Morning Comment: Germany's DAX trying to breakout

Back in 1999, every once in a while we would jokingly exclaim, “The stock market will never go down again in our lifetime!” We did said that because it seemed like the stock market would rise every day no matter what the news was and no matter what was going on in other markets. The same certainly seems to be happening today...and with the long weekend coming up...and given that the market tends to do well in the days surrounding long doesn’t look like the market will start any kind of pull-back immediately.

Yesterday’s action was much like it has been on many days in recent weeks. The tech laden Nasdaq led the market higher...but it did so on lousy breadth. No, the data on advancing stocks vs. declining stocks was not negative this time, but it was only barely positive...which stinks for a market that rallied 1.4% (Nasdaq)...or even on that rallied 0.76% (S&P 500). As we learned in 1999, things like this do no matter in times like these. One just has to look at the much lower-than-expected number out of ADP’s employment report this morning...and the fact that it has had zero impact on the stock futures (which are up nicely) see everything is seen as bullish for the stock market now-a-days.

One of the reasons for all of this, of course, is the Robinhood trader. However, their foray into the options market is where these traders are having a much larger impact than most people realize. As we highlighted just over a week ago, these Robinhood traders are buying call options hand over fist. The brokers who sell them those calls have to hedge themselves by buying the underlying shares or ETF’s at any price! They don’t care about valuations, technical conditions or anything else except making sure they’re hedge...and collecting the premiums............It’s hard to know how long this will last. It could last a very long time. The big problem is that when it comes to an end, it’s going to leave huge gap to fill...and things are going to turn VERY ugly...VERY quickly.

Anyway, the rally in the tech area has allowed the U.S. stock market to rally a lot more than most of the rest of the world since mid-June (the last time the market saw a dip of any measurable amount). Since those June lows, the Nasdaq has rallied more than 27%...which is much more than any other global stock market. The closest indexes are China and South Korea (which have rallied 18% & 15% respectively). That’s in-line with what the 16% gain the S&P has seen since mid-June, but well below what the Nasdaq has done. In fact, all of the rest of the major global stock markets have single digit gains since the mid-June lows.

HOWEVER, we do want to point out Germany’s strong rally today is taking the DAX above the top line of an “ascending triangle” pattern. It’s only a very slight breakout so far, but if it can see some upside follow-through over the coming days, it will quickly become a compelling development. This, in turn, should help it rally back to test its February highs very quickly. In other words, for those people who believe that this rally in the U.S. will continue...and they’re looking for markets that might play catch-up as we move into the fall months...Europe (especially Germany) should be at the top list for them. (Chart below)

As you know, we remain very skeptical about how much longer this rally will last here in the U.S., but we still want to make sure that we highlight new developments...that could result in solid gains if we’re wrong.

Finally, on the political side of things, it seems like another big dynasty has fallen by the way-side in 2020. The 30 year reign of the Clintons came to a close this year...when it became evident that Hillary Clinton was not going to make a come-back late in the game. Now, a Kennedy has lost an election in Massachusetts for the first time Rep. Joe Kennedy III lost in his bid to push Sen. Markey out of his senate seat in yesterday’s primary. Mr. Kennedy is only 39, so his political career is far from over (unless he decides not to continue a political career...much like his father did when he retired from the House many years ago)

Mr. Markey is 74, Chuck Schumer is 69, Joe Biden is 77 and Nancy Pelosi is 80.....Mitch McConnell is 78 and the President Trump is 74. Robert Kennedy’s grandson may have failed to move up the ladder, but our guess is that the leadership in this country is going to be A LOT different after the 2024 election!!!

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Sep 02, 2020 — 9:09 AM
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