foxex: Breathing Easier

Monday, March 30, 2020

Breathing Easier

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Monday, March 30, 2020

1. Stocks continue their rebound as oil prices fall to new low

2. The strength of the Technology sector

3. Microsoft leads stocks higher

Market Moves

Sunday marked the first significant drop in the worldwide number of confirmed new COVID-19 cases (chart below). The market's reaction was to buy stocks and sell oil futures lower. The first one makes sense, the second one might not seem to at first. At least not until you consider the continuing lock-down efforts and the new notices of cancellation that occur each day. Then you come to understand that though we might be able to comprehend an end to the COVID-19 spread, investors are having difficulty comprehending the full impact on the economy.

But even so, the CBOE Volatility Index (VIX) did drop below 60 for the first time in eleven trading sessions (second chart below). This reflects the reality that many investors have a least a little bit of hope for a rapid rebound.
(Chart below is courtesy corona.help)

The Strength of the Technology Sector

In a recovering market, it is typical to see the Technology sector show relative strength over other sectors. Either the Financial sector, Industrial sector, or Consumer Discretionary sector would tag along for the ride, making the second best performing sector. But that doesn't seem to be playing out right now (see chart below). The chart below compares each of the sector ETFs made available by State Street, including Technology (XLK), Healthcare (XLV), and Utilities (XLU) as the leading sectors, and Financial (XLF) and Energy (XLE) as the laggards.

Since Energy and Financials have not begun to fully recover, it could be a sign that markets may take an extra week or two to settle down before driving higher. The current pricing of VIX options places the index with a 50% chance that it will get below 40 in about three weeks. Of course that also implies there is a 50% chance it won't.

Read more:

Global Lockdown Measures See Extensions

Amgen Stock Looks to Break Out After Analyst Upgrade

The 3 Strongest Stocks in the S&P 500

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Microsoft Leads Stocks Higher

The chart below compares Microsoft (MSFT) and Invesco's Nasdaq 100 index ETF (QQQ). It is worth noting at this point how it is that Microsoft has worked itself back into positive territory for the year 2020 so far. When you consider that Microsoft is 21% of the weighting in the Technology Sector ETF mentioned earlier, you recognize that where Microsoft goes, the technology sector (and its ETF) will follow.

The Bottom Line

Investors chose stocks first today while the VIX finally dropped below 60 for the first day in a couple of weeks. The technology sector is leading out with Microsoft and Apple providing the fuel to go higher. Microsoft closed in positive territory for the quarter so far.