Powerful market pullback and Tesla stock rise

Expiration of popular futures contracts is expected during the coming week in the US and Russian markets. You should remember that splashes of volatility are possible on the eve of expiration. You should also take care of the rollover into the next contract if you have long-term positions.

Coronavirus doesn’t plan ‘to die’ even in summer, as many experts expected. Incidence in the world stays at a high level – more than 100 thousand new cases every day. However, investors switch the focus of attention to the economic recovery after the lockdown and are more interested in the employment statistics. And it inspires optimism.

The key event is publications of unemployment US data on June 5. The data showed that the rate of economic recovery in May was much faster than it was forecasted. The number of created working places (Nonfarm Payrolls) reached 2.5 million, while analysts expected their reduction by 8 million. The unemployment level also turned out to be lower than it was forecasted – 13.3% instead of 19.7%. The data, which were published in Canada, also were optimistic.

However, optimism didn’t last long. Cautious sells were started on Tuesday. Retracement reached peak values on Thursday, June 11 – the key index lost 5.89%. The uptrend was broken although bulls managed to stay above 200 MA.

The FRS statement on Wednesday evening provoked the selling out. The Central Bank quite expectedly left the key interest rate at the 0-0.25% level. Officials also confirmed the promise to print as much money as it would be required for reduction of the unemployment level and recovery of consumer activity.

These words were not a surprise for investors. FRS officials repeat their ‘mantra’ again and again. Another forecast caused more concerns. The interest rate will stay at the zero level until the end of 2022. It means that FRS expects slow rates of economic recovery during the nearest 2 years.

It is a very unpleasant news for bulls who already included the maximum fast recovery after the crisis into the stock prices. Selling out was started practically in all sectors of the economy.

The FRS opinion turned out to be especially negative for the bank stocks. The low interest rate is a forerunner of reduction of long-term profitability of Wall Street companies. Massive selling out was started in the financial segment of the market. Quotations of JPMorgan Chase, Wells Fargo, Bank of America and City lost up to 20% on June 10-11. The technical picture doesn’t inspire optimism in all these cases.

At the same time, a combination of low rates and economic uncertainty is very favourable for gold. Quotations of the precious metal got stuck in the flat, however, the chances for the growth to continue up to 1,900-2,000 still look quite strong. To achieve it, it is necessary to close the day above the resistance of USD 1,750 per ounce.

Even after a strong retracement of June 11, the stocks are still overbought. Moreover, many experts state that the market, probably, is in the state of inflation of a speculative bubble.

How does it work? FRS prints money, which are planned for the economy support programs. People get interest-free loans with the grace period of 2 years. However, many Americans prefer to take loans not for development of their own businesses but for speculations. What to waste time and nerves for if the main stock indices have grown from the end of March by 40%? The Nasdaq 100 index even renewed historic highs.

There was a sharp growth of demand during the past week before the retracement on the so-called penny stocks that cost less than USD 1, which resulted in the immediate price leap by 80%, as they calculated in CNBC. It is an obvious sign of appearance of ‘stupid’ money of unprofessional investors. The market behaved similarly during the dotcom bubble and mortgage bubble on the eve of the 2008 crisis.

Let’s note a new extraordinary landmark in the stock market history. The value of the Microsoft and Apple companies synchronously reached USD 1.5 trillion during the trades on June 10. Technology US companies suffered less than other companies from the crisis, however, investors already invested the full available positive into their quotations. Apple and Microsoft stocks are in the uptrend even after the June 11 retracement and are above the highs of the year beginning, when nobody even guessed about the coming crisis.