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NASDAQ recovery continues? Surprise stock market rally, Day 2

Written By | May 14, 2021
bulls or bears, NASDAQ recovery, McClellan Oscillator, purchased money market funds, bank sweep accounts, bank sweeps

Bull and bear. Public domain image via Pixabay.

WASHINGTON – Bullish investors enjoyed another leg of the surprise rally launched Thursday by Mr Market. After three consecutive days of nonstop pain and suffering, the bulls proved they could reverse the legion of short-sellers and everyday sellers who clobbered stocks, averages, and, in particular, the already battered tech sector. Evidence? The tech-heavy NASDAQ, recovery, launched Thursday, continued today with an impressive 2.32% Friday gain. That’s a whopping 304.99 point gain on the day, a Freaky Friday gift for the rejuvenated tech bulls.


Also Read: Permabulls, stock market dip-buyers mount surprise Thursday rally


The rousing NASDAQ recovery joined by the Dow and the S&P 500 averages

The other major averages also kept things going today, although somewhat less impressively than the NASDAQ. The broad-based S&P 500 gained 61.35 points, notching a 1.49% gain on the day. The Dow Jones Industrials lagged a bit, but still booked a 360.68 point gain, a 1.06% improvement on Thursday’s positive close.

Updates on the VIX and McClellan Oscillator charts

After a big initial drop Thursday, the VIX volatility index continued to sink Friday, which is generally good new for the bulls and bad news for the bears. You can see the pattern at the right side of today’s VIX chart below. The recovering NASDAQ stocks likely helped considerably with today’s VIX improvement.

NASDAQ

Today’s VIX volatility index chart, as of 2:30 p.m. ET. The red bars marking Thursday and Friday VIX action (May 13-14) indicate that the frenzied negative activity in stocks earlier this week has been calming down. This is always the one measure bulls would prefer to see in decline. Chart courtesy Stockcharts.com

Likewise, today’s McClellan Oscillator, our favorite bull-and-bear indicator, likely continued to improve through today’s closing bell. Although Thursday’s bounce, due to surprisingly heavy buying, doesn’t look very impressive in its chart, as of COB May 13. We won’t see how much its performance improved Friday until likely sometime this evening what that chart posts an update.




NASDAQ

Chart of the McClellan Oscillator, as of COB May 13, 2021. This is our favorite indicator of market extremes. Extreme oversold conditions (when the daily chart bottoms hard, well below the zero mark on the X-axis, pretty reliably predicts an imminent relief rally. The opposite holds true on the bullish side. You can see on Thursday’s chart the beginning of the bounce that continued Friday. Chart courtesy Stockcharts.com, a subscription service to which we subscribe.

A beautiful day in the NASDAQ recovery neighborhood… and everywhere else, pretty much

All in all, however, Friday was another good day for the NASDAQ and nearly everything else. We need a few more to leave this week’s initial massacre in the dust. Hopefully, we won’t get any more cosmic bad news this week like the Hamas-Israeli War and the increasingly suspicious Colonial Pipeline / gas shortage affair that’s technically over but still causing big transportation problems and gasoline shortages up and down the East Coast.

The only sector that didn’t play well today was the S&P Materials. Rumors that China wasn’t buying any industrial metals ever again send most of those stocks down for the day. (We’re sort of kidding about the “ever again” part. But then again, we only know what the Chi-coms think we should know, which is not necessarily reliable information.)

Beyond the NASDAQ recovery zone, our beloved Cleveland Cliffs (NYSE:CLF) shares suffered as a result, losing about 1.5% on the day. Likewise, our small position in Australia’s large cap mining company, currently known as BHP Group (NYSE:BHP) took a modest 0.26% hit. But shares of long-suffering but currently trendy US mining company Freeport-MacMoRan (NYSE:FCX) actually ended up 0.75%.

FCX, of course, also is heavily involved in gold mining, as opposed to its primary star, copper. That likely insulates these shares a bit when copper and other “base” metals take a hit on days like today. Meanwhile, gold itself, as represented by the small, Swiss-based physical gold ETF (NYSE:SGOL), closed up approximately 0.75%, continuing an apparently strong upward momentum after looking awful for most of Q1 2021. Nice, since we’ve taken a small position here as well.

Clearly, it wouldn’t have been a good idea for us to continue our defensive selling Thursday and Friday. If we’d sold more than a few token stocks, we would have missed the pretty nice Thursday-Friday rally we actually enjoyed as of COB today.

A nifty, high-yielding preferred stock gets called

Our only negative today: News that Prospect Capital would call its 6.875% term preferred stock next month. That’s only about 8 years earlier than its official expiration date, which we don’t like. But this can happen with any preferred stock when the issuing company can offer a new issue at a lower interest rate, using the proceeds to buy up the earlier, more expensive interest rate issue. Makes sense for them, no problem there. But we always mourn the loss of an above-average payout like this one.

Bet your checking account doesn’t earn 6.875%, right? Not to worry. Neither does ours. Which is exactly why you buy otherwise boring preferred stocks. In a modest echo of our March 2009 preferred stock and corporate bond buying binge – one that netted us a great current yield and an astonishing basket of capital gains – we pulled a mini-version of this in March 2020 when the Covid crisis mertilized the fixed income market, again offering high effective yields at low prices.

Now it looks like at least a few of these issues we bought last year may get called and replaced by new issues carrying lower rates. Grrr. That said, we discovered a new offering of preferred shares by Sunstone Hotel Investors REIT (NYSE:SHO), which we proceeded to acquire in the always dicey Gray market (Pink Sheets:SNTHP).

We’ll soon post a primer on how to play this game, which often gives you a chance to buy shares like these at a discount in the gray market. That’s usually a price below the standard initial offering price of $25 per share. In this case, alas, we ended up paying a few pennies above that number, likely because the yield was set at a still handsome 6.125% yield at par.

BTW, hat tip to Tim McPherson for this tip. Tim runs the Innovative Income Investor website, which remains THE place to find out about the shadowy world of high-yield preferred stocks and where to get the best pricing on these elusive but rewarding oddities. I’ve learned a lot here. You can, too. Check it out, particularly the comment boards, which almost always avoid the politics that clog most sites devoted to almost any topic these days. What a relief.



That’s it for this pleasantly Freaky Friday. We’ll see you on Monday, which is always Anything Can Happen Day for us. Hopefully, one “happening” thing could be a continuation of this week’s vigorous, but not-quite-big-enough NASDAQ recovery party.

Stay tuned.

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17