Market Remarks

Morning Notes – Thursday March 12, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are sharply lower;
  • The odds are for a down day with elevated volatility;
  • Vulnerable to news and events
  • Key economic data due:
    • PPI ( -0.3% vs. 0.1% est.; prev. 0.5%) at 8:30 AM
    • Core PPI ( -0.6% vs. -0.1% est.; prev. 0.5%) at 8:30 AM
    • Unemployment Claims ( 211K vs. 9K est.; prev. 215K) at 8:30 AM
    • 30-yr Bond Auction at 1:01 PM

Directional Bias Before Open:

  • Weekly: In Correction
  • Daily: In Correction
  • 120-Min: Down
  • 30-Min: Down
  • 15-Min: Down
  • 6-Min: Down

Key Levels:

  • Critical support levels for S&P 500 are 2562.02, 2546.76 and 2522.13
  • Critical resistance levels for S&P 500 are 2593.96, 2606.36 and 2612.86
  • Key levels for eMini futures: break above 2614.50, the high of 8:15 AM

Pre-Open

  • On Wednesday, at 4:00 PM, S&P future (March 2020) closed at 2738.00 and the index closed at 2741.38 – a spread of about -3.50 points; futures closed at 2740.25 for the day; the fair value is -2.25
  • Pre-NYSE session open, futures are lower – at 9:15 AM, S&P 500 futures were down by -139.25; Dow by -1231 and NASDAQ by -402.00

Markets Around The World

  • Markets in the East closed lower
  • European markets are lower
  • Currencies:
    Up Down
    • Dollar index
    • USD/CHF
    • USD/CAD
    • INR/USD
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • Cotton
    • Cocoa
  • Bonds
    • 10-yrs yield is at 0.675%, down from March 11 close of 0.820%;
    • 30-years is at 1.207%, down from 1.308%
    • 2-years yield is at 0.394% down from 0.534%
    • The 10-Year-&-2-Year spread is at 0.281 down from 0.286
  • VIX
    • Is at 61.59 up +7.69 from March 11 close; above 5-day SMA;
    • At highest levels since March 2008; Next high resistance is 81.48, the high of March 2008; the low support is 55.82, the low of the gap on March 12

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

Monthly
  • Uptrend under pressure
  • February 2020 was a large red spinning top candle; declined 8.4%;
    • Stochastic %K is below %D and near 30; %K Bearish Divergence
    • RSI-9 declined from above 75 to 50; Bearish Divergence
    • Declined from the upper band of the 120-month regression channel to middle of the band
  • Sequence of higher highs and higher lows since February 2016 was broken in December 2018 but has resumed since then; last higher low was 2222.12 made in August 2019
Weekly:
  • The week ending on March 6 was a doji harami candle with large upper and lower shadows;
    • Stochastic (9,1, 3): %K is below %D after potential Bearish Divergence; below 20 but turning up
    • RSI (9) is nearing 30 after Bearish Divergence; turning up
  • Last week was up +18.15 or +0.6%; the 5-week ATR is 194.28
  • Last week’s pivot point=3003.54, R1=3105.55, R2=3238.72; S1=2870.37, S2=2768.36; No pivot levels were breached
  • An up week following two down weeks; third in last five weeks and fifth in last ten weeks
  • All time high of 3393.52 was during the week of February 17; Last swing low, 2822.12, was the low on August 5, 2019; previous last swing high was 3027.98, made during the week of July 22, 2019
  • Below 10-week EMA and 39-week SMA, and 89-week SMA
  • In Correction
Daily
  • A red candle that gave up all the gains of Tuesday and then some;
    • breaking below recent and June 2019 support levels,
    • double top break-down on intraday charts
      • 61.8% extension target near 2631.94;
      • 100% extension target is near 2572.25;
      • 161.8% extension target is near 2475.69
    • at 61.8% Fibonacci retracement of the rally from 2346.5 in December 2018 to 3393.52 in February 2020
    • %K crossed below %D; below 20
    • RSI-9 is turning down from just above 30; below 8-day RSI, which is turning up
  • Below 20-day EMA, 50-day EMA, 100-day SMA and 200-day SMA;
  • In Correction
2-Hour (e-mini future)
  • Downtrend – lower highs and lower lows; new leg down since 4:00 PM on Tuesday from near 50-bar EMA;
    • RSI-21 declining; below 25 from near 60
    • %K is crisscrossing %D lower
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
30-Minute (e-mini future)
  • Downtrend since February 19; new leg down since 4:00 PM on Monday
    • RSI-21 declining since Tuesday from above 50 to near 30
    • %K crisscrossing %D below 10
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is moving sideways to down since 2:00 AM;
  • The Bollinger Band is large though it is relatively narrow
  • Stochastic (9, 1, 3): %K is crisscrossing %D around 25
  • Bias: Down

Previous Session

Major U.S. indices closed sharply lower on Wednesday, March 11 in mostly lower volume. Dow Jones Industrial Average traded in higher volume.

The indices opened down sharply and then mostly traded down for the rest of the day. Indices are below 20% from their recent peaks. Futures took another big tumble down later in the evening.

From Briefing.com:

It was an ugly day for stocks on Wednesday with the Dow Jones Industrial Average (-5.9%) closing in bear market territory, or down 20% from a recent high, amid recessionary fears induced by the coronavirus. The S&P 500 fell 4.9%, the Nasdaq Composite fell 4.7%, and the Russell 2000 fell 6.4%.

The World Health Organization officially declared COVID-19 as a global pandemic, and with no stimulus plan enacted from Washington, the market was left with discouraging news updates that heightened the economic uncertainty.

[…]

Separately, the NY Fed announced it will raise daily oversight repo limits to $175 billion from $150 billion beginning tomorrow and continuing through April 13 in response to unfavorable market conditions caused by the coronavirus. Elsewhere, the Bank of England issued an emergency 50-basis points rate cut to 0.25%, but the UK’s FTSE still declined 1.4%.

[…]

The 2-yr yield increased three basis points to 0.50%, and the 10-yr yield increased seven basis points to 0.82%. The U.S. Dollar Index increased 0.1% to 0.82%. WTI crude fell 3.7%, or $1.25, to $33.00/bbl amid news that Saudi Arabia ordered Saudi Aramco to boost production by 1 million barrels per day to 13 million barrels per day.

[…]

• According to the BLS, the Consumer Price Index (CPI) increased 0.1% m/m in February (Briefing.com consensus 0.0%) while core CPI, which excludes food and energy, rose 0.2% (Briefing.com consensus 0.2%). Those changes left CPI up 2.3% yr/yr, versus 2.5% in January, and core CPI up 2.4%, versus 2.3% in January.
o The key takeaway from the report is that it isn’t going to alter the market’s belief that the Federal Reserve will soon be cutting the target range for the fed funds rate in size at next week’s FOMC meeting (if not sooner).
• The Treasury Budget for February showed a deficit of $235.34 bln versus a deficit of $233.98 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the deficit of $32.6 billion for January.
• The weekly MBA Mortgage Applications Index surged 55.4% following a 15.1% increase in the prior week.

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