Evening Note: The Most Bullish Chart for Stocks Right Now

Monday, July 06, 2020

Evening Note: The Most Bullish Chart for Stocks Right Now

Believe it or not I won’t be raining all over the stock market’s parade today, at least not when it comes to today’s S&P 500 breadth.

Rising stocks outpaced decliners 4 to 1 on the S&P. The tilt was positive for the Nasdaq as well, although less so; not quite 2 to 1. Up volume accounted for roughly 3/4ths of today’s NYSE action, so that was decent, although total volume was grossly below the 20-day average (-29%), which has nearly invariably been the case on the big up-days of late (which is not bullish, by the way).

So, in a nutshell, I’ll take it, but — aside from the indices’ % moves — still nothing wonderful to write home about.

As I continue to dig deep beneath the weeds, believe it or not, despite the horrific fundamental back drop, it’s not all that difficult to understand what continues to drive stocks at these levels. And, as I’ve been reporting ad nauseam, it ain’t fundamental; it’s, for lack of a better term, artificial. Meaning, stocks aren’t at all rising based on prospects for strong earnings growth going forward, they’re rising based on the prospects for continued strong money creation going forward, and, as you’ll see below, huge money hoarding of late by the treasury.

Note regarding the last chart below and my commentary preceding it: Before I ruffle a political feather or two among our readers, know that I hold absolutely zero delusion that such games with taxpayer resources are not fully exploited whenever opportunity presents by both parties. Clients, trust me, you absolutely need us to be completely apolitical in our endeavor to do the best possible job with your money!

Here, from our inner-office research chatroom today, is what developed from my morning research activities:

Well, team, we’re entering the 3rd quarter with the least amount of short-covering risk (less support for rallies) since the bear market bottom (in the S&P 500):

And, conversely, the most net long exposure for the Nasdaq this year (that’s risky right here):

Pretty good bounce in net long exposure for smallcaps as well:

Vix speculators are feeling more gutsy (betting the vix falls further/stocks melt higher) than they’ve been since March:

Here are two we, as you know, completely agree with… note how fresh the change in sentiment: Copper and the dollar:

Now this one guys/gals is the most bullish chart of all for stocks for the remainder of 2020. And it’s really incredible. It’s the TGA (treasury general account). Think of it as the treasury’s piggy bank. The amount you see there amounts to well over a trillion dollars (1.6 in total) of new borrowing (a trillion being the normal entire-year’s budget deficit) that essentially wasn’t needed to fund the government. They literally issued this debt just to hold onto the cash. So, why? This is an historic first! Well, as you know, or should know, I struggle with conspiracy theories, but this one is so blatant I can’t help it. This is Mnuchin essentially assuring that no matter what, whether Congress passes more stimulus, and/or regardless of what the Fed does, he has the firepower to juice the markets during the critical months leading into you-know-what in November.

Yes, this is huge support for stocks, you can bet on it. However, betting big on stocks given everything else going on (and there’s lots) is — despite what I just wrote — hugely risky. Stocks can still fall in the face of rampant stimulus, I’ve seen it… If not over the next few months, dear Lord, just wait till we reach the point when they’re forced to let up, even modestly, on the life support for stocks:

Thanks for reading!
Marty

Marty Mazorra CFP®, ChFC®

Founder & Co-CIO

is the author of "Making Lemonade: A Bright View on Investing, on Financial Markets and on the Economy" and "Leaving Liberty?: Essays on Politics and Free Market Thinking".

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