Monday, March 23, 2020

Market Action

U.S. markets were choppy throughout Monday’s session after the Fed announced new emergency liquidity measures, which briefly resulted in a sharp rebound off the opening lows. However, efforts to get a fiscal stimulus bill passed over the weekend weighed on sentiment as Democrats warned the measure was not enough to help workers and was too focused on bailing out companies.

Treasury Secretary Steven Mnuchin said that Democrats and Republicans are nearly in agreement on a stimulus package but there was no official announcement ahead of the closing bell. The major indexes tested fresh intraday lows for the year with Tech taking the least amount of damage.

The Dow declined 3% after trading to a fresh 52-week low of 18,213. Upper support from November 2016 at 18,250-18,000 was clipped but held with a close below the latter signaling additional risk towards 17,750-17,500.

The S&P 500 fell 2.9% with the afternoon pullback to 2,191 and fresh 52-week low. Upper support from November 2016, as well, at 2,200-2,175 was breached but held with a close below the latter leading to further weakness towards 2,150-2,100.

The Russell 2000 was off 1.1% with the session low reaching 966 and a level that was tested last Wednesday. Longer-term and upper support from January 2016 at 980-960 was tripped but held with a close below the latter signaling additional weakness towards 950-930.

The Nasdaq gave back 0.3% following the intraday backtest of 6,631 and new 52-week low. Prior and upper support from January 2019 at 6,650-6,600 was breached but held with a close below the latter getting 6,550-6,500 back in focus.

Communication Services and Consumer Discretionary were the only sectors that showed strength after rising 0.5% and 0.2%, respectively. Energy was the weakest sector after sinking 6.8% while Financials and Real Estate were down 5.8% and 5.6%, respectively.

Global Economy

European markets settled lower despite news central bank officials in the U.S. and Europe have stressed they are ready to do even more to keep financial markets functioning.

The Stoxx 600 fell 4.3% and Belgium20 lost 3.9%. UK's FTSE 100 dropped 3.8% and France’s CAC 40 was down 3.3%. Germany's DAX 30 was lower by 2.1%.

Asian markets closed mostly lower despite the BoJ announcing $800 billion of repo operations.

Australia’s S&P/ASX 200 dropped 5.6% and South Korea’s Kospi sank 5.3%. Hong Kong's Hang Seng tumbled 4.9% and China's Shanghai tanked 3.1%. Japan’s Nikkei rallied 2%

U.S. Economy

Chicago Fed National Activity Index rose 49 points to 0.16 in February, topping forecasts for a print of -0.50. The 3-month moving average fell to -0.21 from -0.11. Of the 85 indicators, 44 made positive contributions and and 41 made negative contributions.

Market Sentiment

The Fed said it is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. In order to provide powerful support for the flow of credit to American families and businesses, the FOMC said it will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.

In addition, the FOMC said will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases and is establishing new programs that, taken together, will provide up to $300 billion in new financing for employers, consumers, and businesses.

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St. Louis Fed James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in GDP. Bullard called for a powerful fiscal response to replace the $2.5 trillion in lost income for the quarter to ensure a strong eventual U.S. recovery, adding the Fed would be poised to do more to ensure markets function during a period of high volatility.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after testing a 2nd half high of $166.69. Prior and lower resistance from mid-month at $166.50-$167 was cleared but failed to hold. A close back above the latter would signal ongoing strength towards $168-$168.50.

Current and rising support is at $165.50-$165 followed by $163-$162.50.

Volatility Index

The S&P 500 Volatility Index ($VIX) fell for the 3rd-straight session despite testing an opening high of 76.74. Current and lower resistance is at 75-80 was breached but held. A close above the latter would signal a retest towards 85 with the all-time high from August 2008 at 90.

Near-term and upper support at 60-55 held on the late day fade to 60.46 with additional recovery levels at 50-45.

Market Analysis

The iShares Russell 1000 (IWF) fell for the 3rd time in 4 sessions following the intraday pullback to $128.23 and fresh 52-week low. Prior and upper support from January 2019 at $128.50-$128 was breached but held. A close below the $127.50 level would be an ongoing bearish signal with retest potential towards $125.50-$125.

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Near-term and lowered resistance is at $132.50-$133 with additional hurdles at $134.50-$135.

RSI is back in a downtrend with key support at 30 holding. A close below this level would signal additional weakness and a retest towards 25-20 with the latter representing the late February low. Resistance is at 35-40.


The Consumer Staples Select Spiders (XLP) extended its losing streak to 4-straight sessions following the intraday plunge to $47.66 and new 52-week low. Prior and upper support from December 2018 at $48-$47.50 was breached but held. A close below the latter would signal additional downside risk towards $46.50-$46.

New and lowered resistance is at $49.50-$50 followed by $50.50-$51.

RSI remains in a downtrend with upper support at 35-30 getting tripped and failing to hold. There is risk towards 25-20 on a move below 30 and oversold levels from late last month. Key resistance is at 40.

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Roger Scott