Market Remarks

Morning Notes – Friday May 22, 2020

Sunil Sharma

Directional Bias For The Day:

  • S&P Futures are higher before the open; moving up since 3:15 AM from 2903.75
  • The odds are for a sideways day with elevated volatility – watch for break above 2945.75 and below 2927.50 for more clarity
  • No key economic data due:

Directional Bias Before Open:

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

Key Levels:

  • Critical support levels for S&P 500 are 2938.57, 2922.35 and 2913.86
  • Critical resistance levels for S&P 500 are 2959.26, 2969.49 and 2978.50
  • Key levels for E-mini futures: break above 2945.25, the high of 8:00 PM and break below 2927.50, the low of 7:30 AM

Pre-Open

  • On Thursday at 4:00 PM, S&P futures (June 2020) closed at 2944.00 and the index closed at 2948.51 – a spread of about -5.50 points; futures closed at 2937.00 for the day; the fair value is +7.00
  • Pre-NYSE session open, futures are higher – at 9:00 AM, S&P 500 futures were up by +5.00; Dow down by +64 and NASDAQ by +9.50

Markets Around The World

  • Markets in the East closed lower
  • European markets are mostly mixed – Germany, France, Spain and Italy are up; U.K., Switzerland and STOXX 600 are down
  • Currencies:
    Up Down
    • Dollar index
    • USD/CHF
    • USD/CAD
    • INR/USD
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • AUD/USD
    • NZD/USD
  • Commodities:
    Up Down
    • Gold
    • Silver
    • Platinum
    • Sugar
    • Cocoa
    • Crude Oil
    • NatGas
    • Copper
    • Palladium
    • Coffee
    • Cotton
  • Bond
    • 10-yrs yield is at 0.669%, down from May 21 close of 0.677%;
    • 30-years is at 1.387%, down from 1.399%
    • 2-years yield is at 0.166% down from 0.158%
    • The 10-Year-&-2-Year spread is at 0.503 down from 0.519
  • VIX
    • Is at 29.395; down -0.14 from May 21 close; at/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 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 relatively small red candle that opened lower and mostly traded lower during the day; a thee-day Evening Star Pattern is emerging; near a resistance zone and 61.8% Fibonacci retracement
    • %K crossing below %D; above 80
    • RSI-9 is just below 60; above 8-day RSI;
  • Above 20-day EMA and 50-day EMA; at/below 100-day SMA and 200-day SMA;
  • In Correction; uptrend since March 23
2-Hour (E-mini futures)
  • Moving sideways since 10:00 AM on May 18;  at the upper bound of a Horizontal Channel bounded by 2975.00 and 2771.00; near the middle of a smaller Horizontal Channel bounded by 2975.75 and 2908.00;
  • RSI-21 bouncing from below 30 after declining from above 75 and after making Bearish Divergence;
    • %K is above %D;
  • At/above EMA20, which is above EMA10 of EMA50
  • Bias: Side
30-Minute (E-mini futures)
  • Drifting sideways since 11:30 A on May 18 within a horizontal channel between 2975.00 and 2908.00;
    • RSI-21 is moving up since 3:30 AM after making a Bullish Divergence
    • %K is crisscrossing %D
  • Above EMA10 of EMA50, which is above EMA20
  • Bias: Side
15-Minute (E-mini futures)
  • Bollinger Band (20, 2.0) moving up since 4:15 AM
  • The Bollinger Band expanding since 4:15 AM with price walking up the upper band
    • Stochastic (9, 1, 3): %K is crisscrossing %D
  • Bias: Down-Up

Previous Session

Major U.S. indices closed mostly lower on Thursday, May 21 in mostly lower volume. Russell 2000 closed up and NASDAQ Composite traded in higher volume. NASDAQ also made a Bearish Engulfing candle.Most indices made small candles. All but two – Consumer Discretionary and Industrials – S&P sectors closed lower.

From Briefing.com:

The S&P 500 declined 0.8% on Thursday, failing to overcome weak economic data and a fresh increase in U.S.-China tensions. The Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. The small-cap Russell 2000, however, eked out a 0.1% gain.

Losses broadened out to ten of the 11 S&P 500 sectors, including energy (-1.5%) and information technology (-1.4%). The industrials sector (+0.2%) was the lone sector to close in positive territory, thanks to shares of Boeing (BA 139.00, +5.68, +4.3%) after the stock was initiated with an Outperform rating at RBC Capital Mkts.

[…]

U.S. Treasuries finished the session little changed. The 2-yr yield declined one basis point to 0.15%, and the 10-yr yield was unchanged at 0.68%. The U.S. Dollar Index increased 0.3% to 99.44. WTI crude increased another 1.3%, or $0.45, to $33.96/bbl.

[…]

• Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million (Briefing.com consensus 2.400 million), bringing the 9-week total to 38.636 million. Continuing claims for the week ending May 9 surged by 2,525,000 to 25.073 million, which is an all-time high.
o The key takeaway from the report in the market’s mind is that the pace of initial claims is decelerating; however, the real-world takeaway is that the economic damage runs deep as initial claims and continuing claims keep piling up.
• Existing home sales plummeted 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million (Briefing.com consensus 4.32 million). That is the lowest level of home sales since July 2010.
o The key takeaway from the report is that sellers pulled listings amid the COVID-related downturn in demand, yet the inventory constraint translated into higher prices for buyers remaining in the market.
• The Conference Board’s Leading Economic Index decreased 4.4% m/m in April (Briefing.com consensus -5.3%) following a downwardly revised (and record) 7.4% decline (from -6.7%) in March.
o The key takeaway from the report is the Conference Board’s conclusion that the breadth and depth of the decline in the index does not imply a fast rebound for the economy at large, even with the imminent reopening of some sectors.
• The Philadelphia Fed Index for May increased to -43.1 (Briefing.com consensus -43.0) from the -56.6 reading in April.

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