Will Stocks Sell-Off Again Today?

Okay, very good morning. It is Friday, 12th of June. I'm Anthony Cheung, the head of market analysis here at Amplify Trading. I'm going to talk about really only one thing, and that is what happened in the markets yesterday. We had one of the biggest down days in 12 weeks in the US equity market, the biggest downward fall in oil in one day in 6 weeks, all of this predominantly coming on the back renewed fears of a second wave for the COVID-19 virus. So the big question now is where do we go from here? There's a couple of news articles for me to get you up to speed on, statistics as well about the new race or case numbers pertaining to some of the biggest US states like California, Texas, and Florida, for example. And then hopefully I can give you a bit of an outlook about what my thoughts are and what I'm watching for, not just today but going forward on this particular topic. Don't forget to check out amplifiedtrading.com Should be some links down at the bottom of this video. Happy for you to explore and see in more detail what we do. And don't forget to subscribe to the channel. Eddie is going to be releasing a new video, and no doubt he'll be talking about things like the probability of a second wave and what size and what form and what speed might that take. So that'll be a great video to— for you guys to watch at the weekend. But having a look then at the first chart, and what we've got here is the S&P 500 posting its worst loss of of course, since March after falling for a third day. But obviously the size of the fall was much larger than what we had seen in the prior two sessions. And this often is the case, you know, when there is a kind of flashpoint, a catalyst. And yesterday, certainly that was what I was talking about in the briefing yesterday, which was this renewed uptick in some of these key geographic areas within America which have more higher density populated kind of regions. And it does kind of manifest itself, you know. We've had some interesting things, um, you know, in regard to the amount of retail participation we've had in this continuous stock market rally. I was looking at inflows into equity in the Bank of America weekly survey, was up quite sharply. So it's when everyone— it always seems to be the case that when everyone gets quite one-dimensional in a view, that it does mean that markets do remain then quite susceptible to an aggressive pull pullback. If then markets start to come down to a certain point, obviously for some people that becomes an offside position too much, and getting out of that then long means more shorts get— it gets kind of— get pushed in to exit the position, and the market just goes down and down, and it almost becomes self-fulfilling then, people jumping on it or riding the coattails of that momentum. And certainly it kind of felt a little bit like that yesterday. It was kind of as a curve instead of it being just like a headline and the markets went down. It was kind of a progressive move as we went through the kind of session. So, you know, I guess the question is then, where do we go from here? But, you know, a few things to have a look at in terms of a day like yesterday. The selling does tend to be quite broad, you know, if you're talking about something like a a virus, you know, don't forget it's not just the virus and the sell-off. The, the reasoning behind this is, is that, you know, if the virus does pick up, then we're going to have to go back into lockdown. And it's the lockdown in itself which is going to have the harshest economic consequence. And that would need to be factored in given the market's relative complacency in how it was positioned prior to yesterday, given the fact that we hadn't really seen what we are now seeing, which is a pickup in some of these numbers in the key areas, particularly in the US. So selling was quite broad-based. I'd say some of the biggest losers in this respect were airlines, cruise, and travel shares. As you can imagine, they're the ones that are most kind of sensitive and would be most fearful then as an investor that they're going to get hit once again should this virus start to significantly increase. Um, total numbers— the US CDC reported COVID-19 cases rose by 20,486. The previous figure was 17,376. So yeah, quite a distinct pickup there. In particular, um, this is what we're looking at with the airline stocks, and this is going to form part of my overall view I'll give towards the end of this this delivery, but this was looking at airline stocks tumble after their best 10-day gain on record. And for me, that's— that actual sentence is quite telling because, you know, you— last night I was getting a flurry of texts, the market was coming off. Um, and it's such a weird thing, the kind of human psyche, because if when we were in March, that was the type of movement that we were seeing on a consecutive daily basis. But because it's been so calm, people almost are so, uh, you know, the human brain gets so into a routine. And we had been in this period of just quite a one-dimensional rally of sorts, and we get one down day of 6% and everyone thinks the world's coming to an end. And I do, you know, saying this to some of the guys yesterday, human nature is to over-interpret, and you do see that very much in a behavioral pricing in markets, uh, quite a mirror image of that. You know, whenever there's talk of a vaccine, markets just start rallying straight away, even though we know that that's very unlikely to be the case anytime soon. It doesn't matter, you know. And so in a similar case, I'm, I'm kind of feeling slightly similar. And I see graphs like this, and, you know, people talk about the airline