The Stock Market’s New Balancing Act Front and Center

Shah Gilani|June 22, 2020

The stock market is now up on a high wire, balancing where it’s come from against new winds buffeting it from underneath and above.

Here’s what’s front and center and what could push the market either way.

While two weeks ago was scary, especially watching stocks slide on Thursday June 11, 2020, and the majors ending the week down 5.5% for the Dow, down 4.78% for the S&P, and down 2.3% for the Nasdaq Composite, last week offered renewed hope.

Showing signs of recovery last week, the Dow ended up 1%, the S&P 500 was up 1.9%, and the Nasdaq Composite jumped 3.7%.

The week could have been a lot better, but Friday was a mess. The Dow, for example, after opening higher and climbing 357 points, sold off ending the day down 208 points.

Investors on Friday got nervous about news of more coronavirus hot spots cropping up in Florida, Arizona, North Carolina, South Carolina, and Oklahoma.

A Worrisome Trend

Apple announced it was closing stores again. That’s when investors decided they didn’t really want to hold stocks over the weekend, which interestingly and tellingly, hasn’t been the mindset for months. Even the week before, after the Thursday thumping, stocks rose on Friday going into the weekend.

What’s worrisome, if it becomes a trend, is last Friday’s up down reversal came on big volume, the biggest of the week by far and bigger than the big volume spikes that accompanied the Thursday thumping the week before.

Up until now volume has been higher on up days and has been falling consistently on down days. That’s indicative on more conviction that the market can go higher and lack of conviction that if it falls it could keep falling.

That may have changed. We’ll see if the volume trend reversal continues this week. If it does it would signal a reversal of conviction and maybe the top of the market.

After all, the market’s up on a wire, having rocketed off its March lows, defying gravity, and expectations.

The rise has been retail-driven, and while that’s a first, at least in terms of how much retail money came into the market off the lows in such a short time, it hasn’t been a bad thing, so far.

Retail Could Go Either Way

Retail’s now the tail-wagging the dog.

There’s a lot of institutional money on the sidelines, having missed the rally, waiting to come in and move markets higher if they have to chase performance as the quarter ends. But if retail doesn’t keep markets moving higher this week, institutions will stay on the sidelines and watch to see if retail buying is petering out.

If retail investors pause this week, and everyone watches the market go nowhere or down, maybe accompanied by day to day and intraday volatility, sentiment could change quickly.

The trend has been up, despite the week before last and last Friday. It’s now subject to being tested.

Investors are watching the virus spikes, watching for new closedowns just as cities like New York are opening up in phases.

After having come so far so fast, and leading the charge on all things “V” shaped, investors are about to ask themselves if the economy will follow, if there will be more fiscal stimulus, if the Fed is going to keep stepping up, and if there’s more room to run higher ahead of earnings coming out very shortly.

It’s a balancing act, for sure.

Until then,

Shah Gilani