Market Remarks

Morning Notes – Friday May 1, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are lower; trending down since 12:00 AM on Thursday;
  • The odds are for a down day with elevated volatility – watch for break above 2879.75 for change of fortune
  • Key economic data due:
    • Final Manufacturing PMI ( 36.9 est.; prev.36.9) at 9:45 AM
    • ISM Manufacturing PMI ( 36.7 est.; prev. 49.1) at 10:00 AM
    • Construction Spending ( -3.5% est.; prev. -1.3%) at 10:00 AM
    • ISM Manufacturing Prices ( 30.7est.; prev. 37.4) at 0:00 AM

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2860.71, 2844.90 and 2831.23
  • Critical resistance levels for S&P 500 are 2882.77, 2892.47 and 291.80
  • Key levels for eMini futures: break above 2851.00, the high of 6:00 AM and break below 2830.75, the low of 3:30 AM

Pre-Open

  • On Thursday at 4:00 PM, S&P future (June 2020) closed at 2901.25 and the index closed at 2912.43 – a spread of about -11.25 points; futures closed at 2902.50 for the day; the fair value is -1.25
  • Pre-NYSE session open, futures are lower – at 8:45 AM, S&P 500 futures were down by -59.00; Dow by -462 and NASDAQ by -208.75

Markets Around The World

  • Markets in the East were mostly down – Tokyo and Sydney were down; most others were closed for trading
  • European markets are closed for trading
  • Currencies:
    Up Down
    • EUR/USD
    • USD/CAD
    • INR/USD
    • Dollar index
    • GBP/USD
    • USD/JPY
    • USD/CHF
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • Crude Oil
    • Sugar
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Coffee
    • Cotton
    • Cocoa
  • Bond
    • 10-yrs yield is at 0.615%, down from April 30 close of 0.622%;
    • 30-years is at 1.265%, down from 1.266%
    • 2-years yield is at 0.192% unchanged
    • The 10-Year-&-2-Year spread is at 0.423 down from 0.430
  • VIX
    • Is at 38.39 up +4.24 from April 30 close; above 5-day SMA;
    • Down from all time high of 85.47 on March 18; recent high 47.77 on April 21, recent low 30.54 on April 28
    • Risk-Off

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

Monthly
  • Uptrend under pressure
  • April 2020 was a large green candle with small upper and lower shadows; index advanced +12.7% following a decline of 12.5% in March;
    • Stochastic %K is crossing above %D and near 60; %K Bearish Divergence in January
    • RSI-9 turning up after declining to 34.91, the lowest level since April 2009, from above 75 in January and ; Bearish Divergence
    • Regaining the lower band of the 120-month regression channel to middle of the band; only third break below since 2009 but first close below it
  • Sequence of higher highs and higher lows broken
Weekly:
  • The week ending on April 24 was a long-legged Doji (with small upper shadow);
    • Stochastic (9,1, 3): %K is above %D above 50
    • RSI (9) is moving higher; near 50
  • Last week was down -37.82 or -1.3%; the 5-week ATR is 254.90
  • Last week’s pivot point=2810.94, R1=2894.78, R2=2952.82; S1=2752.90, S2=2669.06; S1 pivot level was breached
  • A down week; second in last five weeks and sixth in last ten weeks
  • All time high of 3393.52, the last swing high, was during the week of February 17; broke below the low of the week of December 24, 2018; support near 2193.81, the high during the week of August 15, 2016; sequence of higher highs and higher lows broken
  • Above 10-week EMA; below 39-week SMA, and 89-week SMA
  • In Correction
Daily
  • A relatively small red candle that opened lower; with almost no upper shadow and small lower; a three-day Evening Star is emerging shadow
    • broke above a resistance; above 61.8% Fibonacci retracement of the 2020 decline; next resistance levels are at 2999.00 and 3136.72
    • %K is crossing below %D above 80; potential Bearish Divergence
    • RSI-9 turning down; moving up in zig-zag manner; just above 60; above 8-day RSI;
  • Above 20-day EMA, 50-day EMA; below 100-day SMA and 200-day SMA;
  • In Correction; uptrend since March 23
2-Hour (e-mini future)
  • Up trending since March 23; sequence of higher highs and higher lows since April 21, the third since the uptrend started; broke below a shallower uptrend line from March 23 lows
    • broke above a horizontal channel – from March 11 to April 6 between 2650.00 and 2174.00; the 61.8% extension target near 2944.00 is achieved and 100% extension target is near 3126.00
    • RSI-21 declined to below 30 after making Bearish Divergence on April 29
    • %K is crisscrossing %D below 20
  • Below EMA10 of EMA50, which is below EMA20
  • Bias: Up
30-Minute (e-mini future)
  • Trending down since 12:00 AM on April 30 after making a Double Top; near a congestion zone of April 27;
    • RSI-21 is mostly moving below 40 since 8:30 AM on April 30
    • %K is crisscrossing %D;
  • Below EMA20, which is below EMA10 of EMA50
  • Bias: Down
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) moving down since 4:30 AM on April 30
  • The Bollinger Band narrowing since 7:00 AM
    • Stochastic (9, 1, 3): %K is crisscrossing %D around 40
  • Bias: Down