stocks getting hammered, and sure, they did yesterday, but, you know, it did come in context of the best 10-day gain they've ever had in their entire lifetime. So, you know, if you look where it puts us, it puts us right back to where I feel is a more relevant pricing realistically for the threat of a second wave. I think I've been fairly consistent with my view that this was always the biggest kind of tangible risk for markets, and it was always something which inevitably was going to happen, the second wave. It was just about when and how large and significant it's going to be. And this is obviously the first glimmer that we've had of it being potentially outside of what markets were, were expecting. So a pullback down, you know, in a simple technical way, if you were just drawing a horizontal line through the March and April highs, retested again in late May, then we're pretty much back to that point. For me, I'd say, well, that's pretty fair game because, you know, yes, we're possibly off the lows, but we're nowhere near out of the, out of the forest yet that is the, the kind of COVID woods. So yeah, still some way to go, but I, yeah, I don't think I'm quite ready to hit the red button yet and panic's about to break out. And so yeah, I think this chart was quite telling given that was one of the sectors which was hardest hit yesterday. Of course, who is Saying what? Well, you can imagine, given the fact that we had the Federal Reserve meeting which came just a few hours before, then we had this rundown into Asia and then the US sell-off. Unsurprisingly, Donald Trump tweeting yesterday, the Reserve— Federal Reserve is wrong so often. I see the numbers also and do much better than they do. We will have a very good third and a great fourth quarter, one of the best years ever in 2021. We'll also soon have a vaccine, therapeutics, cure. That's my opinion. Watch. So again, very much tactical, you know. Is this market moving? No. Is this to be expected? Yes. This is kind of Trump's way, you know, if it's not the Chinese virus, then it's Powell's fault. So this is just one of those political moves in order to pass accountability and cause a diversion away from any responsibility of the US administration. So yeah, I'm afraid Jerome Powell's got another tough weekend under fire. He's in the crosshairs again of the US president for the time being. Interestingly, as we've said before, you know, the trade war really has gone quite quiet, and that is quite often the case when there's, you know, there's other dramatic things that have been happening like the riots and now the move that we've had. And given the timing, I think it was probably more appropriate and to, to Trump to try and connect that to the Fed. I'm sure that China will also be in the spotlight this weekend and Trump will be, will be banging that drum. Interestingly, North Korea have come out overnight and they've said relations with the US have currently shifted to despair and the US is hell-bent on exacerbating tensions. Furthermore, it stated US policy proves US remains a long-term threat and they see no improvement in relations in maintaining the Trump-Kim relationship. So that's, that sounds pretty frightening if you're not really used to that kind of commentary and its impact on markets, but it won't have any impact. You know, this is all kind of the verbal posturing of which these two nations typically do to one another. The point that I thought was quite interesting was more to do with the fact that there's a recent deterioration in the trade war there's a direct correlation between tensions in North Korea and the US that is quite a good barometer then of whereabouts the trade talks dialogue is between the US and China. Because even though North Korea kind of acts independently, we know that, you know, they're a geographic neighbor of China, they're heavily dependent on this relationship in particular. And so it's almost like China likes to play out a bit of a proxy war via the verbal kind of rhetoric coming out of North Korea has been quite a typical pattern. But as I said, it hasn't really had any impact, and I wouldn't expect it to. The other thing then is oil prices. Oil dives the most in 6 weeks, exposing fragile recovery. Again, with oil, you know, it's all about this kind of perception of supply and demand. It's all been supply-focused of late, really. Quite recently, Cristobal, that tropical storm going through the Gulf of Mexico, but more so the OPEC+ deal that they've managed to roll over for another month. But this is more on the demand side, of course, and this is what caused— was at the heart of some of the dramatic drop that we were seeing just a few months ago. So yeah, definitely oil also ripe for a bit of an extension of the profit-taking, having run up to around that gap fill from that March OPEC disappointment that we had, and we got close to $40. So yeah, down fairly heavy yesterday, down about a dollar again today. Um, maybe worth just keeping an eye on as we go through the, the rest of the session. Um, yeah, on the, the COVID front, there's a couple of things then to get you up to speed on. Um, first of all, uh, let me talk, let me talk about a couple of case rates for a second. I know this graphic is a bit small to see, but, um, to make this a bit more clear, you've got California Texas, Florida, and New York. So there's a distinct pattern here. Actually, the three largest population areas, i.e., the top three, you can see on the 7-day moving average has been edging up, and in the case of Florida, quite sharply over the course of since the beginning of the month. Now, quite a few people were asking the questions of in a lot of these nationwide outbreak