foxex: But Will It Last?

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, March 25, 2020

1. Stocks jump but volatility remains

2. The impact of oil prices

3. Online dating plus COVID-19 equals MTCH

Market Moves

Stock prices made a follow-up rally after yesterday's historic rise, prompting some investors to feel as though a recovery has already begun. However, the on-again-off-again nature of the politics in the stimulus bill may make those investors nervous enough to delay anticipating the market's recovery. Additionally the CBOE Volatility Index (VIX) remains above 60, a very bearish mark. What are the option sellers worried about? That's easy to understand: tomorrow's jobless claims numbers which will be released one hour before the market opens.

The chart below shows the dramatic change that is expected from tomorrow's report. A measure of new unemployment claims more than seven times greater than the recent average is expected to barrage headlines as the market opens up. Perhaps the desire to wait for that number is what prompted U.S. lawmakers to delay voting on the stimulus bill today. Though that seems like strange gamesmanship in such times, it is merely evidence for the historical reality that bear market bottoms can last for weeks or even months. Tomorrow's report on this leading indicator will surely be watched closely, and if the claims actually come in below this number, traders might take it to be a bullish sign.

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The Impact of Oil Prices

The profound drop in the price of oil, brought on in part by the anticipated drop in consumer demand from pandemic concerns and in part between a price-production struggle between Russia and Saudi Arabia, may be coming to an end. With it may also come some veritable bargains in energy sector stocks.

The chart below seems to indicate that some investors have already begun to sense such opportunity. Shares of Kinder Morgan (KMI), Chevron (CVX), Exxon-Mobil (XOM), Valero (VLO) and Halliburton (HAL) have all been caught in the downdraft of the sector's 60% fall during the last quarter. State Streets Energy sector index fund (XLE) benchmarks these symbols for comparison. The past few days of trading have seen several of these companies produce market-beating gains. While this activity is likely an indication of a coming market bottom, if you didn't skip the first section of today's newsletter, you will know that such an indication doesn't mean these stocks will only go up from here.

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Online Dating Plus COVID-19 Equals MTCH

While much of the world labors under the conditions of physical distancing, the human heart wants what it wants. Investors seem to have been thinking that, in general, pandemic-panicked people will now have less need for a hook-up app. Which would explain why shares of Match Group (MTCH) lost more than 50% during the previous quarter.

But the past two days, investors seem to have slapped their foreheads and realized, "Duh! Online dating!" MTCH shares have gained back more than half of what they lost during the last three months over the last three trading sessions.

A recent article pointed out that over 40% of couples meet online nowadays. With all the isolation going on, it isn't hard to imagine that such separation might create more subscriptions to an online date-making service, not less. After all, it takes a few weeks of research to pick and choose the right ones, right?

The chart below makes it clear that the downward trend in MTCH shares began well before the market caught the Coronavirus. So it makes a chart-watcher wonder, if that move in MTCH shares called the top, is this one calling the bottom?

The Bottom Line

Stock indexes closed higher but with late selling as the U.S. Congress seemed to be at odds over passing the stimulus bill. The VIX remains unusually high, but it is likely because unemployment numbers are expected to stage a horror show tomorrow. Meanwhile energy stocks are on the rebound, and the company that owns the Tinder app, Match Group, had a big jump in share price. These two things could be early bullish indicators.