A large measure of support - sustaining this market move, came from the Fed, and while welcomed, creates an environment of excessive complacency by the long-side holders who grasp the involvement of the Federal Reserve here, while it also traps traders into a trading-mentality (of high level swings) which remains unlikely to be sustained all-the-way into Elections, without interruption. Today of course was a good example, as we got essentially a down-up-down day. If they freak at simply having a down day, I'd hate to imagine reaction to a real drop.  

It is an Expiration week and on-top of associated volatility, you effectively have China's capital Beijing shut-down, sending its own messages to markets there and globally, as realization of a COVID-19 resurgence takes-hold amidst deniers of reality in some countries. And yes that makes some rallying dubious, while not the case in areas that 'benefit' from perpetuation of pandemic concerns. It also puts pressure (or should) on reckless investing, or reckless gatherings, as it infuriates the medical teams that are barely recovering from the last ordeal.  

Executive summary:

• Yes the Fed has supported, and increasingly inserting itself, into markets, so in a sense you can get 'too much of a good thing', as I'll delve into a bit.

• However, the ascent of permabear visibility just because we get a decline for a day, suggests equities will not surrender on a time, just to fit their time.

• Nevertheless extreme market valuations (an asset bubble in 'those' stocks only, not the broad market, and that's the key) are ahead of a shakeout, but it's also just ahead of 'Quadruple Quarterly Expiration' coming right up.

• That gives us limited downside by comparison with historical declines, even as S&P is above our targets (having nailed the February/March drop, and then the March 23rd low), and again because 'the market' isn't a bubble, a sector of stocks, that happen to be the capitalization leaders, are bubbly.

• Stocks that primarily led the advance do fit a compression pattern bubble of sorts, with gaps below the market that may be filled, but not the ones way below, actually in this situation the technical status continues dicey.

• While values are mostly in small-caps now, once S&P 'really' breaks, those who will be 'gunning' for unfilled gaps when we do decline, will likely await a downside move unlikely to fully pan-out, based on a higher S&P 'floor'.

• That higher S&P floor is dependent not just on the Fed (which is excessively friendly as noted), but on the resurgence (or not) of COVID-19, which totally can wreck the best-laid and funded expectations, if there is no containment and it evolves into a 'true' 2nd wave (or the 1st is ongoing and roars back).

• Yes, as noted yesterday, the recognition of steroids (only new to Oxford's study, it was not really news to physicians using basic steroid inflammation reduction to control ARDS for some time now)...is a plus.

• This recognition helps take 'death off the table', but not fairly serious illness and/or ensuring residual side effects to many organs in the human body.

• Designation of hospitals for 'surge preparation' in places like Orange Co. in California, Arizona and in several southern states like Georgia and Florida, is indicative of concern of COVID-19 'surging'.

• It's especially so in communities where 'premature mask-less partying' occurred, or (notably) protests took place in a larger manner (this impacted Houston and soon Atlanta), and perhaps Tulsa should be alarmed ahead of the political rally (a virus isn't political, anyone must realizes this).

• Dr. Gottlieb is talking about post-COVID-19 syndromes including neurological, so he believes there is potentially permanent nervous system damage. 

• Persistent outbreak 'clusters' in Beijing and elsewhere in China, reminds us all of what can happen when a society (and a strict one at that) encounters a resurgence, whether they want to blame it on sushi, salmon, or not.

• It appears 'hundreds of thousands' of people visited the markets in Beijing after the initial latest infection, creating 'more' than mere clusters, they then mingled throughout the community, and thus contacted millions of people.

• This is really serious for Chinese and global aspects, since it will throttle lots of activities;, and nobody is allowed (even a taxi) to venture beyond the city, plus today Beijing said students may not be allowed to return until February 2021, so that gives an idea of how serious this latest outbreak is.

• More activity between Beijing and the world restarted recently, now halting.  

• Here in the US, one factor that also shocked people about COVID-19, was CNN running a headline (only later clarified) claiming 'fully half' the workers at the Orlando Airport (MCO) tested positive for COVID-19; that was click-bait stuff.

• That stunning sort of 'fake news', aggregation (bad but not that bad) might justify clarification: of 560 tested, 128 were actually airport employees and a similar proportion were 'contacts' of those 128, outside of airport staffers.

• So it was bad but as the airport directly and indirectly has 25,000 workers, it was inaccurate but definitely (along with the chatter about 'clubs & bars') got more attention (which is valid) about the risks of cavalier socializing.

• And yes, if interest rates get 'too low' and COVID-19 gets 'too high', we have yet again a threat (like it or not), that can wreak havoc with the best plans from a politician, a central banker, or a market analyst.

• This high level trading range for the S&P won't endure, but do expect some sort of effort to revive after the probably probe lower, nevertheless our early call for this week was for an intraweek rebound, with more later week risk.  

Technically . . . S&P continues fluctuating in the high level around and still just a hair above the well-watched 200-Day Moving Average. Our basic forecast was to nudge back up (need not fill a gap to last week's high, though not impossible, and once we get a solid breakdown, we need not fill the gaps way back in late March or early April). At the moment, a near historic Expiration is upon us, with the majority of Open Interest at strikes below where we are now as you'll see. 

Barring bad news . . .on COVID-19, from China, North Korea or results of upcoming 'Bank Stress Tests', the overall floor 'when' we get a drop, should be higher than when we nailed the March low. Frankly, as I've often said, I'd not be surprised to see a drop to somewhere between 20-40% of the run from the S&P March lows to the Summer highs.  

But it doesn't have to do that given a concerted effort by Washington to feed out market-stimulating efforts that indeed do increase risk and overvaluation in the 'super-cap' stocks. And yes I have emphasized the Oils & Banks lack of 'most recent' participation as a problem, and note that things are definitely not sound. And sure, most big-caps are divorced from the run-of-the-mine stocks; and sure, if JP Morgan (JPM) cut their dividend, that of course will be a notable factor that would hit the broader market. They are going to have something called 'stress capital buffer' and that's going to be just say 'topical' for now. Stay tuned.