One Indicator Argues That We've Seen The Bottom (Technically Speaking For 5/7)
Summary
- The Bank of England kept rates at 0.1% and published its assumptions about UK growth.
- The damage to the jobs market has been severe.
- The percentage of stocks below their respective 200-day EMAs is very low.
The Bank of England kept rates at 0.1% and offered its economic projections. Like other central banks, the BofE noted the outlook was very uncertain. Key were the following points:
Underlying the illustrative scenario for both the UK and the rest of the world is an assumption that enforced social distancing measures remain in place until early June and that they are then lifted gradually over the following four months, until the end of Q3. Fiscal support measures, such as the CJRS and the Self‑Employment Income Support Scheme, are assumed to remain in place, and to be unwound, over the same period. These assumptions should not be taken to imply that they are or should be government policy.
The economy will not simply restart at its previous level of activity; consumers especially will be cautious about going into group settings, which means consumer-facing retail will probably suffer for an extended period of time. This means there will be a ramping up of activity over at least the end of the 2Q20 and 3Q20.
Let's take a look at the damage contained in last month's employment report:
Three sub-sectors accounted for most job losses. By far, the biggest component was leisure and hospitality, which shed 459,000 jobs, accounting for 64% of all losses. Education/health and retail were the next largest losses. Manufacturing and mining (read: oil) losses were remarkably light. Expect that to change in tomorrow's report.
Just how important are restaurants to cities? Very important (emphasis added):
“Restaurants are extremely valuable to cities,” said Andrew Salkin, a founding principal of Resilient Cities Catalyst, a nonprofit focused on strengthening cities, and a former official in New York City’s Finance Department. “The benefit of having good restaurants outweighs just their tax benefits. They are the anchors of communities. They support tourism and the neighborhood they are in.”
...
A shift in recent years away from suburban living to urbanization began in many ways with a national restaurant boom that many cities now count on to drive both residential and commercial growth. “When an area revives, a leading indicator is always a great restaurant scene,” said Amer Hammour, the executive chairman of Madison Marquette, a large commercial real estate developer.
...
For many cities, restaurants have been crucial to their economic revival. A burgeoning new restaurant scene has lifted Detroit, where jobs in the restaurant industry grew 18 percent between 2009 and 2019, the latest year available from the Labor Department.
...
The same dynamic helped persuade people to settle in Botanical Heights and other St. Louis neighborhoods.
The entire article is worth the read.
Let's take a look at today's performance tables:
In general, a positive day, with mid and micro-caps at the top of the table. However, the long end of the yield curve (the TLT) was up 1.65%. Yesterday, it broke lower, but today printed a solid bar higher. Larger-cap indexes were also higher.
10/11 sectors were higher, led by energy, which has been a top performer for the last few weeks. Financials had a decent gain as well, followed by basic materials. At the bottom of the table are three defensive sectors: utilities, health care, and staples.
Today, I want to take a look at several underlying indicators, starting with the percentage of stocks above the 200-day EMA:
Only about 15% of S&P 500 stocks are above their respective 200-day EMAs, which means a majority of the stocks are in a bear market.
However, a majority are above their respective 50-day EMAs.
How can a majority of stocks be above their 50-day EMA but below their 200-day EMA? If the 50-day EMA for most stocks is below the 200-day EMA, this means there's been a fair amount of technical damage at the individual company level.
Let's take this data and combine it with a chart of the SPY:
The middle panel is the percentage of stocks below their respective 2--day EMAs. The last time it was this low was in the sell-off during the Great Recession. It has been near this low three other times, after which it rallied. The story for the percentage of stocks over their 50-day EMA is a bit more mixed.
Simply based on the percentage of stocks above their respective 200-day EMAs, the market is very oversold.
This article was written by
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