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The Markets Are Grinding Higher (Technically Speaking For 4/8)

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Via SeekingAlpha.com

The Treasury Department is seeking additional funding for the small business lending program (emphasis added):

Treasury Secretary Steven Mnuchin on Tuesday asked congressional leaders to swiftly commit an additional $250 billion to replenish the new $349 billion small-business coronavirus program that is being overwhelmed by surging demand.

President Trump said banks have processed $70 billion in taxpayer-backed loans for 250,000 small businesses since Friday, as companies seek emergency help to deal with the enormous business disruption caused by the pandemic.

The program is very generous and essentially gives business free cash if it meets certain conditions. The surging demand shouldn’t be surprising since most of the country is under some kind of lockdown.

During WWII, the Fed controlled the shape of the yield curve, which, in modern terminology, is called “yield curve control.” A paper from the NY Fed explains how that program was started, implemented and terminated. The paper draws two conclusions:

The Committee’s efforts offer two lessons in yield curve management: (1) the shape of the curve cannot be fixed independently of the volatility of interest rates and debt management policies, and (2) large-scale open market operations may be required in the course of refixing, from time to time, the shape of the yield curve

The key takeaway from the report is that the Fed engaged in active bond market management during a time of crisis and then rescinded control when the crisis passed.

Data on electricity usage shows a sharper downturn than the Great Recession:

New data on electricity use suggest that U.S. economic activity probably declined more over the past three weeks than it did during the entire year and a half of the Great Recession. It may already be the deepest downturn since the Great Depression; it is certainly the fastest.

The numbers come from a new electricity-based measure that Steve Cicala, an economics professor at the University of Chicago, has devised to track the state of the economy and how it changes from day to day. The idea of tracking electricity usage, he says, follows from the observation that most economic activity requires electricity.

Here’s a chart of the data:

This shouldn’t be surprising. The last tabulation I saw had nearly 90% of the US under a stay-at-home order. The latest data from Germany and France show huge drops in gross output, which is the natural result from a massive, country-wide lockdown.

Let’s take a look at today’s performance tables:The equity market performance is exactly what the bulls need. Mid-caps rose a little over 5%, small-caps advanced 4.66%, and micros rallied a little under 4%. Large-caps also moved higher. Also on the plus side, the long end of the Treasury market sold off a bit.On the plus side, all the sectors rallied. On the negative side, two of the top four performers were defensive in nature. However, the strength of some of the advances is telling.

Today, let’s take a look at the 30-day charts of the major equity market ETFs I track. But before we look at the charts, let’s review a chart pattern called the cup and handle. I think of this as two rounding bottoms: the first one is longer in duration while the second one is shorter. The second one also has a higher bottom. Here’s an example:

All of the market indexes’ 30-day charts have this formation. Some have broken out while others haven’t.

Let’s start with the best chart, the QQQ: This is a completed pattern; prices have broken through resistance in the 186-192 area and continued higher.

The SPY is right at the end of moving though the gap down section from 257-270. If it moves higher tomorrow, we’ll consider this a break-out.Mid-caps are still in the area of resistance from the gap of 147-155. Small-caps are still hitting resistance, as are … … micro-caps.

The good news is that the markets continue to grind higher on news of continued progress in the fight against COVID-19. But remember the breadth of the negative news on the horizon: we’re going to see some ugly numbers in the next eight weeks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.




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