Previous Session

Major U.S. indices closed lower on Thursday, April 30 in mixed volume. The indices opened lower and then declined more in late morning and stayed low. Dow Jones Industrial Average and S&P 500 traded in higher volume.  All S&P sectors closed lower.

From Briefing.com:

The S&P 500 declined 0.9% on Thursday to end a strong April with some light profit-taking activity. Mega-cap technology stocks outperformed and limited the Nasdaq Composite’s decline to 0.3%, while the Dow Jones Industrial Average declined 1.2% and the Russell 2000 declined 3.7%.

[…]

The S&P 500 materials (-3.0%) and financials (-2.7%) sectors lagged, while the consumer discretionary (+0.4%) and communication services (+0.02%) sectors eked out small gains.

[…]

U.S. Treasuries ended the session near their flat lines. The 2-yr yield and the 10-yr yield declined one basis point each to 0.18% and 0.62%, respectively. The U.S. Dollar Index declined 0.6% to 99.01. WTI crude rose another 22.8%, or $3.45, to $18.58/bbl.

[…]

• Initial jobless claims decreased by 603,000 to 3.839 million (Briefing.com consensus 3.050 million) for the week ending April 25. Continuing jobless claims totaled 17.992 million for the week ending April 18, which is the highest number ever for that series.
o Notwithstanding the deceleration in initial claims from the prior week, the key takeaway from the report is that it reflects a brutal employment situation, evidenced by a six-week total for initial claims that exceeds 30 million.
• Personal income declined 2.0% m/m in March (Briefing.com consensus -1.5%) while personal spending plunged 7.5% (Briefing.com consensus -3.6%). The PCE Price Index dropped 0.3% and the core PCE Price Index, which excludes food and energy, declined 0.1%.
o The key takeaway from the report is that it is a precursor to what will be much worse data for April, which will drive a much worse decline in GDP than the 4.8% annualized decline registered in the first quarter.
• The Q1 Employment Cost Index increased 0.8% (Briefing.com consensus 0.6%), seasonally adjusted, for the three-month period ending in March 2020 after increasing 0.7% for the three-month period ending December 2019. Wages and salaries, which account for about 70% of compensation costs, rose 0.9%, while benefit costs, which make up the remainder of compensation costs, increased 0.4%.
o The key takeaway from the report is that the reported increase in employment costs matched peak rates from 2017 and 2018. The 12-month percent change in wages and salaries of private industry workers (+3.3%) exceeded its prior peak from 2019.
• The Chicago PMI for April declined to 35.4 (Briefing.com consensus 39.2) from 47.8 in March.

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