Market Remarks

Morning Notes – Friday February 28, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are sharply lower; resuming the downtrend since 7:30 AM; near the lows of October 2019
  • The odds are for a down day with elevated volatility; watch for break above 2960.00 for change of fortune
  • Key economic data due:
    • Core PCE Price Index ( 0.1% vs. 0.2% est.; prev. 0.2%) at 8:30 AM
    • Personal Spending ( 0.2% vs. 0.3% est.; prev. 0.4%) at 8:30 AM
    • Personal Income ( 0.6% vs. 0.3% est.; prev. 0.1% ) at 8:30 AM
    • Prelim Wholesale Inventories (-0.2% vs. 0,1% est.; prev. -0.2%) at 8:30 AM
    • Chicago PMI ( 49.0 vs. 46.1 est.; prev. 42.9) at 9:45 AM
    • Revised UoM Consumer Sentiment ( 101.0 vs. 100.7 est.; prev. 100.9) at 10:00 AM
    • Revised UoM Inflation Expectations ( 2.4%; prev. 2.5% ) at 10:00 AM

Directional Bias Before Open:

  • Weekly: Uptrend
  • Daily: Uptrend Under Pressure
  • 120-Min: Down
  • 30-Min: Down
  • 15-Min: Down
  • 6-Min: Down

Key Levels:

  • Critical support levels for S&P 500 are 3070.33, 3060.53 and 3050.72
  • Critical resistance levels for S&P 500 are 3078.80, 3087.41 and 3094.97
  • Key levels for eMini futures: break above 2953.75, the high of 7:30 AM and break below 2879.00, the low of 4:30 AM

Pre-Open

  • On Thursday, at 4:00 PM, S&P future (March 2020) closed at 2973.75 and the index closed at 2978.76 – a spread of about -5.00 points; futures closed at 2957.00 for the day; the fair value is +16.75
  • Pre-NYSE session open, futures are lower – at 9:15 AM, S&P 500 futures were down by -78.25; Dow by -571 and NASDAQ by -227.50

Markets Around The World

  • Markets in the East closed sharply lower
  • European markets are sharply lower
  • Currencies:
    Up Down
    • Dollar index
    • USD/CAD
    • INR/USD
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • USD/CHF
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • Coffee
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Cotton
    • Cocoa
  • Bonds
    • 10-yrs yield is at 1.193%, down from February 27 close of 1.299%;
    • 30-years is at 1.698%, down from 1.784%
    • 2-years yield is at 0.911% down from 1.153%
    • The 10-Year-&-2-Year spread is at 0.282 up from 0.146
  • VIX
    • Is at 41.62 up +2.46 from February 25 close; above 5-day SMA;
    • At highest level since February 2018; Next high resistance is 50.30, the high of February 6, 2018; the low support is the upper high of the gap at 22.00, the low on February 24

The trend and patterns on various time frames for S&P 500:

