U.S. Equity Markets rallied as investors saw glimmers of optimism in efforts to deliver rapid testing for the new Coronavirus. The US Dollar rose. The S&P 500 Index climbed for the fourth time in five days, rising 17% over the last week, with health-care shares among the biggest gainers. The NASDAQ 100 advanced nearly 4%, leading the rebound among benchmarks from Friday’s losses. Abbott Laboratories surged after unveiling a five-minute Covid-19 test and Johnson & Johnson announced a vaccine candidate for the virus. Crude fell more than 5% even after President Trump spoke with Russia’s Vladimir Putin about falling oil prices. The 10-year Treasury yield rose, while the dollar was on course to snap a four-session losing streak. Gold dipped. Investors are grappling with the reality that the world’s biggest economy will stay crippled for longer after Trump heeded advice from the government’s top doctors that re-opening the U.S. in two weeks risks greater loss of life. The President said that social distancing guidelines would remain until at least April 30. But traders also continue to try to plumb the bottom and look for bright spots, such as in health-care companies that could produce products that help curb the outbreak. In the latest stimulus moves, China’s central bank lowered short-term funding rates and injected cash into its financial system, Australia announced a job-support programme and limited public gatherings to just two people, while Singapore unveiled an unprecedented easing in policy. Elsewhere, Australian stocks surged by a new daily record thanks to the new stimulus measures. Emerging-Market Currencies including South Africa’s Rand and Mexico’s Peso tumbled amid concern about debt downgrades.
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The S&P 500 Index climbed 3.4%, closing 85 Handles higher at 2626.
The Dow Jones Industrial Average rose 3.3%, for a gain of 690 points, closing at a price of 22,327.
The Stoxx Europe 600 Index advanced 1.3%.
The MSCI Asia Pacific Index dipped 0.8%.
Here is a summary of the main Changes in F.X. Markets:
The Bloomberg Dollar Spot Index jumped 0.7%.
The Euro declined 0.8% to $1.1050.
The British Pound decreased 0.3% to $1.2418.
The Japanese Yen rose 0.1% at 107.78 per dollar.
The yield on 10-year Treasuries rose one basis point to 0.69%.
Germany’s 10-year yield dipped two basis points to -0.5%.
Gold fell 0.7% to $1,641 an ounce.
West Texas Intermediate crude decreased 5.4% to $20.36 a barrel.
This morning on the Economic Front we already had the release of UK Q4 Final GDP which came in as expected with a print of 0.00%. Also released was German Import Price Index which fell 0.9% versus -0.3% expected. At 8.55 am we have German Unemployment and this is followed at 10.00 am by Euro-Zone CPI. At 2.45 pm we have the Chicago Purchasing Managers’ Index. Finally, at 3.00 pm we have Consumer Confidence.
June S&P 500
We don’t know for sure until the close of business in Chicago this evening. But at the risk of stating the obvious, it looks like the greatest bull market of all-time is dead. The price action over the last month has caused a lot of technical damage to the broad stock market. It has been the most severe decline from an all-time high level, ever. And, most important the odds are quite high the S&P will finish March below its 20-Month Exponential Moving Average Line (EMA). That is very important because the 20-Mnth EMA is the dividing line between the Bull and the Bear market. The 20-Month EMA comes in at 2880. If the S&P is trading above this line we are in a Bull market and if trading below it is a Bear market. When we saw breaches of this EMA in late-2000 and again in early-2008, it led to significantly lower prices in the months that followed. Unless we see a remarkable rally in the stock market today, then the S&P will end the month below the 2880 level. The Bull is dead. Stock prices in general are headed lower in the months ahead. Just as Bull markets don’t go straight up, Bear markets don’t go straight down either. There are lots of back and forth action with plenty of chances to trade stocks from both sides (bullish and bearish). Bear markets, though are typically more volatile. The moves happen faster. Traders need to be willing to jump into and out of positions in a matter of a few hours or days. The whole concept of ‘’Buy and Hold’’ does not work in a Bear market. It does help to understand how a Bear market typically unfolds. The Bear market that started in 2000 lasted about 18 months. The Bear market during the Great Financial Crisis of 2008 last 15 months. And, in both cases, the S&P lost about half of its value. If the current Bear market follows the same pattern then it will likely end in the summer of 2021. This implies the S&P will be trading around the 1700 level. Of course, no one knows for sure exactly how things will play out, but based on history, 1700 looks like a pretty good downside target. In my opinion we will get there in three distinct moves. The first move is the panic stage. That is the initial move lower that kills the Bull market and brings the Bear out of hibernation. That is what we just experienced. The S&P dropped from a high near 3396 in late February to as low as 2170 last Monday. That is over 1200 Handles in less than a month. The second stage is an oversold bounce. That happens when stocks get so oversold, when the proverbial runner band is stretched so far to the downside that a ‘’Snap Back’’ move is inevitable. This bounce stage typically recovers 50% to 70% of the initial decline phase. So, if last Monday’s 2170 does indeed prove to be the low of the panic stage then the oversold bounce should recover between 50% and 70% of the 1200 point decline. This puts an upside target for an oversold bounce somewhere between 2770 and 3010 in the S&P. Going back to 2000 and 2008 the market rallied back in their oversold bounces to kiss the 20-Month EMA before starting phase 3. If history repeats itself then the S&P will rally back towards its 20-Month EMA over the next few weeks. I will look for selling opportunities to go short once we get through the overall bounce phase. I will use any weakness to play for this bounce.
The S&P has support from 2540/2570 where I will be a buyer with a 2515 stop. If I am taken long I will have a T/P level at 2598.
My 1.1090 short Euro position worked well with the market trading lower to my 1.1055 T/P level and I am now flat. This morning the Euro is opening weaker at 1.0995. Today I will again look to sell the Euro from 1.1070/1.1130 with a 1.1165 stop.
June Dollar Index
I am still flat the Dollar. Today I will raise my buy level to 98.50/99.10 with a higher 98.05 stop.
Thankfully we had no sell levels in any of our Indices yesterday with all five of the Equity Contracts covered, having strong rallies. The DAX never came close to my buy level before rallying 400 points since I posted yesterday morning. The DAX has short-term support from 9710/9860 where I will be a buyer with a 9635 stop.
The FTSE came close to my 5280 buy level (50 points) before reversing to finish higher on the day. This morning the FTSE is trading at 5660. I will now raise my buy level to 5450/5530 with a 5385 tight stop. Despite the strong Pound I still do not want to be short the FTSE at this time.
Dow Rolling Contract
Just as I posted yesterday morning the Dow started to rally. We are now trading over 1000 points higher from where I marked prices 24 hours ago. Despite the US Indices closing 3.5%/4.00% higher the VIX is struggling to move lower. Last night we close at 57.27. The Dow has strong resistance from 22950/23200 where I will be a seller with a 23325 tight stop. We have support from 21950/22200 where I will be a buyer with a 21810 stop.
The NASDAQ just missed my 7430 buy level before surging and is now trading 400 points higher at 7910. The NASDAQ has strong support from 7745/7815 where I will be a buyer with a 7650 wider stop.
The BUND missed my 174.15 sell level with a high of 173.80 before selling off to trade at 172.50 this morning. I will now lower my sell level to 173.50/174.10 with a lower 174.45 stop.
Gold Rolling Contract
No Change as I am staying on the sidelines until normal markets resume in Gold.
Silver Rolling Contract
My 13.80 long Silver position worked well with the market rallying to my 14.15 T/P level and I am now flat. Today I will be a buyer again on any dip lower to 13.55/13.85 with a 13.15 stop.