On “news” of a potentially beneficial therapeutic and the promise of reopening parts of the economy in the days ahead, the S&P futures have shot up above the 50-day moving average. We shouldn’t be surprised.

This, in fact, has been the way this recovery has worked from the very beginning. Every single moving average has been topped via a gap higher on something or another, with the biggest gap higher accomplishing the 10/20 cross on April 6.

It’s a gambit which has worked beautifully so far. While pundits debate which letter of the alphabet this rebound will most resemble, SPX has regained its 50% retracement in 13 sessions versus the 17 it took during the V-shaped recovery in Dec 2018-Jan 2019 – when the world wasn’t gripped by a pandemic and a stunning drop in GDP.

Unfortunately, that is our lot. And, as the futures start to slip coming up on the open, the gap higher method is going to fall a little short.

continued for members…The big picture for ES and SPX:VIX has an easy out should it decide to make new lows.  A backtest of the SMA10 looks more likely.

USDJPY continues to sag, doing barely enough so as not to hurt stocks. And, oil and gas are having a hard time keeping up appearances, with CL coming dangerously close to the Nov 2001 17.12 lows.  Unfortunately, ThinkorSwim is forcing the June futures on CL, so my weekly charts are all off at the moment thanks to the huge contango in WTI. 

RB is still presenting in May contracts, with the SMA10 currently providing a floor at .7088.The Dow has managed to gap above the 2.24 extension at 23781 and COMP its SMA200 at 8405, so the algos are happy even if it takes another few days to push SPX above its SMA50. Word on the street is that the remdesivir story was planted by a rumor-for-hire outfit and that the drug has failed in previous trials in China.  Gilead has since walked back the hype.

The other COVID-19 story to hit the wires this morning is that Moderna received $483 million from the government to fast track its vaccine efforts.  It’s great news, as is all the other vaccine research going on at an unprecedented pace.  In listening to the CEO’s interview, however, it’s obvious that this, like every other vaccine being developed, won’t be widely available until 2021.

I’m as hopeful as anyone else. But, in the absence of a therapeutic or vaccine, I believe opening the country back up will absolutely result in a resurgence of community transmission and sharply rising numbers of deaths – particularly in those parts of the country which have yet to be affected in great numbers.

The problem continues to be testing. If all of us pack in to a basketball game or concert and one of us is infected, many of us will become infected. We’ll then head home and infect our loved ones and go in to the office and infect our coworkers. Since 25-50% of infected people have little or no symptoms, there is absolutely no way to prevent this from happening unless we get a vaccine.

In the US, only 13% of the 680,000 diagnosed cases have been closed – meaning either a person got better or died. Of those which were closed, nearly 40% resulted in someone dying – 34,700 of them.The chart below shows that the death rate (the orange line) has remained very steady since March 26, bouncing back and forth between 35% and 43%.  This is not progress, and it hardly argues for easing up on efforts to prevent community transmission.

The US remains in 44th place in the world in testing per 1mm people.  The chart below, sorted by tests per 1mm, shows some of the countries which have done much more.  Not a great argument for opening up the country.  The raw number of tests, BTW, is irrelevant. In total cases per 1mm population, the US is in 20th place…

…while in deaths per 1mm, the US is in 14th place.  Again, not a great argument for opening up the country.  We have had periodic declines in new deaths and cases and the rate of growth in each has definitely subsided. But, both are still occurring at an alarming rate.

If the proportions hold, 1,500 of the 30,000 people diagnosed today will die — and that’s without opening up the country.

Compare the data to a country such as Germany, which imposed a stronger quarantine much earlier than the US.  Sixty-two percent of all diagnosed cases have been closed, and deaths account for a mere 4% of those. Remember, the US is running about 40%.

Even though active cases have clearly rolled over…

…Germany is still seeing 3,000 new cases per day… …and deaths are still ticking higher.The number of active cases is beginning to flatten in the US, but is far from rolling over.

The most frightening reports I’ve seen in the past week was this one from the UN which reveals that 74 million people in the Arab region lack access to a basic handwashing facility (i.e. clean running water.)  It’s safe to say that most of those 74 million also don’t have a bottle of Purell.

Think of the 1.2 billion people in Africa who have been so susceptible to past epidemics which were easier to detect.  The 2013-2016 Ebola outbreak in West Africa infected 28,646 and killed 11,323.  Almost 20,000 cases of COVID-19 have been detected so far, and it’s still early days.

So far, the Fed’s trillions and hope for a cure have been enough to keep the market rising. But, if we see a resurgence in cases/deaths in the coming weeks, I fear that the rally will fail and we’ll retest the March lows – particularly once the many businesses which were hoping for money from the government begin failing.

I give Trump’s political advisors credit for convincing him to give governors the responsibility for deciding when/how to reopen their states. Those who are aggressive about it will pay the price, while those who don’t reopen things quickly will continue to pay an enormous financial price. Without widespread testing and an effective therapeutic/vaccine very soon, there is no happy ending.

More later.

UPDATE:  3:50 PM

Here comes the last minute VIX dump/SPX ramp.