Market Remarks

Morning Notes – Monday May 18, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are higher;
  • The odds are for an up day with good chance of sideways to down move from pre-open level near 2925.00; elevated volatility – watch for break below 2890.00 for change of fortune
  • Key economic data due:
    • NAHB Housing Index ( 35 est.; prev. 30) at 10:00 AM

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2918.70, 2903.44 and 2876.48
  • Critical resistance levels for S&P 500 are 2934.51, 2954.71 and 2985.93
  • Key levels for E-mini futures: break above 2939.25, the high of 8:00 AM on May 12 and break below 2890.75, the low of 7:30 AM

Pre-Open

  • On Friday at 4:00 PM, S&P futures (June 2020) closed at 2858.75 and the index closed at 2863.70 – a spread of about -5.00 points; futures closed at 2846.50 for the day; the fair value is +12.25
  • Pre-NYSE session open, futures are higher – at 9:00 AM, S&P 500 futures were up by +82.75; Dow by +759 and NASDAQ up +181.25

Markets Around The World

  • Markets in the East closed mostly up – Mumbai was down
  • 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
    • NatGas
    • Silver
    • Copper
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • Cotton
    • Gold
    • Cocoa
  • Bond
    • 10-yrs yield is at 0.680%, up from May 15 close of 0.640%;
    • 30-years is at 1.385%, up from 1.319%
    • 2-years yield is at 0.161% up from 0.149%
    • The 10-Year-&-2-Year spread is at 0.519 up from 0.491
  • VIX
    • Is at 28.7; down -3.02 from May 15 close;  below 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 15 was a red Harami candle with lower shadow double the size of the real body and upper shadow half of it; an indecisive candle with more upward bias than downward
    • Stochastic (9,1, 3): %K is above %D; turning down from above 90
    • RSI (9) is turning down; from just below 50
  • The week was down -66.10 or -2.3%; the 5-week ATR is 150.45
  • The weekly week pivot point =2858.72, R1=2950.80, R2=3037.90; S1=2771.62, S2=2679.54; S1 pivot level was 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; at/below 89-week SMA
  • In Correction
Daily
  • A green candle forming a three-day Morning Star pattern but after a very small decline;
    • %K is above %D; above 50
    • RSI-9 turning up from below 50; below 8-day RSI;
  • At/below 20-day EMA; at/below 50-day EMA; below 100-day SMA and 200-day SMA;
  • In Correction; uptrend since March 23
2-Hour (E-mini futures)
  • Near the upper boundary of a descending triangle that is forming since April 30; break above it would be bullish
    • RSI-21 rising since making a Bullish Divergence at 8:00 AM on May 14
    • %K is crisscrossing %D above 80
  • Above EMA20, which is above EMA10 of EMA50
  • Bias: Up-Side
30-Minute (E-mini futures)
  • Rising since 9:30 AM on Friday;
    • broke above an uneven Inverse Head-&-Shoulder pattern at 6:30 PM on Sunday; approaching the 61.8% extension target net 2934.00; 100% extension target is near 2979.00
    • RSI-21 is rising since 7:30 AM on Friday from below 40; above 70
    • %K is crisscrossing %D
  • Above EMA20, which is above EMA10 of EMA50
  • Bias: Up
15-Minute (E-mini futures)
  • Bollinger Band (20, 2.0) moving up since 11:30 AM on Friday
  • The Bollinger Band expanding since 7:30 AM with price walking up the upper band
    • Stochastic (9, 1, 3): %K is crisscrossing %D above 800
  • Bias: Up

Previous Session

Major U.S. indices closed mostly higher on Friday, May 15 in mixed volume. Dow Jones Transportation Average closed lower. Dow Jones Industrial Average and NASDAQ Composite traded in higher volume. Indices opened lower making day’s low by early-morning and then traded higher closing near the highs. Most made three-day Morning Star candlestick formation, albeit after a short decline.

For the week, major U.S. indices closed lower in mostly higher volume. DJT traded in lower volume. Most global bourses also closed lower. Sydney was up. US Dollar, crude oil and U.S. Treasuries closed up for the week.

From Briefing.com:

The S&P 500 (+0.4%), Dow Jones Industrial Average (+0.3%), and Nasdaq Composite (+0.8%) ended Friday’s session modestly higher, recovering from early declines that followed more weak economic data and increased U.S.-China tensions. The Russell 2000 outperformed with a 1.6% gain after a rough week for the small-cap index.

The communication services (+1.3%), consumer discretionary (+1.1%), and materials (+1.0%) sectors led today’s gains, helping the S&P 500 rebound from an early 1.3% decline. The utilities (-1.4%) and financials (-0.7%) sectors were Friday’s laggards.

[…]

U.S. Treasuries ended the week with modest losses. The 2-yr yield increased one basis point to 0.15%, and the 10-yr yield increased two basis points to 0.64%. The U.S. Dollar Index declined 0.1% to 100.38.

[…]

• Total retail sales declined a record 16.4% m/m in April (Briefing.com consensus -11.9%) while retail sales, excluding autos, declined 17.2% m/m (Briefing.com consensus -8.2%).
o The key takeaway from the report is that the broad-based weakness is a representation of the adverse spending shock that resulted from shutdown measures, announced pay cuts, and the massive jump in unemployment.
• Industrial production declined 11.2% m/m in April (Briefing.com consensus -12.1%), which was the largest monthly drop in the 101-year history of the index. The capacity utilization rate fell from 73.2% to 64.9% (Briefing.com consensus 64.0%), which is 14.9 percentage points below its long-run average and a record-low in a series that dates back to 1967.
o The key takeaway from the report is that it is a reflection of how industrial production cratered amid shutdown orders designed to contain the spread of COVID-19. On a yr/yr basis, industrial production was down 15.0%.
• The University of Michigan’s Index of Consumer Sentiment rose to 73.7 in the preliminary reading for May (Briefing.com consensus 67.4) from 71.8 in April.
o The key takeaway from the report is that attitudes about current conditions improved while sentiment surrounding the outlook continued to deteriorate, pinched by concerns about financial prospects that were most notable among upper income households. That is apt to be a headwind for a pickup in consumer spending.
• The Empire State Manufacturing Survey for May checked in at -48.5 (Briefing.com consensus -58.0) following the prior month’s reading of -78.2.
• March job openings decreased to 6.191 mln from a revised 7.004 mln in February (from 6.882 mln).
• Business inventories decreased 0.2% in March, while the February reading was revised down to -0.5% from -0.4%.

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