Coronavirus cases are rising. The U.S. government is, in turn, rising to defeat it.
That’s what sent stocks higher again today, hinting at a major breakout rally later in the week.
Analysts, meanwhile, remain concerned that the market will re-test the lows of last Monday amid mounting evidence of a recession.
Unemployment is expected to soar as a result of the continued outbreak. The Fed now predicts that over 47 million jobs will be lost in total, pushing the unemployment rate to a staggering 32%.
Heck, nearly every economic indicator we have is flashing warning signs.
But bulls don’t seem to care.
Nor should they; at present, the market still appears woefully oversold. The indexes are down roughly 22% from their all-time highs. Even if they drop in the coming days, a descent below their recent lows seems unlikely.
Stocks, more than anything else, look ready to burst upwards at the first shred of good news.
“Right now, risk assets are pricing in a V-shape recovery,” Dave Albrycht, chief investment officer at Newfleet Asset Management, said.
“Now, do I believe that’s going to happen? I think that’s highly dependent on whether they come up with some type of vaccine, how long does this go on for and whether people start going back to work once this peaks.”
Johnson & Johnson (NYSE: JNJ) announced that it had identified a “lead vaccine candidate” for COVID-19, possibly causing a shift in sentiment.
It’s only a matter of time before other vaccines candidates are discovered as the weeks go by.
However, some analysts are proceeding with caution.
“Equity markets are overextended, but face a bumpy period of even grimmer virus news and poor economic statistics in the next 1-2 months,” MRB Partners strategists wrote in a note.
“The world is now entering a third phase, the first being the shock of an out-of-control virus spreading around the globe, then the massive policy response, and now the economic fallout phase has arrived and will test investors’ very fragile confidence.”
If that “confidence” remains high, more gains are likely to follow.
And some stocks – particularly those that haven’t quite staged their comeback yet – could stand to benefit greatly from the surge of goodwill.
In the daily candlestick chart above, you can see that Verizon Communications (NYSE: VZ) is one of those stocks with plenty “left in the tank.” After getting crushed in the coronavirus crash, VZ shares have attempted to recover several times now.
Today, after rising above its minor bearish trend (represented with the yellow trendline), a VZ rally could finally be on its way. Should VZ trade above today’s high by a significant amount, it might make sense to go long on the stock with a trade trigger of $55.31. VZ’s also managed to open and close a candlestick above the 10-day moving average, which could be an auspicious sign moving forward.
Best of all, the stock is prone to large daily “leaps” in price. It might only take a few days to generate a significant profit as a result.
So, even if a protracted, market-wide rally doesn’t occur, VZ traders could still poach some quick gains by the end of the week.