Stocks Rally Off The 200 Day Moving Average

Stocks Have A Huge Reversal

The stock market reversed sharply on Monday. The S&P 500 was up 2.72% as it bounced off the bottom of the recent range. As you can see from the chart below, it also bounced off the 200 day moving average which was hit on Friday. As I said last week, the stock market shouldn’t fall into a bear market with modest GDP growth and extremely strong earnings growth. The possibility of a trade war is a headline risk. Risk needs to be actualized before stocks fall 20%. The bottom part of the chart shows the 14 day RSI was at 29.98 on Friday which is an oversold signal.

Facebook Was Green In The Face Of FTC Investigation

To signal how strong the rally in stocks was on Monday, Facebook stock was up 0.42% even after it was announced that the FTC was going to be investigating Facebook’s data practices. It can be a signal of a bottom when a stock goes up on bad news. From the bottom at 11:20AM, Facebook stock was up 7.28%. The market needs to see a negative FTC ruling or sustained deterioration in usage before Facebook stock crashes. Some people deleted their Facebook account temporarily as a representation that they are unhappy with Facebook’s practices. Ultimately, people will probably come back to the website because it is an important tool to speak with relatives and friends. The bigger issues in usage trends is the decline of original posting. To be clear, I’m not saying Facebook is a long term buy. This is a short term bottom. The long term performance will be affected by regulatory issues and engagement patterns. People won’t stop posting content on the internet. Facebook needs to maintain its market share of these posts.

Risk On Trade Flourishes

The Nasdaq was up 3.26% as the tech stocks were led by 2 of the FAAMG stocks. Microsoft was up 7.6% and Netflix was up 6.4%. Tech usually does well when the risk on trade is in place. The sector was up 4.03%. The worst sectors were the risk off ones: utilities, telecom, real estate, and consumer staples. They were all still up though as the worst one, telecom, was up 0.92% on the day. The VIX was down 15.36% to 21.05.