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'Litmus Test': Stock Market Update For The Week Ahead

Renato Capelj
·5 min read

The Past Week, In A Nutshell

What Happened: After the abrupt rotation into value and small-cap stocks on the procurement COVID-19 coronavirus vaccines and news of further lockdowns, broad-market indices ended flat-to-down.

Remember This: “Historically the overall retail investor sentiment or the stock market in general are not largely impacted by what happens on a Black Friday or a Cyber Monday,” Dan Raju, CEO of Tradier, told Benzinga.

“I look at retail Thanksgiving spending as a first litmus test of investor confidence in the markets after the positive vaccine news. If retail investors react to Thanksgiving by spending money on Black Friday/Cyber Monday, it will be seen as a reinforcement of confidence and a good initial indicator of a strong upcoming holiday shopping season. On the other hand, if retailers are unable to meet expectations, it might be looked at as an indicator of continued curtailed spending.”

Pictured: Profile overlay on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

Technical

After an initiative upside drive on news that another COVID-19 coronavirus vaccine developed by Moderna Inc (NASDAQ: MRNA) was 94.5% effective, U.S. index futures pared gains as participants struggled to maintain higher prices, evidenced by the non-presence of committed buying and low-excess at the edges of balance.

Given that Friday’s session failed to negate Wednesday’s spike liquidation by moving back into the micro-composite high-volume node at $3,557, the fairest price to do business during the prior balancing activity, initiative sellers remain in control. As a result, knowing that prior end-of-day spikes were the result of weak-handed, short-term buyers liquidating in panic, the selling moved prices away from value and didn’t attract increased participation, and Friday was a monthly options expiry, traders can carry forward the following framework.

If the auction remains in or below the prior selling activity, then initiative sellers remain in control and the liquidation could be the start of a new trend lower, confirmed by trade beyond the $3,506.25 excess low. Otherwise, there is the potential for a failed break-down in which participants rotate back over the $3,580 balance boundary.

Fundamental

In a commentary, BlackRock discussed the staying power of growth stocks after the COVID-19 coronavirus pandemic.

We believe this year brought a sort of forced adoption necessary for future business survival, a dynamic likely to continue for companies that want to be competitive in a post-COVID world. That means demand could continue to edge higher for providers of these products and services. One example: Many consumers swapped gym memberships for connected home fitness equipment. The initial demand spike may recede, but many of these consumers will be multi-year subscription payers and likely to become more firmly entrenched in an ecosystem of products offered by a certain company.

Simply put, BlackRock suggests trends supercharged during the pandemic have been in place for years, providing them staying power. The COVID-19 acceleration liquidated the market of those businesses not equipped to survive disruption, thereby allowing those that remain greater market share.

Key Events

  • Monday: Chicago Fed National Activity Index, Markit Manufacturing PMI Flash, Fed Daly Speech, Fed Evans Speech.

  • Tuesday: House Price Index MoM, CB Consumer Confidence, Fed Bullard Speech, Fed Williams Speech, Fed Clarida Speech.

  • Wednesday: MBA Mortgage Applications, Durable Good Orders MoM, GDP Growth Rate QoQ 2nd Est, Continuing Jobless Claims, Core PCE Prices QoQ 2 Est, Corporate Profits QoQ Prel, Durable Goods Orders Ex Transp MoM, GDP Price Index QoQ 2nd Est, Goods Trade Balance Adv, Initial Jobless Claims, Jobless Claims 4-Week Average, PCE Prices QoQ 2 Est, Core PCE Price Index YoY, Michigan Consumer Sentiment Final, PCE Price Index YoY, Core PCE Price Index MoM, Michigan 5 Year Inflation Expectations Final, Michigan Inflation Expectations Final, New Home Sales MoM, PCE Price Index MoM, Personal Income MoM, Personal Spending MoM, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, FOMC Minutes.

Recent News

  • The gap between vaccine hopes and pandemic reality poses market hazard.

  • Pfizer Inc (NYSE: PFE) files COVID-19 vaccine application to the U.S. FDA.

  • Fannie, Freddie regulator looks to end government control before Trump exits.

  • EM looks to 2021 as Goldman Sachs Group (NYSE: GS) adds bullish calls.

  • The second lockdown weakened U.K.’s growth and fiscal outlook materially.

  • The EU digital chief, tech giants call on new rules rescheduled to December 2.

  • G20 leaders have pledged to fund the fair distribution of COVID-19 vaccines.

  • Recent FSB updates won’t change capital requirements for important banks.

  • New COVID-19 virus restrictions heighten downside risk for European banks.

  • Drop in associated gas production offers a lifeline for pure-play gas producers.

  • Technology startups are looking to raise more after the COVID-19 disruption.

  • World Reimagined: Nasdaq on what the new economy looks like post-COVID.

  • Consumers are looking at new ways to get health care, buy cars, eat and work.

  • How operating leverage may help to narrow yield spreads as COVID subsides.

  • If Democrats win the runoffs for GA’s two Senate seats, expect larger stimulus.

  • How a broader equity market rally would help enhance corporate credit quality.

  • The Fed chief suggests it is too soon to put away its emergency recovery tools.

  • Options markets show risks over the next twelve months reduced considerably.

  • The third-quarter bullish earnings cycle should not be dismissed by the market.

Key Metrics

  • Sentiment: 44.4% Bullish, 29.3% Neutral, 26.4% Bearish as of 11/18/2020.

  • Gamma Exposure: (Trending Neutral) 2,325,158,176 as of 11/20/2020.

  • Dark Pool Index: (Trending Neutral) 43.8% as of 11/20/2020.

Photo by Artem Podrez from Pexels.

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