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How Much Does the Market Care About Covid-19?

Hint: Look at where we are on the S&P 500....

The Market

There seems to be a view in the market that it has actually cared about the early July rise in Covid-19 cases in the Sunbelt. I would say the market hasn’t cared one iota. If the market cared about the rise in cases, do you think we would see the S&P 500 at 3200 or closer to 3000, where it was in late June? I think it would be closer to 3000 than 3200. In fact do you realize that we have been in this wide trading range for about seven weeks now?

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The amazing thing about this wide trading range is that sentiment got more bullish than it was back in May when the S&P was at 2800. Should the S&P head back down toward the 3000 area, this would be in keeping with that scenario we saw in the post 9/11 time frame. In the meantime, I would say the market cares about the Fed and the stimulus package. That’s what I think is focused on and considering we’re sitting at 3200 on the S&P, it seems to me the market is betting that the Fed keeps doing what it’s doing and that the stimulus package gets worked out sooner than later.

I would highlight to you the chart of the 21-day moving average of the exchange-traded fund put/call ratio, since it has essentially made its way down toward the two previous lows. It will take another few days to breach the 1.0 level, but you have to admit it’s awfully close now. I should, however, point out that while it appears to line up perfectly with the peak in 2018 and the peak in February this year, the indicator actually troughed a few weeks before the market peaked.

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As for Tuesday’s market, it was the inverse of Monday's. Monday breadth was poor and the indexes were up. Tuesday breadth was good (negative 250) and the indexes were down. None of this has helped the Summation Index, which continues to need a big rally to turn upward with some oomph.

In my view the best thing this market can do is go down. It needs a good flush where we see the Volatility Index pop and the market can get oversold.

New Ideas

I was asked to look at the weekly chart of Pfizer (PFE) - Get Free Report, which has a head-and- shoulders bottom. I have drawn this in on the daily chart for you over the last few months, but it is easier to see on the weekly. The issue with the weekly chart is that there is resistance that is pretty heavy starting around $40 and then all the way up. I think it is going to take a lot to eat through that. On a trading basis, I would take some profits near $40, but longer term, I think I’d hold.

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Merck (MRK) - Get Free Report has earnings out later this week and the chart is quite different than PFE’s, but this too is trying to build some sort of base. I think $84 is a lot of resistance right now, but if it can map out as I have drawn in it improves the chances of a breakout.

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Today’s Indicator

The McClellan Summation Index needs a net differential of positive 600 advancers minus decliners to stop its renewed decline.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

I think the lower line on Hilton (HLT) - Get Free Report is important, because that spike up two weeks ago has now given it all back so breaking $75 would be a negative, whereas holding it makes the chart at least a touch more positive.

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Intel (INTC:Nasdaq) has a measured target around $50 from that head-and-shoulders top, but I’m not sure I see much of a catalyst to get it going right now. What really surprised me is that even after that tumble, it doesn’t yield more than 3%. If it can manage to rally to $56 (can it?) I’d sell it there, otherwise I’d be inclined to wait for a pattern to shape up.

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Norweigian Cruise Line (NCLH) - Get Free Report is hanging by a thread. Most important, though, is that $15 area. If it cannot get through there quickly then the chances go up that it breaks that line on the next turn down.

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