Key Tactical Takeaways:
> In the wake of this morning's vaccine news, the stay at home trade is crumbling, while restaurants, airlines, casinos and hotels are surging. Given the patterns that preceded this action, this leadership transition should continue near-term.
> Last week, we suggested that our gut impression is that the dollar has a chance to form another tactical bottom in the area of DXY 92ish. While this morning's dollar bid supports this view, the ST trend will stay leaning to a test of ... pending a close > ....
> Gold prices are tumbling in the wake of this morning's vaccine news. Technically, this is not surprising since last week's gold rally never proved full escape velocity with consecutive closes > $.... Pending a close < $..., however, gold's near-term trend stays bullish.
> Crude's already bullish near-term transition is gaining steam this morning. Against $..., major resistance at $...is going to be under the gun this week.
> Now that the long-awaited vaccine news is in the market, the only thing that matters going forward is the Georgia Senate race, since a Democrat-controlled Senate would knock this rally to its knees. This is because equity market returns are strongest under a Democratic president and split Congress.
Some Quick Thoughts:
Risk assets are surging this morning, following news that the vaccine being developed by Pfizer and BioNTech was more than 90% effective in preventing COVID-19. Futures on the S&P 500 are currently +4.0%, while crude oil is up 10% and the 10-Yr yield is up 10bps.
The timing of these big stories never ceases to amaze me. No, I'm not referring to election-related timing. Though this is sure to fuel numerous conspiracy theories in the coming days. Instead, I'm referring to the fact that such events so often occur right at or after some form of a major technical development in markets. Specifically, I’m talking about the fact this morning’s news comes after the key development we highlighted in this weekend’s Weekend Macro Press, which is that the silver/gold ratio had undergone a major reversal back in favor of the cyclical side of this ratio last week.
Is it possible that this news had already leaked into the market, helping to fuel last week’s 3-sigma rally in the S&P 500? It’s 2020…anything’s possible. Now that the news is out, things are going to get remarkably interesting, given that much of the sideline cash had already missed last week’s rally and was waiting for a pullback.
Needless to say, this morning’s news is a game-changer, not just because it will force Wall Street analysts/strategists to readjust future growth prospects higher, but because it allows investors to feel that they have control over what was seemingly an uncontrollable pandemic. Ultimately, given the favorable seasonality and historic backtests that follow events such as last week’s 4 straight days of S&P gains > 1%, we’re probably dealing with an equity market that is in the process of ... What’s the one outlier that can knock this rally back to earth? A Democrat-controlled Senate. Therefore, the only thing that matters going forward is the Georgia Senate race.
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