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The FED Jumps in with Both Feet April 11, 2020

Posted by Tom in Thoughts.
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April 9, 2020 – Thursday was an important day, not because the market went higher but because of why it did. Accentually the FED announced that it would start buying corporate bonds at par value. This has not happened before; the FED has only purchased US Treasury bonds . . until now. What is implied by this action is that the FED will do “whatever it takes” to prevent a major bankruptcy. The market is also reading into this statement that junk bonds and ETF’s are now provided instant liquidity & a parachute if needed.

Obviously this is bullish news and the market reacted as such. So, next week will be interesting to see IF there is any follow through to the upside or if it is a “one & done” type of move. (editorial: for the Conservatives out there . . is this corporate welfare and “socialism”?)

The other implied statement is that the impact of the virus has a much deeper impact on the economy and the lives of our citizens than many originally thought. Yes . . . it is serious, very serious.

NASDAQ Composite Index

This could be an Up Thrust in the price structure (we’ll know that soon) or truly a genuine move higher. The closes above 7878 are telling. But I continue to be wary of at retest of the lows and the potential for a “double bottom”. The market reaction to Trump’s announcement next Tuesday about reopening the economy may just be a catalyst for the next move in either direction.

The pie charts below do show just how broad and strong this latest move has been to the stocks in the very broad S&P 1500 Index.

Percent of Stocks in Accumulation or Distribution:

Percent of Stocks Above / Below their 20 day Moving Average:

The short term sector strength table is shown below:

Banks, Financial and Real Estate reacted very strongly to the FED announcement (i.e. we won’t let you fail).

That about it for this week. MY main market model just turned back to Neutral, but I may wait until after the Tuesday announcement & reaction before I remove my hedge and consider small selective buys. Careful now !

Have a good week and Happy Easter for those to celebrate the holiday. In the mean time, Take Care & Be Safe. ………. Tom ………

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.


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