A belated Merry Christmas to the mentally fatigued trader holding more cash than the norm.
The Dow Jones Industrial Average (^DJI) exploded out of nowhere on Wednesday, fresh off of logging its worst Christmas Eve in history. Stocks started the session on an upbeat note the day after Christmas, gave back some gains by midday and then skyrocketed into the close.
The Dow marked its biggest point gain in history.
For those traders searching for a short-term bottom, Wednesday’s action was mostly encouraging. Shares of former market leaders — namely tech stocks Facebook, Apple, Netflix, Amazon and Alphabet — had Buy orders at their backs as traders finally put the cash they have raised the past three months back to work.
What happened: There are at least three reasons for the day after Christmas gift for beleaguered investors. Like it or not, when the President of the United States tweets that now is a good time to buy stocks after a three-month rout many investors will buy. "We have companies, the greatest in the world, and they're doing really well. They have record kinds of numbers. So I think it's a tremendous opportunity to buy. Really a great opportunity to buy," Trump reportedly said to reporters at the White House on Christmas.
As Yahoo Finance explained here, Trump’s “actionable” investing calls on Twitter have often worked out in the short-term. Longer term it has been a different story.
Next, the White House offensive to shore up confidence in Federal Reserve Chairman Jerome Powell after verbal lashings by Trump looks to have finally gained traction. On Wednesday Kevin Hassett, the chairman of the Council of Economic Advisers, said to reporters that Powell's job is "100%" safe.
Hassett also said Trump remains supportive of Treasury Secretary Steven Mnuchin and that there is no liquidity crisis. Mnuchin had come under attack over the weekend for holding a call with top bank CEOs to discuss liquidity. The call was a signal to the market, at least for a day, that Mnuchin perhaps knew something bad coming down the pike.
Factor in momentum building behind fallen angels such as FAANG (Facebook, Apple, Amazon, Netflix, Alphabet’s Google) names throughout the session, spurred in part by Amazon saying it had a “record breaking” holiday season, and you get the makings of a borderline insane 1,086 up day for the Dow. Thank you, algos.
Next up: Without question stocks were deep in oversold territory prior to Wednesday’s Dow surge. The put call ratio — a measure for downside protection against a stock market decline — reached the highest level since at least 2003 Thursday, pointed out SunTrust Chief Markets Strategist Keith Lerner. Meanwhile, the forward price-to-earnings multiple on the S&P 500 at 13 times was hovering near levels not seen since 2013.
Despite the one-day move, a great deal of technical damage has been done to the market. It will take more than tweets from the day-trader in chief to pull markets out of the doldrums for any sustained period.
A trade deal and positive earnings guidance from Corporate America in early January would be welcome... as would the government being fully open for business.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter
Read more
Why Tilray’s CEO is still wildly bullish
History shows a U.S. recession will probably happen within 24 months
The stock market is still being savaged by bears
How Fed Chair Powell just triggered the next wave of the bear market in stocks
