foxex: Big Bounce

Chart Advisor | Focus on the Price

Friday, March 13, 2020

1. Bonds hold, but stocks rally seven percent in closing minutes

2. Where the money will go

3. Can cruise lines recover?

Market Moves

The index futures hit their five-percent trading curbs before the market open for the third time in a week. However, this time they hit them on the way up. Stock indexes managed to close an additional four to five percent higher by the end of the session, thanks mostly to a seven percent rally in the final twenty minutes of trading.

The rally was touched off by President Trump's announcements that the government would fill the oil reserves and make $50 billion available for aid to states in their disaster preparation/recovery efforts. However, despite big gains in stocks, bond prices held their comparative ground, suggesting that this whole ordeal isn't over just yet (see chart below).

Where the Money Will Go

When the Fed, as it announced yesterday, extends its repurchase-window operations it is offering to literally hand banks cash. Of course the banks have to pay it back, but at pretty attractively low rates, so if they are able to turn any kind of profit in their business then it's a good deal for banks. That's the idea. Keep the banks able to make loans and in turn those banks can help keep the Fortune 500 companies afloat in the event of any cash shortfall.

Since there seems to be a good bit of that going around for some reason, the real question is whether the Fed feels the need to account for any moral hazard here (the possibility that the banks won't pay them back). So far the Fed shows no sign of that concern. We know this because of the following chart.

The chart below shows the one stock out of the top 25 most influential stocks (those most heavily allocated in index ETF portfolios) that was up the most at today's close. J.P. Morgan Chase (JPM) was up over 18% today compared to yesterday's close, grasping back nearly a third of all it had lost so far this year. This alone clues you in to where that Fed relief money will go first.

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Can Cruise Lines Recover?

Today's final chart comes from a suggestion sent in by reader P.C. who suggested that cruise lines could make for an interesting chart. Indeed. Consider the unhappy plight of these doomed seafaring resorts. If over the past nine weeks you were to have held your money in an equal-weighted portfolio of Royal Caribbean Cruises (RCL), Norwegian Cruise Lines Holdings (NCLH), and Carnival Cruise Lines (CCL), you'd probably want to leap overboard about now. The value of these stocks have sunk seventy-five percent so far, and no one is certain if the leaks are fixed so to speak. That being said, this chart may offer at least some duct-tape like hope.

The downward trend line (marked in red) is running in an opposite direction to the troughs of a technical indicator known as the Commodity Channel Index (shown below the chart). This dynamic is known as a bullish divergence. It doesn't mean that a trend change is imminent, but it does imply that conditions are ripe for it to be so. For the sake of those hard-working ship crews, here's hoping it isn't too far away.

The Bottom Line

Volatility is the order of the day as stock index futures hit their upper limit over night, sold off during the day by two-and-a-half percent, then rebounded seven percent at the close of the day. Looks like banks will get a lot of help from the Fed, who in turn hopes that helps everyone else. A cruise sounds like a terrible idea right now, but buying cruise ship stocks might not be as terrible an idea as you would think.