Monthly
  • Uptrend
  • January 2020 was a red shooting star like candle with long upper shadow and almost no lower shadow
    • Stochastic %K turned below %D from above 90
    • RSI-9 is above a downtrend line from January 2018 high; turning down just above 70
    • At the upper band from near the middle band of the 120-month regression channel
  • Sequence of higher highs and higher lows since February 2016 was broken in December 2018 but has resumed since then
Weekly:
  • The week ending on February 21 was a red harami candle with small lower shadow and upper shadow almost equal to the real body,. which was half the size of previous week’s real body
    • Stochastic (9,1, 3): %K crossed below %D; potential Bearish Divergence
    • RSI (9) has turned down from near 75; potential Bearish Divergence
  • Last week was down -42.41 or -1.3%; the 5-week ATR is 78.37
    Last week’s pivot point=3353.24, R1=3378.03, R2=3418.31; S1=3312.96, S2=3288.17; S1 pivot levels was breached
  • A down week following two up weeks; third in last five weeks and fourth in last ten weeks
  • Near all time highs; Last swing low, 2822.12, was the low on August 5, 2019; last swing high was 3027.98, made during the week of July 22, 2019
  • Above 10-week EMA; above 39-week SMA and 89-week SMA
  • Uptrend
Daily
  • A large red candle that gapped down at the open and the gap was not filled;  upper shadow less than a quarter of the real body and no lower shadow; next support is at 2855.94, the low on October 3 2019, and then at 2822.12, the low on August 5 2019
    • %K is below %D; below 10 following Bearish Divergence few days ago
    • RSI-9 has moved below 20; below 8-day SMA;
  • Below 20-day EMA, 50-day EMA, 100-day SMA and 200-day SMA;
  • Uptrend under pressure
2-Hour (e-mini future)
  • Downtrend; moving sideways – with sharp changes in direction – since 10:00 PM; bias; near a support level around 2881.75, the low on October 10, 2019
    • RSI-21 is moving around 30
    • %K is crisscrossing %D
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
30-Minute (e-mini future)
  • Downtrend; Moving sideways since 11:00 PM within a 70-point range;
    • RSI-21 is moving around 30
      %K is below %D
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly moving sideways to down since 9:30 PM;
  • The Bollinger Band is expanding with price walking down the lower band
  • Stochastic (9, 1, 3): %K is below %D
  • Bias: Down

Previous Session

Major U.S. indices closed sharply lower on Thursday, February 27 in volume higher than that on Wednesday. Indices gapped down at the open and then traded down closing near the lows.

From Briefing.com:

The stock market extended its recent sell-off by more than 4% on Thursday in a volatile session, as the widening spread of the coronavirus heightened pessimism among investors. The S&P 500 dropped as much as 3.5% shortly after the open, then cut its losses to 0.6% by midday, but ultimately closed at session lows with a 4.4% decline.

The Dow Jones Industrial Average (-4.4%), Nasdaq Composite (-4.6%), and Russell 2000 (-3.5%) experienced similar price action. Each of the major indices fell into correction territory, which is often defined as a decline of at least 10% from a recent high, and today’s drop sent the S&P 500 well below its 200-day moving average (3046.58) amid heavy selling into the close.

From a sector perspective, all 11 S&P 500 sectors fell between 3.3% (health care) and 5.6% (real estate). Other notable moves included WTI crude falling 3.0% to $47.24/bbl to extend its weekly decline to 12.1% and the CBOE Volatility Index surging 42.1% to 39.16 in a protection trade against further equity weakness.

[…]

At session’s end, the 2-yr yield declined five basis points to 1.10%, and the 10-yr yield declined one basis point to 1.30%. The U.S. Dollar Index fell 0.5% to 98.48.

[…]

• January durable goods orders declined 0.2% (Briefing.com consensus -1.6%). Excluding transportation, durable goods orders were up 0.9% (Briefing.com consensus +0.2%).
o The key takeaway from the report is that it showed a nice pickup in business spending in January, evidenced by the 1.1% increase in nondefense capital goods orders excluding aircraft. Still, concerns about a slowdown in spending will persist since the spread of the coronavirus, and responses to control its spread, has intensified in February.
• Initial claims for the week ending February 22 increased by 8,000 to 219,000 (Briefing.com consensus 212,000). Continuing claims for the week ending February 15 decreased by 9,000 to 1.724 million.
o The key takeaway from the report is that the four-week moving average of 209,750 for initial claims remains at an encouragingly low level in terms of the labor market outlook.
• The second estimate for Q4 GDP was unchanged at 2.1% (Briefing.com consensus 2.2%) while the GDP Price Deflator (Briefing.com consensus 1.4%) was revised down to 1.3% from 1.4%.
o The key takeaway from the report is that it is backward-looking and can be easily dismissed in light of the more current growth problems related to the coronavirus.
• Pending Home Sales rose 5.2% in January (Briefing.com consensus +2.0%). Today’s reading follows a revised 4.3 decline in December (from -4.9%).

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