of riots that we've had over recent weeks. Is this the kind of culprit to blame for this new pickup in the transmission cases? But there's no real evidence that I've seen that would suggest that, nothing really concrete. Certainly, as we were saying at the time, it would make sense that potentially people would be more at risk and the nature of the virus then, you know, once that R-value goes over 1, then it can grow exponentially very quickly. But, you know, think about it, these economies, given that they're some of the largest kind of regional-based economies in the United States, it's very important then for Trump to try and force through and get these areas open, reopened, as quickly as possible. And as we had known, that was always going to come at a certain cost, a risk. And certainly that's what is starting to see the first kind of signs potentially of that, because if you actually look, we were generally— I mean, just taking California for an example, California was kind of flatlining up until the middle of May, but it was in fact the middle of May, of course, when the um, the loosening started to happen, obviously in a very staggered and phased fashion. But you can see here, uh, in the cases of these other areas, particularly Florida, is really ramped up more aggressive. And that's why it tends to kind of raise more eyebrows, given the acceleration that it's had. And in fact, it's over and above now the peak of what we were seeing right in the midst of the first phase of the acceleration, um, back in kind of late March early April. New York, much more contained in that respect, but New York has been kind of pushing back quite aggressively against the president, whereas some of these other states, uh, probably lesser extent, and there is a consequence to that type of action. To give you some, some numbers, Florida reported 69,069 cases, up 2.5% from a day earlier, compared to an average increase of 2% over the previous 7 days. California rose 2.3% compared to an average of 2.1% over the 7 days. Arizona, Utah, New Mexico all posting a jump of 40% or more for the week. New cases in Florida, Arkansas, South Korea, North Korea all rose by more than 30% in the past week. So yeah, it was— it's interesting how obviously markets work, you know, did some of those charts. If you as you saw, were already on the incline. But it just takes that kind of a little bit of interest and enough market participants then to start turning their head. And post then a big event like the Fed, uh, and what's going to be interesting today is, even though I've kind of insinuated that perhaps then I'm not yet in panic mode and foresee then by default a continuous aggressive sell-off, the only thing that does concern me is that today is a Friday. And just given what happened yesterday, I'm not sure how confident people would be to want to hold on to a position going into the weekend. If that does create a little bit of kind of clearing the deck into the weekend, then perhaps you could see just one more day of selling off, and perhaps Monday then lies an opportunity for a bit more of a bounce and consolidation. Not full recovery, because I think now the markets have kind of woken up and smelt the coffee a little bit more about the risks associated with the second wave. So yeah, I do feel like potentially there could be a little bit more legs in it for today. Before then, things might start to stabilize, and that purely being on the basis that I don't think people want to carry risk into the weekend. This is one of the other final points on the COVID side. Houston area officials— I believe this area in the US is the fourth largest area in in terms of population, so obviously very important. They're getting close to reimposing stay-at-home orders, and they're prepared to reopen a COVID-19 hospital that was built into a football stadium but was never actually used in the end. So again, you know, in terms of markets' sensitivity to this from a kind of sequence point of view and to ascertain its economic impact, you know, Houston being the fourth largest city in America then closing down and kind of reversing some of the reopening that we've had and reissuing stay-at-home orders is going to have a detrimental effect to their economy. And that's particularly important given the size and its contribution to the overall US output. So yeah, these are sort of reasons underlying why the market was, was so aggressively hit yesterday. Um, quick look then elsewhere. Um, well, actually one thing I just quickly want to say as well, the other thing I saw Sam was, was tweeting last night when the market was coming off was the 200-day moving average. Um, you can see we, we did break through it, but we closed what looks like right on the 200 DMA. So perhaps again, that's a pretty good marker from a technical point of view. Beyond that point, I don't really see too much in the way of any real technical area of firm support until we, we would come back down to 2965. So I'd probably look at it that way for today. Um, the 200 DMA will either be the line in the sand and will hold some price up for today, but if we did retest the downside, then I do think we could see another heavy day of selling, and that could push us back down, you know, another 60 points or so. So not to the tune of what we had yesterday by any means, but that would be a kind of logical target there if we were to retest yesterday's lows, push through that 200 daily moving average, and then get down to that mark. I'd be keeping an eye there. All right, away from equities and away from COVID let's just quickly talk about a few other things. Brexit— this isn't moving markets. What is moving FX markets is the