Thursday, March 26, 2020

Market Action

U.S. markets opened in positive territory to start Thursday’s action despite a nasty jobless claims number that was the worst in history. Focus on the Senate’s $2.2 trillion stimulus package that was passed overnight was enough to keep momentum going throughout the day as the overall market showed strength for the 3rd-straight session.

The House is expected to approve the package on Friday after some of the constituents can go on record saying what they like and don’t like about the legislation. It remains to be seen if the “official” announcement will be a “sell the news” event, or, a continued rebound to higher highs.

The Dow jumped 6.4% with the late day high reaching 22,595. Current and lower resistance at 22,500-22,750 was cleared and held with continued closes above the the latter getting 23,000-23,250 in focus.

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The Russell 2000 rose 6.3% after testing an intraday high of 1,179. Near-term and lower resistance at 1,170-1,185 was recovered with a close above the latter signaling additional strength towards 1,200-1,215.

The S&P 500 soared 6.2% following the second half run to 2,637. New and lower resistance at 2,625-2,650 was breached and held with a close above the latter signaling additional momentum towards 2,675-2,700.

The Nasdaq rebounded from the prior session pullback after climbing 5.6% while trading to a peak of 7,809 ahead of the closing bell. Lower resistance at 7,800-7,850 was tripped but held with a move above the latter getting 7,900-7,950 in play.

Utilities led sector strength after zooming 8.5% while Real Estate and Healthcare advanced 7.9% and 6.6%. There was no sector weakness.

Global Economy

European markets showed strength for the 3rd-straight session after EU lawmakers were expected to approve emergency funds to cushion the bloc’s economic slump triggered by the pandemic.

The Belgium20 was higher by 2.9% and the Stoxx 600 was up 2.6%. France’s CAC 40 gained 2.5% and UK's FTSE 100 jumped 2.2%. Germany's DAX 30 added 1.3%.

German Ifo business climate index fell to 86.1 in March from 96 in February. The reading was lower than expectations of 87.7 and a level last seen in July of 2009.

Asian markets closed mostly lower after India approved a 1.7 trillion rupee ($22.58 billion) relief package amid a nationwide lockdown.

Japan’s Nikkei sank 4.5% and South Korea’s Kospi dropped 1.1%. Hong Kong's Hang Seng fell 0.7% and China's Shanghai was down 0.6%. Australia’s S&P/ASX 200 rallied 2.3% and

U.S. Economy

Initial Jobless Claims zoomed 3,001,000 to 3,283,000, both new all-time records for the increase and level, and above expectations for a print of 1 million with whisper numbers up to 4 million claims. The 4-week moving average jumped out to 998,250 versus 232,500. Continuing claims increased 101,000 to 1,803,000 after rising 3,000 to 1,702,000 previously.

Q4 GDP growth was left unrevised at 2.1% in the third release, the same as in the Advance report and the second rendition. Personal consumption was bumped up to a 1.8% clip versus 1.7% in the second look. Business fixed investment was nudged down to -0.6% versus -0.5% previously. Government spending dipped to 2.5% from 2.6%, with defense trimmed to a 4.4% rate from 5.3%. Inventories subtracted -0.98%, while net exports added 1.51%. The GDP price index was steady at 1.3%, while the core rate edged up to a 1.3% pace versus 1.2%, previously.

Advance Trade Deficit narrowed to -$59.9 billion in February after shrinking to -$65.9 billion in January, and the smallest red ink since September 2016. Exports rose 0.5% to $136.5 billion after dropping -1% to $135.9 billion previously. Imports declined -2.6% to $196.4 billion after dropping -1.9% to $201.8 billion in January.

Wholesale Inventories declined -0.5% in February to $657.3 billion versus $660.8 billion in January. February retailer inventories slipped -0.3% to $687.4 billion from $659.4 billion.

Kansas City Fed Manufacturing Index for March checked in at -17.

Market Sentiment

Fed Chairman Powell said the country could already be in a recession, but that it was unlike a typical downturn because the economy was so strong before the coronavirus pandemic sent the market into a tailspin and unemployment soaring.

Specifically, Powell said the U.S. may well be in a recession but would point to the difference between this and a normal recession. He added there is nothing fundamentally wrong with our economy and we are starting from a very strong position.

Asked about President Trump’s contention that the measures could end by Easter, so the economy could begin recovering, Powell said the course of the virus should determine when restrictive measures should be eased.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading high of $165.68. Near-term and lower resistance at $165.50-$166 was cleared but held. A close above the latter would be a bullish signal for a retest toward $167.50-$168.

Current support remains at $162.50-$162. A close back below the latter would signal another near-term top with backtest potential towards the $160-$157.50 area.

Volatility Index

The S&P 500 Volatility Index ($VIX) settled lower for the 1st time in 3 sessions

with the intraday low tapping 57.66. Upper support at 60-57.50 was breached but held. A close below the 50 level ahead of the weekend would be a bullish signal for the market heading into next week.

Lowered resistance at 65-67.50. A close above the 70 level would be a renewed bearish development for a retest towards 75-80.

Market Analysis

The Russell 2000 ETF (IWM) extended its winning streak to 3-straight sessions after testing a 2nd half high of $117.60. Current and lower resistance at $117.50-$118 was cleared but held with more important hurdles at $119.50-$120. A close above the $120 level could lead to a quick trip towards the $125 area and the prior gap lower from earlier this month.

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Near-term and rising support is at $115.50-$115. A close below the latter would be an bearish development with backtest potential towards $112.50-$110.

RSI remains in an uptrend after recovering key resistance at 40. Continued closes above this level would be a bullish signal for additional strength towards 45-50. Support is at 35-30.


The Health Care Select Sector Spider (XLV) also showed strength for the 3rd-straight session after testing a late day high of $87.31. Lower resistance at $87-$87.50 was cleared but held. Continued closes above the latter would signal additional momentum towards $89.50-$90.

Current and rising support is at $86.50-$86 followed by $85.50-$85. A close below the latter would likely signal a near-term top with additional selling pressure towards $82.50-$82.

RSI is in an uptrend with lower resistance at 45-50 getting cleared and holding. A move above the latter would signal a retest towards 55-60. Support is at 40 with a close below this level signaling a backtest towards 35-30 with the latter holding throughout the month.

All the best,

Roger Scott