Relative Strength

U.S. markets rise for third consecutive day despite record weekly jobless claims.

The Market Sum | Insight after the bell By Caleb Silver, Editor in Chief Thursday's Headlines 1. US markets make it three days in a row of gains 2. Senate passes $2 trillion stimulus bill 3. Weekly jobless claims spike to 3.28 million 4. Where has the money flown from? 5. What's Warren Buffett up to? Markets Closed Dow 22,552.17 +1,351.62 (+2.38%) S&P 2,630.07 +154.51 (+6.24%) Nasdaq 7,797.54 +413.24 (+5.60%) VIX 61 −2.95 (-4.61%) Bitcoin $6,687.04 −$4.57 (-0.07%) US 10-Yr Yield 0.811 −0.047 (-5.48%)     Markets Today Make that three days in a row for gains in the DJIA and the S&P 500 as investors seemed impervious to historically bad news on the unemployment front. Those indexes climbed more than 6% while the Nasdaq climbed 5.6%. Boeing (BA) led the gains for Dow Industrials, and shares are up 43% in two days as it appears that it will be well cared for in the $2 trillion stimulus package.   3,280,000 Americans filed weekly unemployment claims in the past week, setting an all-time high and coming near the top of the most pessimistic forecasts. It may be yet another case of bad news being good news, since at least we have some concrete data to look at. Uncertainty has been bedeviling investors in the absence of hard economic data, and we finally have some. That, and the passage of a $2 trillion stimulus bill by the U.S. Senate last night may have added some confidence today.   We'll likely see this pattern a lot in the coming months. Markets may rise with bad economic news, but that's not because they are indifferent to it. Economic data like manufacturing, production, and employment reports are all backward looking. Investors mostly look ahead, and with the pace of news and the frenetic changes to our economic realities happening daily, it's easy to grow hardened to bad news and move on. Our sense of shock diminishes with every headline.   Here's a shocking chart of weekly jobless claims going all the way back to 1960. The gray shaded areas indicate recessions. Today's number was off the charts.   chart courtesy YCharts       SPONSORED BY PERSONAL CAPITAL Are You Worried About Today's Volatile Market? One day the market goes down, the next, it's back up. What does that mean for your retirement plans? These insights can help you weather the storm. Read More » Headlines: China announced it will block almost all foreigners from entering the country starting Saturday, in recognition that most new coronavirus cases were coming from overseas now that the government slowed the spread of the disease among its own people. Foreigners won't be allowed to enter even with valid visas and work permits, the foreign ministry said in a statement late Thursday, in what it called a "necessary and temporary" step. Cruise lines could get left out of the bailout fund included in the $2 trillion stimulus bill the Senate passed Wednesday night. The bill allocates $500 billion to distressed businesses that can apply for loans or guarantees from a fund overseen by Treasury Secretary Steven Mnuchin. To be eligible for that relief, however, a company must be "created or organized in the United States or under the laws of the United States". Many of the largest, including Norwegian and Royal Caribbean, are not. The Bank of England has decided to keep interest rates unchanged at 0.1%, a record low, after two emergency cuts this month. It will also continue its £200 billion asset buying program. The central bank said "a very sharp reduction in activity is likely" and "there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment." Ford is now a fallen angel after S&P Global Ratings downgraded its nearly $36 billion debt pile to junk status. The credit rating agency said Ford was "borderline" for the investment-grade rating even before the coronavirus outbreak and the supply and demand shocks to light-vehicle demand. Moody's also downgraded Ford's debt rating for the second time in six months to Ba2 from Ba1. General Motors (GM) told about 69,000 salaried employees globally on Thursday that it will temporarily cut 20% of their salaries as the automaker attempts to save cash. The deferment, which will begin April 1st, will be repaid in a lump sum with interest no later than March 15th, 2021, according to the company. Apple (AAPL) may be considering a delay to its next iPhone launch by "months" because of issues related to consumer demand during the COVID-19 coronavirus crisis and aftermath, according to a report by the Nikkei Asian Review. The new iPhones were reported to be 5G enabled. Apple shares fell late Wednesday on the news and are lower in premarket trading. Lululemon (LULU) announced fiscal fourth-quarter results that topped expectations, as its same-store sales surged 20% during the period, thanks, in part, to more men shopping in its stores and online. However, due to the uncertainty, the yoga pants maker said it will not be providing a fiscal 2020 outlook at this time. Its stock fell about 2% in after-hours trading.  More than 2,800 executives and directors have purchased nearly $1.19 billion in company stock since the beginning of March. That's the third-highest level on both an individual and dollar basis since 1988, according to the Washington Service, a provider of insider-trading and data analytics. McDonald's will temporarily remove some U.S. menu items over the next few weeks to streamline operations amid the coronavirus pandemic. The fast food giant is also considering deferring rent and service fees to soften the economic blow to franchisees.  