May 19, 2020
As we discussed yesterday, stocks were challenging the top of the range (post-crash), where some big technical resistance resides. We have a big retracement level at 2,930, and the widely watched 200-day moving average, which comes in below 3,000 now (the purple line the chart below).
As you can see in the chart, for a third time, stocks have backed off of this area.
Still, the market sentiment is gradually improving for all of the reasons we’ve been discussing in my daily notes: 1) New York, the hotspot for the virus, now has the lowest new Covid hospitalizations in more than two months, 2) the opening of state economies has, thus far, come with no spike in infections, and 3) the expectations bar has been reset on the vaccine timeline (reset to sooner, rather than later).
Now, as people are getting back to work and back into the community, demand has been turned on like a light switch. So we have pent-up demand meeting what I suspect will be revealed as a severe supply shock, as businesses attempt to build inventory in a world where the supply chain has been disrupted. As I’ve said, add this to wage subsidies, and we have a formula for higher prices.
What’s the play for higher prices? Commodities.