Once Again, U.S. Benchmarks Manage To Rebound

December 22, 2020 12:41 PM
Yesterday’s strong leadership helped the market broadly recover through the session
USD weakness has been, and will continue to be, a focal point of this stock market rally
The second look at Q3 GDP was overall better than expected, but Corporate Profits slipped from the first read
Stock Market Update for Traders

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Monday's Close

E-mini S&P 500 Futures (March):  Settled at 3685.75, down 20.50

E-mini Nasdaq-100 Futures (March): Settled at 12,683.50, down 29.00

U.S. benchmarks have done what they have done all year: rebounded. Yesterday, after losing as much as 3.4% from a fresh record high, the S&P ended the session down only 0.6%. We’re calling the somewhat violent swing to start the week a mini cleansing. Quadruple witching set the wheels in motion before a “buy the rumor, sell the news” event found a vulnerable period of liquidity, given reports of the more infectious strand of Covid-19 in the southern UK. Now that the quadruple witching cleansing has played out and news of Congress passing the coronavirus aid bill has already sold, are we any less cautious than we were Friday? Not just yet.

Make no mistake, we aren't negative or bearish. In fact, our bias from Friday through today has been neutral/bullish. Furthermore, on the portfolio management side we are fully allocated, although protecting some downside.

Yesterday’s strong leadership helped the market broadly recover through the session. Healthy gains from behemoths Microsoft and Apple are first to note, but it was the banks that worked to mute negative sentiment at the open. Goldman Sachs gained 6.13% and Morgan Stanley was a close second at 5.69%.

JPMorgan, Bank of America, Citigroup all finished higher by nearly 4%. On Friday, after a second round of stress tests, the Federal Reserve gave banks the green light to resume buybacks in the Q1 of 2021.

Still, the board was a sea of red yesterday. The USD Index gained as much as 1.3% before paring nearly everything. USD weakness has been, and will continue to be, a focal point of this stock market rally. It’s gaining a bit of ground again this morning, weighing on commodity prices broadly with crude oil and copper each down more than 1%. Things like this are keeping us cautious.

The new fiscal measures have passed to President Trump’s desk and President-elect Biden has already called for added measures when he steps into office. Biden got the memo, something Trump did terrifically through his tenure: feed the narrative and build expectations. Congress also passed a $1.4 trillion spending bill that keeps the government open through September.

Apple is up 3% premarket on news it plans to produce an electric car by 2024. However, given how long it took Tesla to find some success and the many other carmakers that have failed, we find this early reaction over-enthusiastic. Traders should keep an eye on whether Apple holds these gains.

Lastly, the second look at Q3 GDP was overall better than expected, but Corporate Profits slipped from the first read.

We remain cautiously bullish, as traders should be when using leverage. Also, we’ll keep a close eye on developments tied to the new strand of Covid-19, but vaccine tailwinds are still undeniable.

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Blue Line Futures, is a leading futures and commodities brokerage firm offering discounted personalized service and futures and commodity research.