“There’s no sign of life
It’s just the power to charm
I’m lying in the rain
But I never wave bye-bye.” – Modern Love, David Bowie
Scant results of Phase 1 Trials by Moderna (MRNA) to find a Covid vaccine raised the DJIA 1000 points on Monday.
No matter that phase one trials are not typically deemed to be that newsworthy.
Phase 1 is meant to evaluate safety, not efficacy.
After the close, eyebrows were raised.
Obviously, the timing between Powell’s 60 Minutes interview on Sunday and Stephane Bancel’s CNBC interview before Monday’s open were pure coincidence.
Call me a cynic, but when it comes to a few trillion dollars here and a few trillion there, I don’t believe in coincidences.
Before Monday’s open, CNBC’s Becky Quick asked Bancel about cash on hand. His answer was that the cash is not an issue, that the company has a solid cash position.
After the close, MRNA announced a secondary offering.
This kind of credibility should have folks standing in line to test their vaccine.
Be that as it may, the real drug making the rounds yesterday was the hope on steroids that was mainlined into the tape.
To wit, the equity intraday put/call ratio expanded to 61, nearly matching the extreme at the February 19 peak.
As walked through in yesterday morning’s report, there was a question as to whether the decline into Thursday morning marked a low into our critical turn date due this week or a continued rally would align with a cycle high this week.
The NAZ 7% rally from Thursday morning’s low to Monday should put that question to bed.
When a market runs hard into a prospective turn date, the odds are enhanced that our turning point due this week will mark a meaningful reversal.
The dual turn downs in the NAZ and SPX 3 Day Charts into Thursday morning marked immediate lows, which telegraphed higher prices.
As well, remember that Thursday was the first test by the NAZ of its RISING 20 day moving average since the March 23 low.
This is a Holy Grail buy setup.
As we noted last week, the first Holy Grail following a wipe-out almost always sees a rally.
Monday’s price action explains why I call it the Holy Grail.
The question is whether the rally off the NAZ Holy Grail buy signal opens the door to new all time highs or whether it marks a Buying Climax.
Clearly, those who shorted into last weeks drop were squeezed on Monday.
Consequently, any failure now below Thursday’s low and the 3 Day Chart low on the SPX/NAZ should see accelerated momentum to the downside as there will be few shorts to act as potential buying fuel.
While it seems a big if at the moment, breakage below last week's low will confirm that this week's presumed turning point is a high and open the door to the 2500 region in the SPX over the next month or so.
Last week's lows being significantly below Monday’s close, our job will be to judge where a crack in the complexion of the market shows up.
Despite Monday’s sharp rally in the averages, there are two factors that underscore the idea of a reversal in the wings:
We interpret the Line of Least Resistance in two ways, the action of the averages and the behavior of the leaders.
The following weekly SPX from yesterday showed the pending weekly Holy Grail sell signal.
This is a backtest of a declining 20 week moving average.
Yesterday the SPX struck its declining 20 week moving average.
A pending weekly Holy Grail sell signal is at hand.
We just got a taste of the power of a daily Holy Grail buy signal.
It will be important to gauge the potential impact of a weekly Holy Grail sell signal.
Yesterday many leaders were conspicuously MIA, or left signal reversal bars.
Names include ETSY (which subscribers took a bite out of on the short side), OKTA, FVRR, FSLY, DOCU and AVLR, to mention a few.
Conclusion. While a close above the SPX 20 week moving average may seem like an ‘all-clear’ signal, it is worth noting that the blow-off into January/February followed a false flush of the 20 week m.a. in late September, as shown on the above weekly SPX.
That blow-off to all-time highs followed breakage above July-September double tops at the 3000 region.
So it would not be surprising for the market to revisit the altar from which it faltered in late February with a kiss goodbye of the 3000 region on a Pinocchio of the 20 week moving average.
As always, we’ll report and update any signals that occur intraday on the Hit & Run private Twitter feed.