The stock market closed deep in the red today, as despite the agreement on yet another stimulus package in Washington, investors remained downbeat regarding the global economy. The Dow was down 632 or 2.7%, to 23,019, the Nasdaq lost 298, or 3.5%, to 8,263, while the S&P 500 fell by 87, or 3.1%, to 2,737. Decliners outnumbered advancing issues decliners by a 4-to-1 ratio on the NYSE, where volume moderately heavy.
Traders said that all asset classes confirmed today’s global risk-off shift, as the bloodbath in the oil market remained the center of attention. As one trader explained, "Treasury yields declined, credit spreads widened, and basically all risk assets took a hit today amid the unprecedented moves in oil markets, and while the global COVID-19 crisis is easing, caution is still warranted for bulls."
Netflix (NFLX, -0.8%) reported earnings after the bell today, and the company reported impressive numbers, boosted by the increased global demand. The company added more than 15 million new subscribers in the first quarter, and the stock jumped to a new all-time in volatile after-hours trading. Coca-Cola (KO, -2.5%), Lockheed Martin (LMT, -2.5%), Texas Instrument (TXN, -4.2%), and Philip Morris (PM, -6%) all beat the consensus estimates on their bottom lines as well, but since the outlook for the rest of the year is uncertain, all of the stocks closed the session with losses in the wake of their bullish reports.
The price of oil for June delivery plunged by over 40% today following yesterday's wild moves into negative territory in some of the key oil contracts. Although the crude oil market normalized somewhat in late trading, the short-term pain is unlikely to be over for oil bulls. The market is likely to remain extremely oversupplied for at least a month, despite the historic production cut by OPEC and Russia. The price of further futures contracts could turn negative in the coming weeks, as storage capacities are quickly declining.
The European banking sector continues to be under severe selling pressure, and credit markets across the globe showed signs of stress today amid the oil collapse. While Thursday’s meeting between the leaders of the European Union (EU) might see a breakthrough, periphery government bonds sold off today, despite the European Central Bank’s (ECB) open-market interventions. Several key banks are also trading near their all-time or decade-long lows, and the weakness among U.S. banks is likely, in part, the direct consequence of the dire European situation.
Existing home sales came out today before the opening bell, and while sales dropped by 10% in March, in-line with expectations, some analysts expected a much lower reading. As the lockdowns in the U.S. will likely end earlier than originally expected, the housing market could recover much quicker than what a few apocalyptic forecasts suggest, especially as mortgage rates are expected to remain very low. The Housing Price Index will provide more information regarding the housing market tomorrow morning, but all eyes will be on the weekly crude oil inventory data in light of this week’s crazy moves in the price of oil.
Technical Corner:
This week’s selloff caused some technical damage on Wall Street, as the relatively strong Nasdaq violated a couple of key “support” levels, and all of the key trend indicators continue to point lower. The major indices are all below their declining 50-day moving averages of 2,841 for the S&P 500, 8,320 for the Nasdaq, and 24,322 for the Dow and the benchmarks are also below their 200-day moving averages of 8,408 for the Nasdaq, 3,011 for the S&P 500, and 26,649 for the Dow.
The financial sector has been clearly lagging the broader market recently, and mega-cap banks have been leading the way lower this week. The most popular XLF ETF is still stuck well below both its 50- and 200-day moving averages, and the largest banks are in even worse technical positions, due to the fears of a massive wave of corporate defaults. That said, compared to their global peers, U.S. banks are still in great shape, and once the selling pressure on the sector eases, they could be among the global leaders of the recovery. Stay tuned!
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A. As you BUILD your portfolio, the inclusion of diversification is absolutely ESSENTIAL for your success in the market. This powerful component is recommended for use within the GorillaTrades system, and it may be used to spread a portfolio’s capital throughout individual sector or by Risk Rating alike. Given that these tactics are often used for portfolio protection, they may ultimately improve your overall performance by catching some of the BIG winners!
NOTE: Since the GorillaTrades portfolio is already inherently diverse (by sector, market, and market capitalization, etc.), your obligations are to spread capital according to your individual risk parameters; YOUR ability to stomach risk. Thus, the version of “diversification” you exercise should always be defined through, and set, to reflect your individual tolerance for risk; capital shall be positioned to avoid any excessive account drawdowns from inevitable misfortunes.
Please never over-commit capital to any ONE position, and as always, assign an exit strategy to each and every trade! |