Apple will donate 10 million N95 protective masks in the U.S. and Europe. CEO Tim Cook said the company is using its supply chain to source and procure the masks that are in short supply around the world. Elon Musk has said Tesla's New York factory will reopen for ventilator production "as soon as humanly possible." He tweeted, "Making good progress. We will do whatever is needed to help in these difficult times." Crocs, the footwear company, is giving U.S. healthcare workers a free pair of shoes.     chart courtesy YCharts   Big Rallies Come in Bad Markets While U.S. markets recovered 10%–12% from recent lows last week, those kinds of moves are not uncharacteristic of highly volatile bear markets. There have been rallies as high as 20% in the most recent bear markets that failed, followed by markets falling to even new lows. The chart above shows the major U.S. markets every time they fell 20% or more from their peaks going back to 1980. There are dozens of failed breakouts in every one of those bear markets.    While the trend has been very positive this week, it was even more negative last week, and the headlines are only going to get worse for awhile.   Situational awareness is key right now.     chart courtesy ICI   Where Is the Money Flowing? We've written about what individual investors have been doing in their brokerage accounts over the past three weeks, but what about the big institutional money? This is the money that actually moves the markets, and it has been running scared up until about yesterday.    The Investment Company Institute tracks money flows across asset classes and investing products. The last few weeks for mutual funds and ETFs, according to the ICI, have been historically brutal. Here's the breakdown: Total estimated outflows from long-term mutual funds and exchange-traded funds (ETFs) were $153.11 billion for the week ended March 18th, 2020. Estimated mutual fund outflows were $134.98 billion while estimated negative net issuance for ETFs was $18.13 billion. Hybrid funds, which can invest in stocks and fixed-income securities, had estimated outflows of $25.62 billion for the week, compared to estimated outflows of $5.78 billion in the previous week. Bond funds had estimated outflows of $114.40 billion for the week, compared to estimated outflows of $32.30 billion during the previous week. Taxable bond funds saw estimated outflows of $94.05 billion, and municipal bond funds had estimated outflows of $20.35 billion.         charts courtesy BespokeInvestments   What Has Warren Buffett Been up To? It's been awfully quiet out of Omaha lately, but I don't expect it to stay that way. With over $128 billion in cash on hand as of the latest filings and an opportunistic spirit, financial crises fall right into Warren Buffett's sweet spot. He positioned Berkshire Hathaway to take equity warrants and big stakes in banks like Goldman Sachs and Bank of America in the 2008–09 financial crisis, and those investments paid off rather handsomely.    He and partner Charlie Munger bemoaned the fact that companies they wished to buy became too expensive in 2019 as markets hit record highs. Well... those companies are now on super-sale, and Buffett has kept his powder dry. Berkshire's equity portfolio has been battered in the last month as airline stocks, automakers, banks, and credit card companies have seen intense selling.    No one likes a good bargain like the Oracle of Omaha, and no one has the cash and the risk appetite for markets like these. I have a feeling the phones in Kiewit Plaza in downtown Omaha have been ringing and the silence from the Midwestern plains will end with a bang.   photo courtesy Fortune.com     More News: Capital One Stock Extends Rally After Analyst Upgrade Has the Market Bottomed Out? Micron Stock in Rally Mode Despite Mixed Quarter Participate in Our Investing Survey! (chart courtesy YCHARTS)     Shares of airplane manufacturer Boeing rose by more than 26% today, continuing a rally that began yesterday in response to the $2 trillion stimulus bill. The stock price of several cruise lines, such as Norwegian and Royal Caribbean (both up by 23%), have been bolstered by the same news, in spite of their potential exclusion from the bill itself.     Shares of Target fell by over 9%; the retail corporation is putting services such as in-store product returns and curbside grocery pick-up on pause in an effort to slow the spread of the coronavirus. Other retailer chains, such as Walgreens (down 8%), are also setting additional rules and policy changes in response to the ongoing pandemic. Word of the Day  Relative Strength Relative strength is a technique used in momentum investing. It consists of investing in securities that have performed well, relative to their market or benchmark. For example, a relative strength investor might select technology companies that have outperformed the Nasdaq Composite Index. While the goal of value investing is to buy low and sell high, the goal of relative strength investing is to buy high and sell even higher. As such, relative strength investors assume that the trends currently displayed by the market will continue for long enough that they can realize a positive return. Any sudden reversal to that trend is likely to lead to negative results.     image courtesy thebalance.com   Today in History March 26th, 1979: Meeting in Geneva, OPEC declares that its members will raise the price of crude oil 9% in a single leap, from $13.34 to $14.55, igniting another round of global inflation.   www.opec.org How can we improve the Market Sum? Tell us at marketsum@investopedia.com Go here to view  this newsletter in your browser. Enjoy the Market Sum? 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