Policymakers + Americans "vaccine" panic = August rally. More signs of inflection as 3 key "epicenter groups" registered DeMark '13 buy setup'

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STRATEGY: Signs of August inflection…3 “epicenters” register DeMark ’13 buy setup’
Wuhan is testing everyone –> even airtight borders do not take cases to zero
Wuhan is testing every one of its 12 million residents because Wuhan as a city is seeing its first cluster of cases in more than a year. Yes. Wuhan had basically zero COVID-19 cases for the past year. And this recent outbreak is being attributed to migrant workers.

– So far, they have detected 300 cases
– there are >1,500 testing centers in Wuhan, per the BBC article below

But this shows that lockdowns, airtight borders, and testing at borders are not taking community transmission risk to zero. I guess this is simply more proof that COVID-19 is becoming an endemic, and hopefully it will mutate into a milder version of the virus.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Source: https://www.bbc.com/news/world-asia-china-52651651

Vax panic = future community benefits = positive for risk markets
As we mentioned a few times already, one of the surprise positives from the Delta variant surge has been the increase in vaccination rates. Recall, the % of American adults vaccinated is >70%

– adult vaccination rates >70%
– daily vaccinations now approaching 650k per day, or 237 million doses annualized

-but many states have ‘vax rates’ < 50% = lots of wood to chop

…states with low vax rates are showing signs of ‘vax motivation’ and many show ‘vax panic’
There is an apparent pick up in the vaccination rates. And as we alluded to Monday, there are 27 states where there appears to be
‘vaccine panic’ measured as +30%-plus in daily vaccinations vs just two weeks ago.

– the chart below shows the % of state fully vaccinated (x-axis) and two week change in vaccinations
– states with lower vaccination rates are seeing biggest rise in vaccinations

Thus, the delta variant surge is creating a positive public response. More Americans are seeking to get vaccinated and moreover, in states with lower vaccination rates.

Normal 0 false false false EN-US X-NONE X-NONE

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

…higher vaccine penetration likely coming as more cities/mayors/government require vaccination
NYC is soon going to require Americans to show proof of vaccination for indoor dining, gyms and venues. This is actually not a bad policy pivot, in our view, as long as one is a believer in vaccinations.

– program will start August 16th
– will be enforced starting Sept 13th

In our view, this step is preferable to new lockdowns or restrictions on movement. But by requiring vaccination proof, this is effectively:

– lockdown for non-vaccinated Americans
– about 30% of Americans are not vaccinated
– this is about 78 million American adults

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Source: https://www.nytimes.com/2021/08/03/nyregion/nyc-vaccine-mandate.html

STRATEGY: 3 key groups seem to be bottoming per DeMark analysis. Argues August “chop higher” but potentially “full risk-on”
Our base case for August is a continuation of the “July chop” but with a bias for stocks to rise in August. As the chart below shows, we think the S&P 500 could exit the month >4,500. That rationale is we see positive developments this month:

– Delta variant likely peaks before mid-August = risk-on
– Vax panic is causing higher vaccine penetration = future benefits = risk-on
– 10-yr could be soon reversing given DeMark weekly count points to higher rates starting next 3-4 weeks = risk-on

So there are positive incoming developments, but it is in a month that typically sees lower volumes due to vacation schedules. And in 2021, revenge travel means more clients are likely away from markets. This “buyers strike” makes markets vulnerable to tape bombs. That said, we see a positive bias for the month:

– in other words, we don’t see a 10% correction
– but we see “chop” but with a bias higher
– don’t be a hero as “one never makes money in July/August”

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

RISK ON AUGUST? China + Airlines + Casinos = Virus groups bottoming with ’13 buy setups’
Adding to our confidence about August “chop higher” is that some key groups are registering a ‘Confirmed 13 buy set up’ on the DeMark analytics (daily, combo v1b). We are fans of the DeMark indicators to help us better calibrate our view on markets.

– 3 groups got hit among the earliest and hardest in 2021
– China + casinos + airline stocks peaked early in 2021, many around Feb
– and as the chart below highlights, have tanked further since the end of 1Q2021

But these 3 groups now look potentially at a key inflection point. That is, their DeMark count (daily, combo v1b) is now inflecting to a ’13 buy setup.’

