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American retail sales soared 17.7% in May - the biggest monthly jump ever. That added some "oomph" to a stock market rally that had been, frankly, a little on the tepid side.
The jump was driven in large part by thousands of retail stores and restaurants reopening after months under lockdown; stimulus checks and tax refunds gave consumers a bit more firepower than they might have otherwise had under the circumstances.
But the thing is, the future - not just of retail but the entire economy - is very much uncertain right now. Even though, after going through the initial "coronavirus crash" in March, investors seemed to shrug off the pandemic and all its economic destructiveness in April and May.
Since then, we've seen states reopen their economies and people begin to reemerge into the world to resume their daily lives. As the weather improved apace, people began crowding stores, beaches, and parks. Judging by images in the news, all too often that was happening without masks or distancing.
And now, we're seeing some troubling signs that COVID-19 infections are surging in places like Texas, Arizona, California, and Florida - some of the biggest state economies. Ominously, Arizona's largest hospital system recently warned that it is on track to run out of intensive care unit (ICU) beds soon.
Whether you want to call it a "second wave" or whether it's just a new phase of the first wave, COVID-19 cases are rising in some places that were initially spared this winter.
That's provoked a psychological one-eighty among investors. They're suddenly very concerned with the pandemic's progress, so much so that they sent the big indexes tumbling by high single digits last week in the biggest losses since March.
That disconnect - the contrast between a piecemeal public approach toward masks, social distancing, and other virus containment measures and the markets' sudden concern over new infections after months of ignoring them - is in fact a "Reality Gap" that we can leverage for big profits this week.[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Expect Uncertainty to Be the Rule, Not the Exception
After months cooped up at home, not seeing anyone or doing anything, it's not surprising that people want to enjoy the summer.
What's more, Big Media seems to have grown bored with the pandemic, relegating all but the most urgent COVID-19 stories down below the fold. Big Government, meanwhile, continues to push, full speed ahead, for re-openings no matter what, despite the hard truth that many states are still falling well short of the Centers for Disease Control's (CDC) published criteria for safely phasing out lockdown restrictions.
And so it's perfectly understandable that investors are concerned; I think they're probably right to be.
Because we don't know for sure yet what this new phase will bring, whether we'll have to go back under lockdown, or whether states will continue to reopen no matter the cost in human lives.
But in order for these re-openings to work, for our comeback to "stick," we all need to work together to reduce transmission of the COVID-19 virus by wearing masks and maintaining social distancing.
That's why the markets' newfound concerns mark the right approach. Whether you want to call it a "second wave" or just the next phase of the first one, COVID-19 cases seem to be rising in some states that were initially spared.
And much like at the beginning of the year, we don't know what that will bring.
Will states lock down again? Will we reopen no matter what the cost in human lives? How will people react if or when a surge gets out of control?
What we do know is when this kind of uncertainty runs wild in the markets, trading will be rocky. I think we haven't seen the last of the massive selling we experienced on Thursday, but we could very well see big, fast rebounds like those we saw Friday, or yesterday where the Dow shot up more than 627 points.
Successful traders will be nimble traders, able to do more quick "get in, profit, get out" moves. Buy and hold investors should be very selective when establishing new long, long-term positions.
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Here's What to Buy Right Now
On Thursday, grocery giant Kroger Co. (NYSE: KR) reports its second-quarter earnings. Despite the big nationwide numbers we saw yesterday, many restaurants are only just beginning to open back up - and with strict capacity limits, at that. For the time being, most people are still buying most of their food at the supermarket. Kroger and chains like it will continue to do well. Kroger stock had been moving up yesterday and should continue to do so today. I expect a solid earnings report from Kroger, so look for a sell-the-news opportunity to buy at lower and lower prices before shares recover.
Lennar Corp. (NYSE: LEN), one of the nation's biggest home builders, turned in an "upside surprise" of 53%; analysts were expecting earnings of $0.83 a share, but the company reported $1.27. Shares slid a little lower yesterday as - you guessed it - folks sold the news. Expect continuing strength from Lennar and homebuilders in general. We're looking at the lowest interest rates ever, and mortgage rates aren't much further behind. Home buying is rising.
Oracle Corp. (NASDAQ: ORCL) hasn't reported as of this writing, but will have by the time this is published. Analysts had been expecting profits of $1.16 a share to go along with revenues of $10.7 billion, so the stock was rallying yesterday to the tune of 3%. Oracle was caught up in the broader "coronavirus crash" after trading more or less flat for most of last year's bull market. But it's also got a loyal customer base, stable revenue; it's come through the crisis very well. I think good Q4 earnings will make Oracle a good "safe haven" stock should the coronavirus spikes turn into something more ominous. Buy this on any dip and use it to lower your overall portfolio volatility.
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About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.