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Thursday, May 21, 2020

Market Action

U.S. markets were choppy on Thursday’s following better-than-expected earnings from the Retail sector but worse-than-expected economic news. Adding to the negative sentiment was the release of complaints about China from the White House that accused Beijing of predatory economic policies, military build-up, disinformation, and human rights violations.

The mostly lower close kept the major indexes near the upper end of their current 4-session trading ranges with new monthly highs still in play. Volatility was slightly elevated throughout the session but was able to hold key levels of support and resistance.

The Nasdaq fell 1% with the first half low tapping 9,254. Upper support at 9,250-9,200 was challenged but held with a move below the latter keeping downside risk towards 9,150-9,100 in focus.

The S&P 500 slipped 0.8% following the intraday pullback to 2,938. Near-term and upper support at 2,950-2,925 failed to hold with a close below the latter leading to a further pullback towards 2,900-2,875.

The Dow was lower by 0.4% after testing a midday low of 24,370. Current and upper support at 24,500-24,250 was breached and failed to hold with a move below the latter signaling additional weakness towards 24,000- 23,750.

The Russell 2000 was up 0.1% after testing a 2nd half peak of 1,354. Current and lower resistance at 1,350-1,365 was cleared but held with a close above the the latter signaling additional strength towards 1,370-1,385.

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Consumer Discretionary and Industrials were the only sectors to show strength with gains of 0.4% and 0.2%. Energy and Technology paced sector weakness after sliding 1.6% and 1.4%, respectively.

Global Economy

European markets settled lower as optimism over the reopening of economies has turned more cautious following reports that infections in parts of China, and possibly a new coronavirus strain are rising, threatening global reopenings.

The Belgium20 sank 1.8% and Germany's DAX 30 tanked 1.4%. France’s CAC 40 tumbled 1.2% and UK's FTSE 100 was off 0.9%. The Stoxx 600 lost 0.8%.

Asian markets closed mostly lower after Japan reported miserable exports news.

China's Shanghai was lower by 0.6% and Hong Kong's Hang Seng gave back 0.5%. Australia’s S&P/ASX 200 was down 0.4% and Japan’s Nikkei slipped 0.2%. South Korea’s Kospi rose 0.4%.

Japan Aprils exports plummeted 22% while imports fell 7%, the worst monthly readings in more than a decade.

U.S. Economy

Initial Jobless Claims fell -249,000 to 2,438,000 following the -489,000 drop to 2,687,000 previously. Expectations were at 2.4 million. This brought the 4-week average down to 3,042,000 from 3,543,000. Continuing claims rose 2,525,000 to 25,073,000, a new high, after rising 171,000 to 22,548,0000 previously.

Philadelphia Fed Index rose 13.5 points to -43.1 in May after dropping -43.9 to a record low -56.6 in April. New orders climbed to -25.7 after dropping to -70.9 last month. Employment improved to -15.3 versus -46.7, with the workweek rising to -7.1 after crashing to -54.5 previously. Prices paid increased to 3.2 from -9.3, while prices received climbed to -3.1 from -10.6. The 6-month general business index rallied to 49.7 from 43. New orders jumped to 54.7 from 36.5 while the future employment index dropped to 16.2 from 26.6. Prices paid slipped to 21.2 versus 25.5 and prices received were little changed at 15.6 from 16.9. Capital expenditures improved to 15.2 from 12.4.

Markit Manufacturing PMI edged up modestly to 39.8 in the flash May print from 36.1 in April, and the 3rd-consecutive month in contraction. Both the employment and new orders components improved versus March. The flash services index rose to 36.9 versus April's 26.7 and the 4th-straight month in contraction. The composite index rose to 36.4 from the prior 27 reading.