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

…First ’13 buy setup’ since March 2020 low = wow = PLEASE PAY ATTENTION
In our view, these ’13 buy setups’ are significant because in the DeMark system, these are signs of an exhaustion of an extended trend. And on a daily basis, these are rare in appearance. Consider this:

– China equities (ETF  MCHI 0.53% ) shows ’13 buy setup’ the first since September 11, 2018
– Airline stocks (ETF  JETS 0.29% ) shows ’13 buy setup’ the first since May 6, 2020
– Casino stocks (ETF  BETZ 0.17% ) shows ’13 buy setup’ the first since March 18, 2020

This is a BIG DEAL. ’13 buy setups’ are rare. This means a group trend is so extended, that all the news driving that trend is baked in. Thus, an inflection taking place is a powerful reversal.

…China MCHI reversal could be powerful
Tom DeMark, the well known systematic strategist and a good friend of mine, alerted me to the ’13 buy setup’ in China. Indeed, even the MSCI China ETF ( MCHI 0.53% ) shows a ’13 buy setup’

– this has not been seen since Sept 11, 2018
– In the following 18 months, China stocks rallied +94%

China stocks have been hammered since Feb. Thus, this is a big reversal and important to watch.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

…Airline stocks posted first ’13 buy setup’ since May 6, 2020… you can see what happened then
No group is more affected by Delta variant risk/re-opening then airlines. And as shown below, registered a ’13 buy setup’ on the daily combo count v1b.

– the last ’13 buy setup’ took place on May 6, 2020
– look at the parabolic rise in those stocks since

We think this is lending further credence to our view that Epicenter stocks will rally hard once the Delta variant is viewed as ‘contained’ by markets.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

…Casinos showing first ’13 buy setup’ since March 18, 2020
Casinos have dual exposure, to the extent they are both China sensitive (Macau) and Epicenter stocks. These stocks rolled over in Feb 2021 contemporaneous with China’s downturn.

– Casinos  BETZ 0.17%  showing first ’13 buy setup’ since March 18, 2020
– one can imagine this is a big inflection if this is indeed a turning point

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

BOTTOM LINE: Increasingly convinced August setting up “chop higher” and could turn into a full blown “risk on”
Bottom line, we don’t want anyone to be a hero. But the rising gloom among investors and the glum media stories are also suggesting that markets are increasingly expecting flat/down equities in August.

We think the odds are substantially shifting towards a “chop higher” and potentially a full blown risk-on rally.

– Delta surge could apex in USA = risk-on
– Vaccination levels could surge = risk-on as it provides future protection
– 10-year could reverse higher = DeMark weekly count says “watch for it”
– Epicenter groups are bottoming with ’13 buy setup’ = risk-on

Our 2H2021 outlook remains the same. We see S&P 500 ( SPY 0.02% ) rising 9% in 2H2021, leading to S&P 500 closing above 4,600 by year-end.

– an “everything rally” in 2H2021
– August increasingly looking to tilt more positive, and possibly full risk-on (watching for this possibility)

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POINT 1: Daily COVID-19 cases 84,327, up +25,202 (ex-FL) vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 84,327 vs 75,364 7D ago, up +8,963
– Daily cases ex-FL 84,327 vs 59.125 7D ago, up +25,202
– 7D positivity rate 8.0% vs 6.0% 7D ago
– Hospitalized patients 51,790, up +35% vs 7D ago
– Daily deaths 390, up +30% vs 7D ago
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*** Florida and Nebraska stopped publishing daily COVID stats updates on 6/4 and 6/30, respectively. We switched to use CDC surveillance data as the substitute. However, since CDC surveillance data is subject to a one-to-two day lag, we added a “US ex-FL&NE” in our daily cases and 7D delta sections in order to demonstrate a more comparable COVID development.

The latest COVID daily cases came in at 84,327, up +25,202 (ex-FL) vs7D ago. Considering the delayed data for Florida, the actual total daily cases could be above 100,000. The chart below clearly shows the recent surge in daily cases – the case figure was “only” ~30,000 three weeks ago, while it has been over 100,000 in 3 of the past 7 days.

