Need to Know: Here are the 3 ways stocks are likely to finish in 2020, says this trader

Critical information for the U.S. trading day

Universal/Courtesy Everett Collection

One month to go and we are done with 2020 — and good riddance to one dismal year. When it comes to stocks, though, the year is turning to a far less negative one than many expected, given a deadly pandemic.

There is still a small chunk of the year left to trade, and plenty of debate about whether we will see a so-called Santa rally that tends to occur towards the end of December and into early January, or if the markets are out of steam.

Our call of the day comes from Mark Newton, president and founder of ML Newton Advisors, a consulting based/web subscription financial service. He says investors could see stocks go one of three ways.

“The broader stock market faces the task of confirming the recent rally with a strong continuation move (and not reversing!). Will it happen? That is the big question,” Newton says, in a blog post for See It Market.

Under the first possibility, he predicts stock markets will follow up those gains. Investors would see the ValueLine Composite Index VALUA, the NYSE Composite NYA, S&P 500 SPX, and Nasdaq Composite COMP all knock out highs above their February peaks. At the same time, the VIX Volatility index VIX — a measure of stock market volatility — would push through its August lows.

“This would set the tone for another two-three weeks of rally, which would carry indexes higher throughout December,” says Newton.

The second option would involve a “mild pullback” for stocks, coming as the U.S. dollar DXY reverses recent losses. He expects the S&P 500 would hold around 3,585, then creep up towards 3,720 midmonth.

The last option — the Grinchiest of all — is the least likely to happen, he says. The market would give back all of Tuesday’s gains, dropping through 3,585, then moving under 3,540.

Alas, euphoria still seems to have him bothered. He points out via this retweet that hedging against a 10% loss in the Nasdaq is the cheapest since 2018.

And he points out that call options are doing a boom right now. That gives buyers the right, but not an obligation to buy, an asset at a future date at defined price. In short, those are bullish bets.

The markets

Stock futures ES00YM00 are lower, apart from Nasdaq-100 futures NQ00. European equities XX:SXXP are steady, and Asian stocks were a mixed bag. Chinese services-sector data came in better than expected.

Oil prices CL.1BRN00 are down, ahead of a decision on production cuts from an already delayed meeting of the Organization of the Petroleum Exporting Countries and its allies.

The chart

Albert Edwards, global strategist at Société Générale, says if the U.S. is facing a double-dip recession, markets may struggle to “look through” that.

“Maybe they will this time, but history suggests otherwise, especially if the U.S. follows Japan and the eurozone into outright deflation,” he says, in a note to clients. Here’s his chart.

Société Générale

The buzz

Weekly and continuing jobless claims are ahead, followed by the Markit services purchasing managers index and the Institute for Supply Management’s services index.

Shares of Tesla TSLA are climbing, after Goldman Sachs upgraded the electric-car maker to a bullish buy rating, from neutral, and its price target to $780 from $455.

Tensions with China are simmering, after the Democratic-controlled House of Representatives approved legislation to boot Chinese stocks off U.S. exchanges. President Donald Trump could soon sign it.

House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said the $908 billion plan from a bipartisan group of lawmakers could be a basis for negotiation.

COVID-19 related hospitalizations in the U.S. hit 100,000 for the first time on Wednesday, with deaths also at a record, as the Centers for Disease Control and Prevention warned of the “most difficult” three months of public health history ahead. Another big problem for the U.S.? Misinformation about coronavirus vaccines, the chair of the University of California, San Francisco’s medical department warns. Germany could extend its partial lockdown for three more weeks.

Snowflake SNOW shares are down sharply, after the cloud company swung to a loss in the first set of earnings since going public.

On the retail patch, earnings from Dollar General DG, Michaels MIK, and Kroger KR are ahead, while shares of Five Below FIVE are climbing after strong results.

Random reads

Donut cereal and other hot food trends for 2020 via video-sharing app TikTok.

Planets Jupiter and Saturn are getting together for a rare event this month.

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