Market Remarks

Morning Notes – Wednesday May 13, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are unchanged; moving down since 7:45 AM from 2876.75 broke below an upsloping flag on 15-minute chart
  • The odds are for a down day with elevated volatility – watch for break above 2876.75 for change of fortune
  • Key economic data due:
    • Core PPI ( -0.3% vs. -0.1% est.; prev. 0.2%) at 8:30 AM
    • PPI ( -1.3% vs. -0.5% est.; prev. -0.2%) at 8:30 AM
    • Fed Chair Powell Speech, Q&A

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2869.76, 2847.65 and 2817.12
  • Critical resistance levels for S&P 500 are 2877.23, 2902.15 and 2918.16
  • Key levels for E-mini futures: break above 2876.75, the high of 7:30 AM and break below 2846.00, the low of 3:30 AM

Pre-Open

  • On Tuesday at 4:00 PM, S&P futures (June 2020) closed at 2862.00 and the index closed at 2870.12 – a spread of about -8.00 points; futures closed at 2852.50 for the day; the fair value is +9.50
  • Pre-NYSE session open, futures are mixed – at 9:00 AM, S&P 500 futures were unchanged; Dow down by -19 and NASDAQ up +31.00

Markets Around The World

  • Markets in the East closed mixed – Shanghai, Sydney, Mumbai and Seoul closed up; Hong Kong, Tokyo and Singapore closed down
  • European markets are lower
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • AUD/USD
    • Dollar index
    • USD/JPY
    • USD/CHF
    • NZD/USD
    • USD/CAD
    • INR/USD
  • Commodities:
    Up Down
    • Crude Oil
    • Gold
    • Silver
    • Copper
    • Platinum
    • Sugar
    • Cocoa
    • NatGas
    • Palladium
    • Coffee
    • Cotton
  • Bond
    • 10-yrs yield is at 0.651%, down from May 12 close of 0.678%;
    • 30-years is at 1.338%, down from 1.381%
    • 2-years yield is at 0.161% down from 0.165%
    • The 10-Year-&-2-Year spread is at 0.490 down from 0.513
  • VIX
    • Is at 31.76; down -1.28 from May 12 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-Neutral

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 8 was a Bullish Engulfing candle with almost no upper shadow and small lower shadow;
    • Stochastic (9,1, 3): %K is above %D above 90
    • RSI (9) is turning up; above 50
  • The week was up +99.09 or +3.5%; the 5-week ATR is 180.60
  • The weekly week pivot point =2886.60, R1=2975.36, R2=3020.91; S1=2841.05, S2=2752.29; R1 pivot level was breached
  • An up week; third in last five weeks and fifth 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 large red Bearish Engulfing with small upper shadow and almost no lower shadow
    • %K crossed below %D;
    • RSI-9 turning down from 60; moving between 50 and 65 since April 6; 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)
  • Bouncing from the support – the low of 2823.00 on May 6 – during the Asian session; moving within an emerging horizontal channel – between 2947.00 and 2823.00 – since 4:00 AM on May 5
  • Sequence of higher highs and higher lows since May 3, the fourth such sequence since the uptrend started; broke below a shallower uptrend line from March 23 lows
    • RSI-21 rising since 6:00 PM from below 20 to just below 50
    • %K is above %D; since 6:00 PM
  • At/below EMA20, which is below EMA10 of EMA50
  • Bias: Up-Side
30-Minute (E-mini futures)
  • Broke below a symmetrical triangle after completing the W10 pattern of Arthur Merril’s M&W Wave patterns – a bearish pattern – at 3:00 PM on Tuesday;
  • Rising since 8:00 PM from 2825.25, from a support
    • RSI-21 rising since 7:30 PM from near 24 to above 50
    • %K is crisscrossing %D; bearish Divergence at 7:30 AM
  • Above EMA20; at/below EMA10 of EMA50
  • Bias: Side-Down
15-Minute (E-mini futures)
  • Bollinger Band (20, 2.0) moving up since 10:00 PM
  • The Bollinger Band is stable since 10:00 PM with price mostly walking up the upper band
    • Stochastic (9, 1, 3): %K is below %D since 7:45 AM after making Bearish Divergence
  • Bias: Down-Up

Previous Session

Major U.S. indices closed lower on Tuesday, May 12 in mostly higher volume. Market opened up but then immediately declined. It moved sideways late morning before declining again. In the last hour of trading the decline increased. Dow Jones Transportation Average traded in lower volume.

From Briefing.com:

The S&P 500 fell 2.1% on Tuesday, with a bulk of losses coming in afternoon trade and into the close. The Dow Jones Industrial Average (-1.9%) and Nasdaq Composite (-2.1%) declined comparably to the benchmark index, while the Russell 2000 underperformed with a 3.5% decline.

[…]

It’s unclear if the market was truly perturbed by the news or if it provided a good excuse for some overdue selling. In either case, all 11 S&P 500 sectors closed in negative territory, led lower by the real estate (-4.3%), industrials (-2.8%), and financials (-2.7%) sectors. The consumer staples (-0.9%) and utilities (-0.9%) sectors declined the least.

[…]

As previously noted, U.S. Treasury yields declined amid an uptick in demand for the safe-haven asset. The 2-yr yield declined two basis points to 0.16%, and the 10-yr yield declined five basis points to 0.68%. The U.S. Dollar Index declined 0.3% to 99.97. WTI crude rose 5.3%, or $1.30, to $25.76/bbl.

[…]

• The Consumer Price Index declined 0.8% m/m in April, as expected, while core CPI, which excludes food and energy, declined 0.4% (Briefing.com consensus -0.2%). That was the largest drop in total CPI since December 2008 and the largest drop on record going back to 1957 for core CPI.
o The key takeaway from the report is that it is a telltale reminder that the Federal Reserve isn’t moving off the zero bound anytime soon.
• The Treasury Budget for April showed a deficit of $737.85 billion versus a surplus of $160.3 billion in the same period a year ago.
o The key takeaway from the report is that the huge swing in the budget was a function of the tax filing deadline being extended, and government spending surging, due to stimulus measures employed in response to the COVID-19 impact.
• The NFIB Small Business Optimism Index for April declined to 90.9 from 96.4 in March.

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