Tuesday, March 24, 2020

Market Action

U.S. markets rebounded on Tuesday following the Fed's promise of infinite quantitative easing and optimism that a massive U.S. stimulus package would be passed soon. There were numerous reports a deal was close to being agreed upon and would be announced by the early afternoon but nothing came by the closing bell.

The major indexes closed near their session highs despite the expected announcement never coming. However, volatility closed slightly higher and keeps downside risk in play for the market with today’s action representing a possible dead cat bounce if a stimulus agreement disappoints or is dragged out longer.

The Dow zoomed 11.4% with the intraday high reaching 20,737. Current and lower resistance at 20,500-20,750 was recovered with continued closes above the latter signaling additional strength towards 21,000-21,250.

The S&P 500 soared 9.4% following the late day push to 2,449. Fresh and lower resistance at 2,425-2,450 was cleared and held with a move above the latter getting 2,475-2,500 back in focus.

The Nasdaq surged 8.1% with the 2nd half high tapping 7,418. Current and lower resistance at 7,400-7,450 was cleared and held with a close above the latter signaling a retest towards 7,550-7,600.

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The Russell 2000 rallied 9.4% after settling on its session high of 1,096. Near-term and lower resistance at 1,085-1,100 was cleared and held with a close above the latter signaling ongoing strength towards 1,110-1,125.

Energy led sector strength after skyrocketing 16% while Industrials and Financials were higher by 12.7% and 12.4%. There was no sector weakness.

Global Economy

European markets closed higher across the board after deaths in Italy from the coronavirus declined for the 2nd consecutive day and a fresh round of monetary and fiscal stimulus.

The Stoxx 600 and France’s CAC 40 were up 8.4% while the Belgium20 rose 7.6%. Germany's DAX 30 soared 11% and UK's FTSE 100 jumped 9.1%.

Asian markets were higher despite China reporting a doubling in new coronavirus cases and raising the risk of transmissions in Chinese cities and provinces that had seen no new infections in recent days.

South Korea’s Kospi sank 8.6% and Japan’s Nikkei zoomed 7.1%. Hong Kong's Hang Seng gained 4.5% and Australia’s S&P/ASX 200 was up 4.2%. China's Shanghai rose 2.3%.

China Beige Book International suggested a 10-11% GDP contraction in the first quarter is not unreasonable.

U.S. Economy

Redbook Store Sales were up 9.1% for the year in the week ending March 21st.

Chain store sales were up 1.7%last week after a 1.1% pace in the prior week. For the same period compared to last year, the pace accelerated to 7.9% year-over-year versus 7.2% previously. Sales rose to a 9.1% year-over-year clip versus 8.5%. Demand for food and basic household essentials climbed, while spending on discretionary items, apparel, and luxury tumbled.

Flash Markit Manufacturing Index slipped 1.5 points to 49.2 in March versus February's reading of 50.7. New orders fell to 46.8, from 50.4 previously, while the services index dropped 10.3 points to 39.1 from 49.4, and the lowest on record. The employment index dropped to 47.7 versus 51. Prices charged also declined to a series low while the composite index slid 9.1 points to 40.5 versus 49.6.

February New Home Sales declined 4.4% to 765,000, versus forecasts of 743,000, and follows the 10.5% January surge to a 13-year high at 800,000. The months' supply of homes edged up to 5 from 4.8. Regionally, sales were higher in the Northeast and South, and declined in the Midwest and West. The median sales price rose 6.3% to $345,900 after falling -0.7% to $325,300 previously. Prices are up 7.8% year-over-year, accelerating from 6.5% previously.

Richmond Fed Manufacturing Index was up 4 points to 2 in March, versus forecasts for a print of -10, after tumbling 22 points to -2 in February. New orders volumes improved to 0 from -10 previously while the employment component dropped to -7 versus 8, and reflecting the dramatic shift in the labor market amid the virus related shutdowns. Shipments were 13 versus 1. Prices paid rose at a 1.29% pace compared to 1.95% in February, with prices received at 1.22% from 1.54%. The 6-month business activity index plunged to -19 from 28, with new orders sinking to -20 from 40, and employment at 1 from 11. Capex declined to 11 from 19. The future prices paid index fell to a 1.99% rate from 2.26% while prices received were 1.60% from 1.46%.

Market Sentiment

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the intraday pullback to $160.41. Near-term and upper support is at $160.50-$160 was breached but held. A close below the latter reopens risk towards $157.50-$157.

Lowered resistance is at $164.50-$165 followed by $166.50-$167.

Volatility Index

The S&P 500 Volatility Index ($VIX) was closed higher for the 1st time in 4 sessions despite plunging to an opening high of 36.24. Near-term and upper support from the start of the month at 37.50-35 held. A close below the latter could lead to a quick backtest towards 32.50-30 and the 50-day moving average.

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Current and lower resistance at 62.50-65 was challenged but held on the late day run to 61.88. A close above the 70 level would signal another bearish setup for the market with upside risk towards 75-80.

Market Analysis

The Wilshire 5000 Composite Index ($WLSH) was up for the 1st time in 3 sessions after testing an intraday high of 24,555. Near-term and lower resistance at 24,500-24,750 was cleared and held with additional hurdles at 25,000-25,250.

Current but shaky support is at 24,250-24,000. A move below the 23,500 level would signal a false breakout with retest potential towards 23,250-23,000. The 50-day moving average remains on track to fall below the 200-day moving average and would form a bearish death cross if the pattern plays out.

RSI is back in an uptrend after clearing and holding lower resistance at 35-40. A close above the latter would signal additional strength towards 45-50. Crucial support is at the 30 level.


The Dow Jones Transportation Average ($TRAN) rebounded to reach a session peak of 7,567. Key resistance at 7,500 was cleared and held. Continued closes above this level would be a slightly bullish signal of a near-term bottom with additional recovery hurdles at 7,750-8,000.

Near-term support is at 7,250-7,000 with backup help at 6,750-6,500. A close below the latter would be a renewed bearish development for a retest towards the 6,450 area and the low from January 2016.

RSI snapped out of a flatline to clear near-term and key resistance at 40. Continued closes above this level would signal additional momentum towards 45-50. Support is at 35-30. A move back below the latter would be a bearish signal for a backtest towards 25-20 with the latter representing the monthly low.

All the best,

Roger Scott