U.S. Equity Markets slumped to a three-week low after Jerome Powell warned economic risks from the virus are significant and tensions with China flared. Treasuries and the US Dollar advanced. The S&P 500 briefly fell below 2,800 — a level that has provided support in the past month — after the Federal Reserve chairman said the threat of a lasting downturn can deepen without additional government spending. Equities also dropped after a federal savings plan delayed moving funds into an Index with Chinese stocks, adding to tensions stoked by President Donald Trump. After the close of regular trading, Cisco Systems Inc. gave a sales forecast that beat Wall Street expectations, sending shares higher. The S&P 500 headed for its worst week since March 20, the session before a furious 30% rally started. Goldman Sachs Group Inc. economists estimate that the Unemployment Rate will peak at 25%, up from a previous forecast of 15%. Famed investor Stanley Druckenmiller said equities are too high, while David Tepper called the stock market the most overvalued ever outside of the 1999 bubble. Traders of Fed Funds Futures pushed bets on a negative policy rate into next year. Powell acknowledged the speculation, but said such a move was not being considered — though he stopped short of completely ruling the tool out as an option in the future. Republicans universally rejected a $3 trillion stimulus measure drafted by House Democrats to bolster the U.S. economy, but the draft plan has the seeds for an eventual, smaller compromise. Elsewhere, oil fell as investors weighed stockpile declines against a darker outlook for demand and economic recovery.
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The S&P 500 decreased about 1.7%, closing at a price of 2820.
The Dow Jones Industrial Average fell 516 points for a 2.17% decline to close at 23,247.
The NASDAQ 100 closed 1.23% lower at 9000.
The Stoxx Europe 600 Index declined 1.9%.
The MSCI Asia Pacific Index advanced 0.1%.
Here is a summary of the main Changes in F.X Markets:
The Bloomberg Dollar Spot Index climbed 0.2%.
The Euro fell 0.3% to $1.0815, the largest fall in a week.
Sterling fell 1.5% to close at $1.2210
The Japanese Yen strengthened 0.1% to 107.04 per dollar.
The yield on 10-year Treasuries decreased two basis points to 0.65%.
Germany’s 10-year yield decreased three basis points to -0.53%.
Britain’s 10-year yield dipped four basis points to 0.208%.
The Bloomberg Commodity Index dipped 1.5%.
West Texas Intermediate crude decreased 0.9% to $25.55 a barrel.
Gold advanced 0.9% to $1,722 an ounce.
This morning on the Economic Front we already had the release of German April Final CPI which rose 0.9% versus +0.8% expected. At 9.00 am we have the Euro-Zone Economic Bulletin and this is followed at 1.30 pm by the latest U.S Weekly Jobless Claims which are expected to rise by a further 2.5 million. At the same time we have the Import/Export Price Index. Finally, we have a speech from the ECB’s De Guindos at 3.00 pm and the Fed’s Kashkari at 5.00 pm.
June S&P 500
The S&P got hit hard yesterday for the second consecutive trading session after a number of Wall Street heavyweights came out saying the market was overvalued including Mr Kostin from Goldman Sachs. The level of 2020 EPS is a pivotal issue globally. Goldman’s baseline forecast of $170 optimistically assumes the US economy gradually recovers during 2H 2020 and next year posts earnings 33% above 2019. A downside case of $115 assumes a slower path of resumption. Most Portfolio Manages assume 2021 EPS will be around $150. In Goldman’s opinion valuation is stretched based on forecast 2021 EPS. On Monday when they sent out there forecast the S&P was trading at 2930. At this price level the S&P 500 trades at 19.5x the buy – side estimate of EPS, which is the highest since 2002. In other words, the S&P trades at 17x Goldman’s baseline EPS forecast, 25x its downside scenario, and 36% above its Macro Model-Implied Valuation Level. Looking ahead, Kostin reiterates that while the bank is optimistic over the medium-term (i,e one year) and keeps hits year-end S&P 500 forecast at 3000, he remains bearish over the short-term, expecting 18% downside to his three-month target of 2400. I cannot remember the last time that the S&P traded the whole of my buy range for two consecutive trading sessions and then stopping out a short time after. Yesterday the S&P hit my 2820 average buy level before hitting my 2795 stop, before the market rebounded back to my 2820 entry level which was doubly frustrating. This has been a tough week as the market continues to trade between its 50 and 200 Day Moving Averages. The last 7 weeks after the awful Jobless Claims were released the S&P has surged. Today they are expected to increase by another 2.5 million, bringing the total to over 36 million, a staggering amount in such a short period. I would expect the 50 Day MA (2721) to be met by strong buying on any initial test. Today I will be a buyer from 2730/2755 with a 2708 wider stop. Given how oversold the market is after falling from a 2945 high on Monday morning I do not want to be short the S&P at this time.
My Euro plan worked well with the market hitting my 1.0890 sell level before trading lower to my 1.0855 T/P level and I am still flat. This morning the Euro is trading lower at 1.0800 and I will continue to be a buyer on any further dip to 1.0705/1.0755 with the same 1.0665 stop. The Euro has strong resistance from 1.0880/1.0930 where I will be a seller with a 1.0965 tight stop.
June Dollar Index
My Dollar plan worked well with the market hitting my 99.60 buy level before rallying to my 99.95 T/P level and I am now flat. Today I will be a buyer from 99.40/99.80 with a 98.95 stop. I still do not want to be short the Dollar at this time.
Late yesterday the DAX traded lower to my 10470 buy level before hitting my second buy level at 10390 earlier this morning to have me long at an average rate of 10430. I will now lower my T/P level on this position to 10480. I will also raise my stop on this position to 10360. If any of the above levels are hit I will be back with a new update for my Platinum Members.
The FTSE lead the equity markets lower and I am still flat. This morning the FTSE has hit a low so far of 5800. We have strong support from 5700/5780 where I will be a buyer with a 5645 stop. I will now lower my sell level to 5920/5990 with a lower 6045 stop.
Dow Rolling Contract
As I was already long the S&P, I waited to buy the Dow which I did at a price of 23210. I am still long and I will now lower my T/P level on this position to 23320. The 50-Day MA comes in at 22980 and I will now lower my stop on this position to 22949. If any of the above levels are hit I will be back with a new update for my Platinum Members.
In contrast to my S&P calls, my NASDAQ plan worked very well with the market hitting my 8900 buy level before rallying to my 9005 T/P level on the Cisco earnings and I am still flat. I will continue to be a buyer on any dip lower to 8850/8950 with a wider 8775 stop. I still do not want to be short the NASDAQ at this time.
I am still flat the Bund as the market rallied on the back of the softer equity markets to sit at 174.00 this morning. The Bund has resistance from 174.40/174.90 where I will be a seller with a 175.35 stop. I will also raise my buy level to 172.80/173.30 with a higher 172.35 stop.
Gold Rolling Contract
Gold is firmer this morning and I am still flat. I will now raise my buy level to 1682/1695 with a 1673 stop.
Silver Rolling Contract
I am still flat and I will also raise my buy level to 14.80/15.20 with a 14.55 tight stop.