dollar. Remember what we've been saying of late from a sentiment point of view, the dollar's kind of taken that, that reserve currency status. And so whenever you get a real run on equities like we had yesterday and you get a kind of flight to quality bid in things like gold and T-notes, the dollar is strengthening at this point in time. So people aren't reading into it as a, as a kind of pressure on the Fed to do some sort of monetary easing response. They're looking at it as in Right, it's just a clear case of risk. And when there's risk-off, the dollar strengthens, and it's strengthened aggressively yesterday, and it's, it's kind of held on to a bulk of that. It's come off a little bit from the highs, but it's basically flat in the DXY. But that means that both EUR/USD and Cable are still slightly depressed at the moment. If you look at Cable, um, just before I get into some of the headlines I guess there's a couple of areas if we start to move back higher that could be quite interesting, probably here, and then these, these kind of push back higher. So if I just put an ellipse, you've got the kind of areas here from the open, from the morning high that we had and rejection, and you've got these previous highs. And if we continue to push up higher, the pivot level as well. Does encapsulate some of that price activity, although be a bit choppy around where we were trading yesterday afternoon. That would be contingent though on a recovery, of course, in terms of general market sentiment. And if the dollar was to push back down, then you'd be looking for those types of levels. But from the Brexit side of things, nothing really new, but definitely a few things to be aware of given there's a European ECOFIN meeting today. UK government— this is in the FT— reportedly will formally rule out a Brexit deadline extension. Tension today. So they're going to stick to their guns. And as what we've been saying before, it's probably too early for them to start really compromising to the degree of bending over to get a deal done right now. That's just not how negotiations are done, as we know. They're going to push it right to the end. So that's not too surprising. But what they did say is that they plan a temporary light-touch customs checks with the EU next year, according to sources. And customs regime is expected to be detailed by cabinet member Michael Gove later. But if you think about it, Michael Gove— this is a complete U-turn of what Gove said back in February when he announced that goods coming from the EU would face the full range of checks. Now, what is that? Is that Gove being bad? Not really, because if you think about what's happened between February and now, there's a small thing called a global pandemic. And so the idea then that they can implement such rigid customs checks is not realistic in terms of the amount of preparation that's needed in order to deliver. So yes, they're going to have to move on that, but that does then kind of water down a little bit of what the government was originally outlining, which was kind of taking back control and all this sorts of thing. That's, that's definitely not going to be what happens on day one in that respect. So Yeah, that's the current, current status with that. On the European side, the UK and EU high-level talks are to take place on June 15th, so next week, between Johnson and the EU Commission President and also the EU Council President. Other reports have noted the UK and the EU reportedly agreed to hold intensified timetable for negotiations. Now, they were previously meeting every 3 weeks. The talk now is they're going to meet every week. So there's definitely some political will to make movement on the negotiations. I guess the question is whether or not they can, and what does that look like, and when does it come. And it's probably not going to be for another week or two. This time next week it should be a little bit more interesting because obviously we're getting close proximity then to some key deadlines, and that would have encompassed quite a few of the key discussions at the beginning of next week on Monday. Um, had some UK data out this morning, so just a quick summary. Um, the GDP month on month came in at -20.4%, slightly worse than expected, 18.4%. Industrial production -20.3%, worse expected, -15%. Manufacturing production -24.3% versus expected 15.8%. So all these figures worse than expected However, markets don't care, and they don't care because it's April and it's— and that's too far gone now. Markets are not going to get spooked by this type of situation. And what markets are more concerned about right now is, is the second wave virus, as far as today is concerned. But as far as the data is concerned, now it's going to be okay, we're in June now, and it's about what does those May figures look like? What does the more recent looking figures look like? What did the forward-looking soft indicators look like to get to ascertain people's confidence levels, because that's going to define the type of shape of recovery we're going to have in future. So yeah, the data's come out, it's not important. Looking further forward then into the session, you have some EU industrial production coming out at 10 o'clock. You've then got US import-export prices at 1:30, University of Michigan, the preliminary number, um, at 3 PM London time, so 9 in Chicago. And that's it. So any questions, feel free to leave a comment. Remember to subscribe to the YouTube channel if you're watching us on there, and Eddie will be dropping a video on Saturday, and then Sam, his technical outlook for the week on Sunday. But with that, I wish you a very good weekend and a good session ahead. Thanks, guys.