18 May Stocks Moving Sharply Higher, Again…
Stocks are off to the races this morning, in what I believe will be another short-lived rally. The ceilings of resistance just above current levels for stocks makes a continued rally unlikely, pointing toward a pull back in the near term. Stocks have recovered approximately 62% of their losses, which corresponds to an important Fibonacci level. Given that the 62% recovery has largely been fueled by the Fed and the Treasury injecting trillions of dollars over the past couple of months into the US economy, this is not a sustainable long term solution. At some point, the bail out packages will stall, and the economy will be forced to stand with less assistance. At that point, I expect to see a more dramatic fall in stocks. However, keep in mind that the stock market is acting completely illogical, so there is no way to say for sure what will happen.
Hopes for a vaccine improved based on results from a trial medication by Moderna. The results of the trial showed that Antibodies from the individuals from the sample group “significantly exceeded levels” in recovered patients. This is very good news to the 52% of small businesses who, according to a recent survey, would go out of business in six months or less if restrictions to reopen continue. With fear of a second wave of Covid-19 hitting, this brings hope that we will avoid another round of shutdowns.
Mortgage bond prices remain in a slow decline. We will continue our locking bias.