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Existing Home Sales plummeted -17.8% to 4,330,000 in April, the biggest drop since July 2010, and just above forecasts for a print of 4,325,000. Single family sales tumbled -16.9% to 3,940,000 while condo/coop sales plunged -26.4% to 390,000. All four regions posted double-digit declines, led by the West's at -25%. The months' supply of homes rose to 4.1 from 3.4, and is off the all-time low of 3 from February. The median sales price rose to a record price of $286,800 from $280,700.

Leading Indicators index dropped -4.4% to 98.8 in April following the historic -7.4% decline to 103.4 in March. This represents the first time the index has been below the 100 mark since June 2016 and was the weakest since May 2015. Six of the 10 components made negative contributions, with the workweek leading (-1.82%), followed by jobless claims (-1.44%), building permits (-0.68%) and ISM new orders (-0.58%). Four sub-indexes made positive contributions, led by stock prices (0.16%) and the yield spread (0.07%).

Market Sentiment

Fed Chairman Jerome Powell said the economic fallout from the coronavirus pandemic is falling on poorer Americans, adding we are in the midst of an economic downturn without modern precedent.

Powell said the economic downturn was sudden and severe, erasing all the job gains of the past decade. He went on to say that while the burden is widespread, it has not been evenly spread and those taking the brunt of the fallout are those least able to bear it.

Fed Vice Chairman Richard Clarida said the Fed and Congress both might have to consider additional steps to help the economy during the COVID-19 pandemic. He said depending on the course the virus takes and the depth and duration of the downturn it causes, additional support from both monetary and fiscal policies may be called for.

Clarida said there is much that the central bank doesn’t know about the potential course of the economy but said there is one thing that he is certain about after saying: The Federal Reserve will continue to act forcefully, proactively and aggressively as we deploy our toolkit, including our balance sheet, forward guidance, and lending facilities to provide critical support to the economy during this challenging time. And to do all we can to make sure that the recovery from this downturn, once it commences, is as robust as possible, Clarida said in his prepared remarks.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions with the intraday peak reaching $165.36. Current and lower resistance at $164.50-$165 and the 50-day moving average were cleared and held. A close above the latter would signal additional strength towards $166.50-$167.

New support is at $164-$163.50 with backup help at $162.50-$162.

Volatility Index

The S&P 500 Volatility Index ($VIX) settled higher for the 2nd time in 3 sessions despite testing a low of 27.67 shortly after the open. Key support at 27.50 was challenged but held.

Upper resistance at 29.50-30 was stretched but held on the bounce to 30.20 afterwards. A close back above the 30.50 level ahead of the upcoming 3-day weekend would be a slightly bearish development for the market.

Market Analysis

The Invesco QQQ Trust (QQQ) lost steam despite trading to a fresh monthly high of $232.13 shortly after the opening bell. Mid-February and lower resistance at $232-$232.50 was cleared but held. A close above the latter would be a bullish signal for additional upside towards $234.50-$235.

The 50-day moving average has moved back above the 200-day average to form a golden cross. This is typically a bullish technical signal for higher highs.

The fade to $228.34 afterwards breached but held current and upper support at $228.50-$228. A close below the latter would signal additional weakness towards $227-$226.50. A close below the $225 level would signal a near-term top.

RSI has turned south with key support at 60. A close below this level would signal weakness towards 55-50 with the latter holding since early April. Resistance is at 65 and Wednesday’s monthly high. Continued closes above this level would signal additional strength towards 70-75 and the highs from February.


The Communication Services Select Sector Spider (XLC) closed in the red for the 2nd time in 3 sessions after testing a 5th-straight higher high with the morning and new monthly peak reaching $54.18. Early February and lower resistance at $54-$54.50 was cleared but held. Continued closes above the latter would be a bullish signal for a push towards $54.50-$55.

Current support at $53.25-$52.75 was challenged but held on the fade to $53.33 afterwards. A move below the latter would signal additional weakness towards $52.50-$52.

RSI is back in a slight downtrend after failing key resistance and the February high at 70. A close above this level would signal strength towards the upper 70’s and the January top. Support is at 65-60.

All the best,

Roger Scott