U.S. Equity Markets sold off sharply, finishing the day lower, with the S&P 500 -3.52%, the Dow -3.42% and the NASDAQ 100 -3.93%. Coronavirus case numbers, and the fears of more restrictions that come with them, remained the key driver of the sell-off. In terms of stimulus, President Donald Trump said a Coronavirus Stimulus Bill would not happen before next week’s Presidential Election, confirming recent speculation. And the Washington Post noted that stimulus talks have largely come to a halt. Earnings trends also posed a cause for concern. Forty percent of the S&P 500 has now reported earnings, with 81% beating estimates. While that is above the long-term average, it’s down from the 84% that beat estimates earlier in the season. European Indices got slammed yesterday, led by the DAX which closed 4.4% lower after Chancellor Merkel announced a four-week lockdown, shutting down bars and restaurants. However, the German Government promised Euro 10 bn for business who are affected. COVID-19 worries remained. The French government was said to be considering a monthlong national lockdown that would take effect on Thursday, in an effort to contain a resurgence in coronavirus infections. Late in the day, French president Emmanuel Macron confirmed this. European Union officials said that there won’t be enough doses of a vaccine for everyone in the region until 2022. The Italian government unveiled a new stimulus package, including grants and tax breaks, in order to help businesses cope with new Coronavirus restrictions. Elsewhere, Oil fell 5.74% as a new wave of COVID-19 restrictions hurt the global growth picture, while Gold closed 1.75% lower on Dollar strength.
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The S&P 500 closed 3.53% lower at a price of 3271.
The Dow Jones Industrial Average closed 943 points lower for a 3.43% loss at a price of 26,519.
The NASDAQ 100 closed 3.93% lower at a price of 11,142.
The Stoxx Europe 600 Index closed 2.2% lower.
The MSCI Asia Pacific Index fell 0.5%%.
Yesterday the Nikkei closed 0.29% lower at a price of 23,418.
The Bloomberg Dollar Spot Index closed 0.4% higher.
The Euro closed 0.4% lower at $1.1752.
The British Pound closed 0.3% lower at $1.2990.
The Japanese Yen closed 0.2% higher at 104.25 per dollar.
The yield on 10-year Treasuries closed two basis points higher at 0.78%.
Germany’s 10-year yield closed unchanged at -0.62%.
Britain’s 10-year yield closed three basis points lower at 0.21%.
The Bloomberg Commodity Index closed 1.2% lower.
West Texas Intermediate closed 5.75% lower at $37.39 a barrel.
Gold closed 1.75% lower at $1877 an ounce.
This morning on the Economic Front we have German Unemployment at 8.55 am and this is followed at 9.30 am by UK Consumer Credit, Money Supply and Net Lending to Individuals. At 10.00 am we have Euro-Zone Consumer Confidence, Economic Sentiment Indicator and Industrial Confidence. This is followed at 12.30 pm by the U.S Weekly Jobless Claims, GDP and PCE. Next, at 12.45 pm we have the ECB Rate Decision, followed by the Lagarde Press Conference at 1.30 pm. Finally, we have U.S Pending Home Sales at 2.00 pm.
December S&P 500
The S&P got slammed yesterday, with 97.1% of the S&P 500 issues closing lower. It was a brutal day for the market and my Daily Commentary calls. The S&P has left is second ‘’Open Gap’’ of the week, this time a huge 50 Handles from Tuesday’s December close at 3382 to yesterday’s 3334 intra-day high. This move lower did not suit me as I was stopped out of my 3368 long position at 3343. Subsequently I bought the S&P again at 3316 before being stopped at 3293 and I am still flat. We saw similar price action ahead of the 2016 Election before the S&P surged over the following few months. There is no doubt Congress will agree on a new Stimulus after Tuesday’s Election and it will have to be greater than $2 trillion to support the market. This move lower saw the VIX surge 20% to close at 40, its highest level in over four months. The McClellan Oscillator closed last night at an oversold -251. This size of a negative reading is rare and points to an imminent rally over the coming days. The S&P has short-term support at the early September low of 3200. I will be an aggressive buyer from 3235/3262 with a wider 3219 stop. I have to use wider buy levels given the fact that the VIX is at 40. Given how oversold the S&P is trading my only interest in going short is from 3338/3360 with a 3375 stop.
The Euro traded the whole of my buy range and I am now long at an average rate of 1.1760. I will lower my T/P level to 1.1805 while leaving my stop unchanged at 1.1695.
December Dollar Index
Late yesterday the Dollar rallied to my 93.60 sell level. I am still short with a now lower 94.05 stop. I will also raise my T/P level to 93.25.
For the second time this week the DAX opened below my buy level and I am still flat. The DAX has now fallen over 15% this month but as I mentioned above the German Government have promised Euro 10 bn for affected businesses. This should help support the market. The DAX is severely overbought and today I will be a small buyer from 11350/11470 with a 11245 stop. If I am taken long I will have a T/P level at 11560.
After I was stopped out of my 5700 long position at 5625, the FTSE dropped to my second buy range and I am now long at 5570 with a lower 5475 ‘’Closing Stop’’. I will now lower my T/P level to 5630.
Dow Rolling Contract
The Dow got hammered again yesterday closing nearly 1000 points lower to sit just above it’s September low of 26500. The Dow is now down over 7% for the year-to date while the tech driven NASDAQ is up over 22%. Yesterday’s decline was another 90% downside day, the second one in the past three sessions, while Downside Breadth was negative by 10-1. I was quickly stopped out of my 27265 long position at 26995 and I am still flat as thankfully I did not buy the Dow again. The Dow has support from 26250/26450 where I will be a small buyer with a 26105 stop. Given the fact that the MO closed at -251 I do not want to be short the Dow at this time.
The NASDAQ led the decline yesterday and my plan did not work well as I was stopped out of my 11350 long position at 11195 and I am still flat. The NASDAQ has resistance from 11320/11480 where I will be a seller with a 11605 stop.
The sell-off in equity markets saw the Bund trade higher and I am now short at 176.35. I will lower my stop to 176.81 while leaving my T/P level unchanged at 175.95.
Gold Rolling Contract
Gold got hit hard yesterday, trading the whole of my buy range for a now 1872 average long position. I will now lower my T/P level to 1884 with the same 1859 stop.
Silver Rolling Contract
Silver also traded the whole of my buy range and I am now long at 23.35. I will lower my T/P level to 23.71 while leaving my stop unchanged at 22.65.