Market Pendulum Swinging Back

Monday was a good session. It could have been great, but late selling reminded us of how fragile the market has become. There was a sense that the train was leaving the station, but it didn’t quite get there before the bulls gave up the ghost.  I do not want to discount the fact the session came out of the gate with gusto and even picked up steam. 

Moreover, all eleven S&P sectors were higher on the session, and conservative sectors were the worst performers.

• Utilities
• Health Care
• Consumer Staples

One False Move

The biggest dogs of 2020 made the most noise, but it remains to be seen if they can sustain the move.  False starts have bedeviled these sectors, which are hammered but cannot string together enough winning sessions to capture the attention and investment dollars from most market participants.

Don’t get me wrong. Buyers without axes to grind would chase Financials or Energy if there was a week-long rally that took out key resistance points. The problem is Technology is well off the highs, which presents a counter to value investors or the ‘buy on dips’ crowd.

The Energy sector is paying out a hefty 11% dividend, but that comes with an index that continues to make lower lows and lower highs and is miles below its 50-day moving average. Conversely, Financials were threading the 50-day moving average and have been less volatile. I would lean there, looking for a return on principle to be more than 11%, but there is no urgency yet.

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Broadening the Rally

There are more than 200 winners on the S&P 500, but the fact is there are so many more losers for the index and the NASDAQ is jaw-dropping. There is just so much cash on the sidelines, and I’m not sure much more will come loose until after the election.

That doesn’t mean the market isn’t going higher, especially the winners:

S&P 500 Winners

• 207 average gain: +22.7%
• The top 20 average gain: +77.6%         

S&P 500 Losers

• 297 average loss: -23.8%
• The bottom 20 losers average decline: -62%

NASDAQ Winners

• 414 average gain: +62%
• The top 20 average gain: +522.8%         

NASDAQ Losers

• 597 average loss: -30%
• The bottom 20 losers average decline: -74.9%

Broadening the Reopening

Yesterday, the city of Chicago announced it was opening up a bit more on Thursday. The restrictions are still tight and will present problems for smaller establishments, but the news came as a surprise, as many big cities seem determined to wipe out all their small businesses. It still has a long way to go to match the Chicago that Frank Sinatra sang about back in the days when the Windy City was one of the world’s best.

• Restaurants, gyms, retailers, and salons go to 40% capacity from 25%
• Six people or less per table
• Bars 25% capacity from zero (max 50 people, whichever is lowest)
• Bar closing time at 1:30 a.m. and liquor stores at 9 p.m.

Hotline Model Portfolio Approach

We took profits in two positions in the Hotline Model Portfolio after adding two more positions during the session. We have some dry powder but want to be opportunistic during this period of uncertainty.

Today’s Session

The market looks steady, but anxious, ahead of tonight’s debate and growing hopes of stimulus, as scuttlebutt suggests a deal – a real deal- could be reached this week.

The big test we like to see is a scenario where the market opens under pressure and finds a way to turn higher, and close at session high, as the closing bell is ringing.