Stocks Jump as Junk Slumps
Stocks rebounded sharply today despite feeling a bit shaky at time. Still bigger risk may loom as credit spreads widen.

Stocks Jump as Junk Slumps

June 29, 2020

STOCKS – MU, FB, TSLA

MACRO – SPY, HYG

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It wasn’t the most vigorous trading session despite a 1% rally in the S&P 500. The real action came in the after-hours when it rallied another 50 or so basis points after Powells issued a statement ahead of his testimony for Congress tomorrow. There was nothing new said, but still, the algo’s took the index up. It will give us a chance to find out if the market can advance much beyond 3050 or not. For now, the futures have been unable to advance beyond that level of resistance. 

The 10-year yield fell below support at 63 basis point late today, and I think that is a negative sign for the yields and potential the equity market. It likely suggests the 10-year drops to around 55bps. 

I am a little bit concerned that the HYG and JNK ETF’s are trending lower as the yields are moving lower too. The falling ETF values indicate higher yields for the ETFs. That means spreads are widening, and that usually isn’t a good sign for equities. I talked about this more in the midday update – premium content – RISK IS BUILDING- MIDDAY

Micron (MU)

Micron reported better than expected results and gave better guidance, which was surprising to me. It wasn’t what I was expecting. For now, the stock has jumped to technical resistance at $52.75 and failed at the moment. We will see what happens during the normal trading session. This stock doesn’t have the greatest history of holding post-earnings rallies. Plus, $52.75 has been a tough level for some time.

Facebook (FB)

A bunch of other companies decided they were going to start pulling ads from Facebook as well. The stock’s next significant level is at $222. 

Tesla (TSLA)

Tesla looks as if it may getting ready for its next leg higher, potential to as high as $1200. The company is nearing profitably for the quarter, according to reports. 

That’s all

Mike

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