Futures were already up sharply this morning when news hit that Moderna’s vaccine trials were going very well. This sent VIX crashing even lower and futures even higher with ES currently showing an 80+ point gain.If the vaccine is on the path to ultimate success, has the effect already been fully priced into stocks?  Is this the all-clear the market has been waiting for?

continued for members…

There’s only one trend line standing in the way between ES and its SMA100 and SMA200.

SPX should test a similar trend line on the opening bell. VIX, which has broken back into its falling channel/wedge appears to have a clear shot at its SMA200 at 23.97……except for that pesky white channel midline at 25.96ish.USDJPY is showing full support this morning with another little breakout following last week’s breakout of the falling white channel. Combined with yet another EURUSD bounce… …this puts DXY back in limbo – with the pull of the SMA100/200 once more a factor.CL, which had already topped the SMA20 which finally caught down to it before the Moderna news, has slipped even higher – nearing a 10% gain on the day before stocks even open.This puts it that much closer to the gap target we mentioned last week, but I can’t help notice it puts the red .618 very close to the important 17.12 lows from 2001. It will precisely line up at CL 33.80, so we’ll look for a potential reversal there.

This doesn’t mean that such a reversal is imminent – only that if something happens to disrupt CL’s meltup and it slips back below horizontal support at 26.05 it could target the white channel bottom at around 20.50 and this Fib level at 17.12.

RB, which is up an also impressive 7%, is closing in on our 1.055 target. Once it’s in the bag, there’s only the white channel midline and SMA100 at 1.12 standing in between it and its Dec 2018 lows at 1.24 and its Mar 6 gap close at 1.38.Bonds are picking up the potential increase in economic activity and (dare we say) reflation, with 10Y yields making a strong move… …even though the 2Y remains mired below 17 bps – a bearish posture.

This puts the 2s10s back in a mild breakout situation – again, potentially bearish.

Moderna’s is one of roughly 100 vaccine moonshots in the works, but the one getting the most attention right now. The company reports in this Interim Phase 1 status report that its vaccine candidate (mRNA-1273) has produced neutralizing antibodies equivalent to or greater than those in patients who have recovered from COVID-19. They believe that these antibodies are important in acquiring prophylactic protection – the goal of any vaccine.

That’s the good news. The questions that remain are many and vitally important.

The two most important… Why are some previously “recovered” patients becoming reinfected and sick again? This would suggest that one doesn’t necessarily acquire immunity from a previous exposure and infection.

Also, how quickly can the vaccine be ready for use in the general population?  The company expects to begin a Phase 3 trial in July and have the vaccine available sometime in early 2021. In other words, it would not be ready in time for a Fall surge in cases which is almost certain to occur.

Not everybody agrees on the importance of this second point. But, other than the benefits conferred by businesses shutting down, social distancing and large numbers of people wearing masks, I fail to see how the risk situation has improved from when the outbreak first became apparent.

States such as Texas, North Dakota, Minnesota and Alabama which are aggressively reopening are seeing surges in cases which will mean surges in deaths. Anecdotally, I saw very few masks or social distancing in a day trip up through New Hampshire and Maine on Saturday. Even here in Massachusetts, people seem to be taking a more casual approach.

With warmer weather, more people will be out and about, exposing each other to infection. Should schools reopen in the fall as seems likely in many states, we would see a strong resurgence of community infection as children bring the virus home to mom and dad. Recent studies show that although children are more often asymptomatic, they carry the same viral load and infectiousness as anyone else.

It’s great that more testing is being done. It can pinpoint trouble spots. But, if the average person being tested doesn’t show up for testing until they’re symptomatic, that’s a problem. First, they are already infectious before symptoms typically appear. Second, up to 30-50% of those infected show no symptoms at all. Like the majority of infected children, they will go about their daily business completely unaware of the threat they pose to those around them.

The focus on reopening is being driven by two major factors: the need/desire of the masses to resume working/playing and the need/desire of the financial elite to salvage and/or rebuild their wealth.

The average waiter or delivery guy previously making $40,000 a year but who is currently out of work and unable to pay his rent is on board with reopening the economy but is justifiably worried about getting sick. He might be encouraged by the fact that the politicians and titans of finance are optimistic about reopening the country.

But, of course, he’s the one putting his life on the line. If he becomes another statistic on the COVID-19 scoresheet, it won’t much affect the stock market or Trump’s reelection odds. But, if another 1-2 million of such folk get sick and another 100,000 die, it would be a very different story.

A renewal or expansion of the March lockdowns would likely unwind much of the market’s gains since then. The Fed’s trillions will still be at work, but the fundamentally-oriented V-shaped-earnings-recovery crowd won’t have an economic leg to stand on.

My sense is that TPTB understand how obviously ludicrous it would be for stocks to make new highs until a vaccine is in place. It would destroy what little credibility/integrity the market has.

So, the game has been to delay and mitigate any huge plunges, waiting for channel or Fib support (ideally both) to come into view as it did in 2015/2016. Recall that SPX blew through the 1.272 Fib at 1823 like it didn’t even exist, then proceeded to backtest it repeatedly. It first reached it on Dec 20, 2013 and last backtested it on Feb 11, 2016 (when CL completed its plunge from over 100 to its 13-year low of 26.05 and almost tripled over the next 32 months.)

Oil and gas cannot fix the market this time. The futures have already rebounded significantly from their April lows. Any lower would have been problematic……but any higher will pose inflation and interest rate problems given the explosion of debt the country is taking on.  I’ll work on updating these charts and get them posted this afternoon.

UPDATE:  11:48 AM

SPX just made a higher high, topping the Apr 29 highs. Look for it to back off from this level.

Note that ES has not topped its Apr 30 highs.

Note also that CL has reached its Jan 2009 lows and the top of the rising white channel. This feels like a good place to try shorting for a backtest as described above. Downside targets start at 26.05, followed by 22.80ish (the red TL and the midline of the expanded purple channel on the weekly chart) and 17.12.

UPDATE:  3:45 PM

As we come up on the close, it’s hard to believe ES won’t also do a little stop running. I’m still looking for a reversal, probably tomorrow. Note that the 2s10s has continued to climb and is approaching a higher high.Another strong hint can be found in the NKD.  It is coming up on important potential resistance at 20,700-. This is not only the lower end of a jumble of SMA100, SMA200 and various trend lines… …but also represents a backtest of the purple channel which broke down on Mar 9. NKD rarely breaks down without taking SPX with it.