 

The 7D delta in daily cases is still rising and now at 22,746 (ex-FL&NE). That said, our base case remains that daily cases apex in two weeks. And if it’s going to be true, we could see the 7D delta rolling over within the next 7-10 days. Recall, the rollover in 7D delta indicates that daily cases are approaching their peak and could serve as an early signal of case rollover.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

7D delta in daily cases is still rising…
Previously, we noted that the 7D delta in daily cases appeared to be apexing. However, the recent data suggests that the rise in 7D delta persists. Again, we are waiting for the 7D delta to apex because that is the first sign of case rollover. However, US cases will continue to rise but will do so at a slower speed until the day that 7D delta turns to negative.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Low vaccinated states seem to have a larger increase in daily cases compared to their recent low…
Below, we added a new section called “Parabolic Case Surge Tracker” to monitor the possible parabolic surge in daily case figures. In the table, we included both the vaccine penetration and the recent case trend for 50 US states + DC. The table is sorted by the multiple of their current daily cases divided by their recent low in daily cases.

– The states with higher ranks are the states that have seen a more significant rise in daily cases
– We also calculated the number of days between now and the recent low date; a state with a high multiple but low number of days since its low means the state is facing a relatively rapid surge in daily cases
– The US as a whole, UK, and Israel are also shown at the top as a reference

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Hospitalization and positivity rate continue rising… Daily deaths is also trending upwards now…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.

As you can see, hospitalization and positivity rate have exceeded the peak level we’ve seen in April’s “mini” wave. Daily deaths have been trending upwards recently, but far less “dramatic” than the cases or hospitalization trends.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

POINT 2: VACCINE: vaccination pace has been gradually rising over the past two weeks… on average, ~680,000 doses are administered each day…

 

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Current Trends — Vaccinations:
– avg 0.7 million this past week vs 0.6 million last week
– overall, 49.4% fully vaccinated, 57.4% 1-dose+ received
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Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).

– Currently, all states are near or above 80% combined penetration
– RI, MA, SD, CT, NJ, IL, NY, DE, NM, UT, PA, ND, AZ, MN, CA, FL, NE are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Below is a diffusion chart that shows the % of US states (based on state population) that have reached the combined penetration >60%/70%/80%/90%/100%. As you can see, all states have reached 80% combined vaccination + infection. 71.9% of US states (based on state population) have seen combined infection & vaccination >90% and 48.1% of US states have seen combined infection & vaccination >100% (Reminder: this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within the state is either infected or vaccinated).

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

There were a total of 452,499 doses administered reported on Tuesday, up 15% from 7D ago. The vaccination pace apparently has improved over the past two week. As we noted above and Monday, it seems that people are becoming more inclined to get vaccinated over growing Delta variant concerns. Especially, the states with lower vaccine penetration appear to have a greater improvement. This is a great sign.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

99.1% of the US has seen 1-dose penetration >40%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 45%/45%/50% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 88.8% of US states have seen 40% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 45% of its residents fully vaccinated, this figure is 67.8%. And only 44.5% of US (by state population) have seen 50% of its residents fully vaccinated.

– While 99.1% of US states have seen vaccine penetration >40%, 95.5% of them have seen 1 dose penetration >45% and 81.6% of them have seen 1 dose penetration > 50%.
– 88.8% of the US has at least 40% of its residents fully vaccinated, However, only 67.8% of US has fully vaccinated >45% and 44.5% of US has fully vaccinated >50%.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

This is the state by state data below, showing information for individuals with one dose and two doses.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

The ratio of vaccinations/ daily confirmed cases has been falling significantly (red line is 7D moving avg). Both the surge in daily cases and decrease in daily vaccines administered contributed to this.

– the 7D moving average is about ~10 for the past few days
– this means 10 vaccines dosed for every 1 confirmed case

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

In total, 345 million vaccine doses have been administered across the country. Specifically, 190 million Americans (57% of US population) have received at least 1 dose of the vaccine. And 164 million Americans (49% of US population) are fully vaccinated.

 

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

 

POINT 3: Tracking the seasonality of COVID-19

In July, we noted that many states experienced similar case surges in 2021 to the ones they experienced in 2020. As such, along with the introduction of the more transmissible Delta variant, seasonality also appears to play an important role in the recent surge in daily cases and hospitalization. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:

– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors

If this holds true, seasonal analysis suggests that the Delta spike could roll over by following a similar pattern to 2020.

We created this new section within our COVID update which tracks and compare the case and hospitalization trends in both 2020 and 2021 at the state level. We grouped states geographically as they tend to trend similarly.

CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

Policymakers + Americans vaccine panic = August rally. More signs of inflection as 3 key epicenter groups registered DeMark '13 buy setup'

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