Look, I Need to Know What I Stand to Win

Some encouraging news over the weekend about the rate of virus growth around the world, combined with squeezes in the cruse lines (CCL NCLH RCL), casinos (LVS MGM WYNN), and even airlines, albeit to a far less degree given Warren Buffett reducing his stakes in them recently, figure to be giving bulls a sizable boost on this Monday morning. As I write this, the major averages are higher by more than 5%, with the small caps snapping back nearly 7% after lagging last Friday. 

It has been so long since we have seen a full-blown bear market (if that is what this truly is) that it is easy to forget about the various tricks a growling bear uses to his advantage to destroy as many traders as possible and get them climbing up the wrong tree before they realize they are completely trapped.

Case in point: A Monday morning gap higher in the context of an overarching bearish trend is often seen as a good spot to fade--In fact, most opening gaps higher are typically fades.

In this case, we must ask ourselves what, exactly, bulls are pinning their hopes on? Is it the idea that stocks are "cheap"? Well, we have the epitome of a moving target (moving rapidly lower) when it comes to earnings estimates amid a surge in unemployment. So, it is tough to make a clear-cut case for cheap stocks. 

Could it be the expectation of the virus cases reaching the sooner-than-expected apex? That seems most plausible. But, again, that does not take into account the inevitable bankruptcies and permanent closings of businesses across the country which still cannot survive another month or two of an extended quasi-lockdown nationwide, even with The Fed and government's actions. 

Long story short: Bulls may be best served by asking themselves exactly what they want to see in the coming days to reinforce a rally, as the domino effect from a prolonged shutdown in economic activity could easily come home to roost as this month unfolds. 

Furthermore, consumer staples and defensive names continue to have the strongest overall charts, among the XLP ETF holdings, making an imminent new bull run far less likely with them as leaders.