carnage is much worse than the averages indicate. For example, only 33% of the SPX stock are trading over their 200-day moving average. That number was 80% last October. This is a better definition of bear market than simply saying the bear requires a 20% decline in the average.
How ab about the Permian Basin? Last July Diamondback FANG touched $210. At the April 7 low it touched $115. Considering the oil price is above $60, that is a really bearish outlook. The service business valuations are equally grim. The ETF for energy service is XES. It peaked at $97 along with FANG last July. Now it trades at $59.
In the last month the XLE Energy ETF collapsed from $94 to $76, now trading at $82.
The price of oil has also dropped considerably since last July. Then it touched $84. It slipped below $66 dropping to $556 and now at $63. The downtrend has not reversed. This drop in price along with the headlines cited above suggests a weaker world economy with less demand for oil. Gasoline futures trade at $2.11 suggesting continued lower pump prices ahead.
We continue to recommend Treasury Bills for safety and income.
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