S&P 3000 is a key level for several reason – it’s a psychological level (who doesn’t love round numbers?), it’s right at the 200 day moving average (a key technical level), and it’s right above the 61.8% Fibonacci retracement level, which, with sustained pressure can typically signal a continued rally.  All in all, markets are about 40% off their March lows. Sounds great, right? But is it? With market breadth so slim, very few companies are participating in this rally. We stand firm by the thought that a violent drop would be accompanied by an equally violent rally – the question that remains – is this a “V” recover or simply the establishment of a “lower high” in a broader forming down trend that’s just starting to realizing the global economic disruption currently happening? That said, don’t discount the Fed, as the perception of back stopping any downside risk gets more and more believed a rally unhinged becomes a reality. But with millions unemployed, supply chains disrupted, and the future increasingly uncertain, do fundamentals mater anymore? Will they eventually catch up? That’s why we watch the data. 

Alternative markets like gold and bitcoin are looking decent. The former a traditional hedge, the later a potential alternative future, we believe strength in these markets could also be a proxy for faith in today’s equities markets. The fundamental case of limited supply assets vs. unlimited “whatever it takes” fiat will play out interestingly and possibly historically given current conditions – we’ll see.

While volatility has backed off considerably it remains are an elevated level, still over twice what it was at the beginning of the year. We would like to see these level much lower to really be confident in equity markets. But declining volatility metrics lessen the probability of continued large price swings.

Spreads across the board on both investment and high yield corporate bonds have tightened, same with credit default swaps. This is a positive sign signaling lower overall perceived risk in defaults. While levels are still elevated, they are moving in the right direction.

Risk Assessment:  Medium. Watch the technicals, participation levels, and volume – a select few companies can only drive markets so much higher before they lose their fuel. Cryptocurrencies in general are looking very interesting, and do not underestimate the influence of the Fed and central banks on markets. While there are some very apparent cracks in the building, the simple belief that the Fed will save us should anything happen will keep it standing… for now anyway.