| Wednesday, April 22, 2020 1. Stocks reverse course from yesterday 2. Bond markets begin to seek opportunity 3. Key stocks ahead of earnings Market Moves Stock prices staged a moderate rally after gapping higher at the open. This kind of reversal in price action on the heels of yesterday's significant selling shows a notable degree of resilience among buyers in the market. So it is no surprise that a few other bullish indications are popping up along the way as market participants begin to anticipate the first sign of green shoots signaling new economic growth. Judging by the headlines you can read around the financial news these days, that would seem a bit premature, but it may not be.
The chart below shows how the number of stocks within the Dow Jones Industrial Average (DJI) are trading above various moving average markers. The slowest of these, the one-hundred fifty day moving average (DIOF), closed above the twenty percent line today (after the chart was captured). This established the fact that this rally is touching all areas of the economy. When these four index measures (percentage of stocks trading above their 20-day, 50-day, 100-day and 150-day moving averages) all move above the 20% line, the rally that follows is often sustained.  Bond Markets Begin to Seek Opportunity
Click on the graphic to see a larger version of the chart because it's quite interesting to examine. Over the last 10 years this indicator has generated a signal 30 times, 26 of which have been followed by a rise in the S&P 500 over the subsequent three months. The 31st and most recent signal, surprisingly triggered on March 10th, is three weeks away from completion of its three month follow-up period. Up until today it did not seem likely that the market would remain above the price when the indicator signal triggered. However with today's strong close, the market is poised to continue higher, suggesting that this highly reliable indicator has, again, signaled a move towards bargain hunting among investors. 
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Key Stocks Ahead of Earnings Perhaps the best indication of economic green shoots will come from the guidance or commentary given after the earnings reports from the following companies: Facebook (FB), Apple (AAPL), Google (GOOG) and Zillow (Z). These companies will probably give the best indication of whether corporations are willing to try to spend money getting their products back on shelves, virtual or otherwise. The reason is that these companies rely heavily on revenues from digital advertising (FB and GOOG) or by digital promotion (AAPL and Z). If these companies are making money right now, or expect to be making money soon, then the post-COVID-19 economy is likely to recover well.  The Bottom Line Stocks made a sharp reversal after yesterday's selling. Bond buyers appear to be taking a more optimistic tack buying up corporate bonds more than treasury bonds. Shrewd chart watchers will want to keep an eye on those companies that don't have a built-in advantage in the shut-in economy, but depend on spending from customers who anticipate an economic rebound, such as Facebook, Google and others. How can we improve the Chart Advisor? Tell us at chartadvisor@investopedia.com
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Wednesday, April 22, 2020
Green Shoots
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