Market Remarks

Morning Notes – Friday May 8, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are higher; moving sideways since 9:30 PM after breaking above a resistance
  • The odds are for an up day with good chance of sideways to down move from pre-open levels around 2910.00, with elevated volatility – watch for break below 2895.00 for change of fortune
  • Key economic data due:
    • Non-Farm Employment Change ( -20500K vs. -22000K est.; prev. -701K ) at 8:30 AM
    • Unemployment Rate (14.7% vs. 16.0% est.; prev. 4.4%) at 8:30 AM
    • Average Hourly Earnings (4.7% vs. 0.5% est.; prev. 0.4%) at 8:30 AM
    • Final Wholesale Inventories ( -1.0% est.; prev. -1.0%) at 10:00 AM

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2901.92, 2876.67 and 2847.65
  • Critical resistance levels for S&P 500 are 2917.80, 2930.91 and 2954.86
  • Key levels for E-mini futures: break above 2923.00, the high of 1:00 AM and break below 2901.25, the low of 4:30 AM

Pre-Open

  • On Thursday at 4:00 PM, S&P futures (June 2020) closed at 2874.00 and the index closed at 2881.19 – a spread of about -7.25 points; futures closed at 2880.00 for the day; the fair value is -6.00
  • Pre-NYSE session open, futures are higher – at 9:00 AM, S&P 500 futures were up by +31.25; Dow by +272 and NASDAQ by +67.75

Markets Around The World

  • Markets in the East closed up
  • European markets are higher
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • AUD/USD
    • NZD/USD
    • Dollar index
    • USD/CHF
    • USD/CAD
    • INR/USD
  • Commodities:
    Up Down
    • Crude Oil
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Coffee
    • Cotton
    • Cocoa
    • NatGas
    • Gold
    • Sugar
  • Bond
    • 10-yrs yield is at 0.669%, up from May 7 close of 0.631%;
    • 30-years is at 1.372%, up from 1.322%
    • 2-years yield is at 0.137% up from 0.129%
    • The 10-Year-&-2-Year spread is at 0.532 up from 0.502
  • VIX
    • Is at 29.41; down -2.03 from May 7 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
    • Sentiment: Risk-On

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 May 1 was a small red candle with long upper shadow and small lower shadow and looking like an inverted hammer at the top;
    • Stochastic (9,1, 3): %K is above %D above 60
    • RSI (9) is turning down; near 50
  • The week was down -6.03 or -0.2%; the 5-week ATR is 192.52
  • Last week’s pivot point=2869.06, R1=2916.51, R2=3003.31; S1=2783.26, S2=2735.81; R1/R2 pivot levels were breached
  • A down week; third 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 small candle that opened higher with almost no upper and lower shadows; at or below a resistance area
    • %K is crossing above %D;
    • RSI-9 above 50; moving up in zig-zag manner; below 8-day RSI;
  • Above 20-day EMA; above 50-day EMA; below 100-day SMA and 200-day SMA;
  • In Correction; uptrend since March 23
2-Hour (E-mini futures)
  • Moving sideways to up since 6:00 AM on May 5; sequence of higher highs and higher lows since April 21, the third such sequence since the uptrend started; broke below a shallower uptrend line from March 23 lows
    • RSI-21 rising since 6:00 PM from near 35; above 60
    • %K is crisscrossing %D around 70
  • Above EMA20, which is above EMA10 of EMA50
  • Bias: Up
30-Minute (E-mini futures)
  • Broke above a resistance, around 2889.00, at 8:00 PM, an inverted H-&-S pattern but at the high; moving sideways since 10:00 PM near 2910.00
    • RSI-21 above 50 since 1:00 PM on May 7
    • %K is above %D since 8:30 AM
  • At/above EMA20, which is above EMA10 of EMA50
  • Bias: Up
15-Minute (E-mini futures)
  • Broke above a Horizonal Channel/Double Bottom at 8:00 PM; 61.8% extension target near 2911.00 is achieved, 100% extension target is near 2922.00 and 161.8% extension target is near 2939.00
  • Bollinger Band (20, 2.0) moving sideways 1:00 AM
  • The Bollinger Band is stable but relative narrow
    • Stochastic (9, 1, 3): %K is above %D since 8:00 AM
  • Bias: Up-Side

Previous Session

Major U.S. indices closed higher on Thursday, May 7 in mixed volume. Dow Jones Industrial Average, Dow Jones Transportation Average and Russell 2000 traded in lower volume. Most indices made small candles showing indecision just below a resistance level. NASDAQ Composite has broken above its resistance and is leading the market.

From Briefing.com:

Cyclical sectors led the S&P 500 to a 1.2% gain on Thursday, while mega-cap technology stocks carried the Nasdaq Composite to a 1.4% gain and into positive territory for the year. The Dow Jones Industrial Average rose 0.9%, and the Russell 2000 rose 1.6%.

[…]

Weekly claims are a leading indicator, so the declining trend appeared to endorse the market’s reopening/recovery enthusiasm, which was made apparent in the outperformance of the cyclical energy (+2.5%), financials (+2.2%), and materials (+2.1%) sectors.

The S&P 500 peaked at around the 2900 level before gradually paring gains throughout the afternoon. The defensive-oriented consumer staples (-0.4%) and health care (-0.1%) sectors closed in negative territory.

[…]

It wasn’t a true risk-on day, though, as U.S. Treasuries padded gains throughout the session and WTI crude futures ($23.65/bbl, -0.30, -1.3%) gave up an intraday gain. The advance in Treasuries drove the 2-yr yield down six basis points to 0.11% and the 10-yr yield down eight basis points to 0.63%. The U.S. Dollar Index declined 0.2% to 99.88.

[…]

• Initial claims for the week ending May 2 decreased by 677,000 to 3.169 million (Briefing.com consensus 2.900 mln). Continuing claims for the week ending April 25 surged by 4,636,000 to 22.647 million, which is a record high.
o The market, in its current frame of mind, is apt to see the decline in initial claims as relatively good news, yet the key takeaway from the report is that the massive influx of initial claims is just bad in an absolute sense for economic activity because those jobs won’t be recovered nearly as quickly as they have been lost.
• Nonfarm business sector labor productivity decreased 2.5% in the first quarter (Briefing.com consensus -6.0%) following a 1.2% increase in the fourth quarter. Unit labor costs increased 4.8% (Briefing.com consensus +2.9%) after increasing 0.9% in the fourth quarter.
o The key takeaway from the report is that productivity was weak, which is a headwind to an increased standard of living. That headwind should be even stronger in the second quarter.
• Consumer credit contracted by $12.1 bln in March (Briefing.com consenus $7.5 bln) after increasing a downwardly revised $20.0bln (from $22.3 bln) in February.
o The key takeaway from the report is that it shows how banks and finance companies grew more restrictive in extending revolving credit to individuals in March.

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