Market Remarks

Morning Notes – Wednesday March 18, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are limit down;
  • The odds are for a down day with extreme volatility;
  • Key economic data due:
    • Building Permits  ( 1.46M vs. 1.50M est.; prev. 1.55M) at 8:30 AM
    • Housing Starts ( 1.60M vs. 1.51M est.; prev. 1.62M) at 8:30 AM

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2397.94, 2367.04 and 2346.58
  • Critical resistance levels for S&P 500 are 2448.00, 2529.56 and 2553.93
  • Key levels for eMini futures: break above 2393.50, the high of 7:00 AM and break below 2352.00, the low of 9:30 AM on Tuesday

Pre-Open

  • On Tuesday, at 4:00 PM, S&P future (June 2020) closed at 2531.50 and the index closed at 2529.19 – a spread of about +2.35 points; futures closed at 2485.50 for the day; the fair value is +46.00
  • Pre-NYSE session open, futures are limit down

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
    • Coffee
    • Cotton
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Cocoa
  • Bonds
    • 10-yrs yield is at 1.067%, up from March 17 close of 0.997%;
    • 30-years is at 1.689%, up from 1.582%
    • 2-years yield is at 0.436% down from 0.493%
    • The 10-Year-&-2-Year spread is at 0.631 up from 0.504
  • VIX
    • Not Trading;
    • At highest levels ever

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 13 was a large red candle with large lower shadow and almost no upper shadow;
    • Stochastic (9,1, 3): %K is crossing above %D; near/below 20
    • RSI (9) is nearing 20
  • Last week was down -261.35 or -8.8%; the 5-week ATR is 268.60
  • Last week’s pivot point=2690.82, R1=2902.79, R2=3094.55; S1=2499.06, S2=2287.09; S1/S2/S3 pivot levels were breached
  • A down week; 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 large green candle that opened in the middle of Monday’s real body and closed above its close but below the high; Monday’s low was breached
    • broken below recent and June 2019 support; nearing December 20018 support
    • Next support is at 2346.50, the 61.8% Fibonacci retracement of the rally from February 2016 to February 2020, which is also the low of 2018; also 38.2% retracement of rally from March-2009
    • %K is crossing above %D;
    • RSI-9 has turned down near 30; below 8-day RSI
  • Below 20-day EMA, 50-day EMA, 100-day SMA and 200-day SMA;
  • In Correction
2-Hour (e-mini future)
  • Downtrend; limit down; mostly sideways move since Friday within a very large range;
    • RSI-21 near 40
    • %K is below %D
  • Below 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down
30-Minute (e-mini future)
  • Downtrend; limit down; sideways move within a very large range
    • RSI-21 is between 40 and 30
    • %K is below %D
  • Below, 20-bar EMA, which is below EMA10 of EMA50
  • Bias: Down-Side
15-Minute (e-mini future)
  • Limit down
  • Stochastic (9, 1, 3): %K is below %D
  • Bias: Down-Side

Previous Session

Major U.S. indices closed higher on Tuesday, March 17 in mostly higher volume. Russell 2000 traded in lower  volume.

The indices opened up and then tested previous day’s laws before turning around and then mostly trading higher. Previous day’s high was not broken.

From Briefing.com:

The S&P 500 rebounded 6.0% on Tuesday, as investors reacted positively to additional monetary stimulus measures and the possibility of an estimated $1 trillion fiscal stimulus package. The Dow Jones Industrial Average rose 5.2%, the Nasdaq Composite rose 6.2%, and the Russell 2000 rose 6.7%.

[…]

Despite the stimulus plans, and preventative measures, it was a defensive-minded rally led by the S&P 500 utilities (+13.1%), consumer staples (+8.4%), and real estate (+6.9%) sectors. The energy sector (+0.7%) underperformed amid continued weakness in the price of oil ($27.02/bbl, -1.83, -6.3%).

[…]

U.S. Treasuries sold off in a curve-steepening trade, not because of a better economic view but because of worries that longer-dated bonds will be needed to fund a rising deficit. The 2-yr yield rose eight basis points to 0.45%, and the 10-yr yield rose 27 basis points to 1.00%. The U.S. Dollar Index rose 1.7% to 99.81.

[…]

• Total retail sales declined 0.5% m/m (Briefing.com consensus +0.1%) following an upwardly revised 0.6% increase (from 0.3%) in January. Excluding autos, retail sales were down 0.4% m/m (Briefing.com consensus +0.1%) after an upwardly revised 0.6% increase (from 0.3%) in January.
o The key takeaway from this report is that it reflected soft spending activity before the the coronavirus impact (and reaction) truly hit the U.S. That’s not comforting knowing that the retail sales data in March is going to be absolutely awful.
• Industrial production increased 0.6% m/m in February, as expected, following a downwardly revised 0.5% decline (from -0.3%) in January. Total capacity utilization was 77.0% (Briefing.com consensus 77.1%) following a downwardly revised 76.6% (from 76.8%) in January.
o The key takeaway from the report is that the good feelings about the pickup in output in February will be stunted by the reality that March output is apt to look much worse given the economic shutdown measures employed to help curb the spread of the coronavirus.
• The NAHB Housing Market Index for March declined to 72 (Briefing.com consensus 74) from 74 in February.
• The January Job Openings and Labor Turnover Survey showed job openings increase to 6.963 million from a revised 6.552 million in December (from 6.423 million).
• Business inventories decreased 0.1% in January, as expected, while the December reading was unrevised at 0.1%.

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