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Wednesday, March 25, 2020

Market Action

U.S. markets recorded overall back-to-back wins for the 1st time in over a month following the announcement of a phase three deal on a $2 trillion relief package by the Senate. However, the full details of the bill are still unclear and Congress will still need to pass the measure.

While House Republicans are falling in line behind the Senate and are willing to allow quick passage of the plan, Bernie Sander has threatened to put a hold on the coronavirus package with others likely to follow. Volatility stayed elevated and the closes off the session highs continue to bear caution despite this week’s rebound.

The Dow was up 2.4% after testing an intraday high of 22,019. Near-term and lower resistance at 22,000-22,250 was cleared but held with continued closes above the 22,500 level signaling a possible run towards 22,750-23,000.

The Russell 2000 was higher by 1.3% after trading to a midday high of 1,146. Current and lower resistance at 1,135-1,150 was breached but held with a close above the latter signaling additional momentum towards 1,160-1,175.

The S&P 500 gained 1.2% with the intraday high reaching 2,571. New and lower resistance at 2,550-2,575 was cleared but held with a move above the latter signaling additional upside towards 2,600-2,625.

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The Nasdaq bucked the trend after falling 0.5% and trading in a 395 point range. Current and lower resistance at 7,650-7,700 was breached but held on the afternoon trip to 7,671 and the opening pullback to 7,276.

Industrials led sector strength after rising 5.3% while Energy and Real Estate were up 4.7% and 4.4%. Communication Services Paced sector weakness after sinking 1.5% while Consumer Staples and Technology were lower by 0.3% and 0.1%.

Global Economy

European markets settled lower despite tentative signs that the lockdown in Italy is starting to work as confirmed cases globally continue to rise exponentially and significant uncertainties remain.

France’s CAC 40 and UK's FTSE 100 rallied 4.5%. The Stoxx 600 rose 3.1% while the Belgium20 and Germany's DAX 30 jumped 1.8%.

Asian markets closed with gains for the 2nd-straight session after China reported a drop in new confirmed coronavirus cases as imported infections fell and no locally transmitted infections were reported.

Japan’s Nikkei skyrocketed 8% and South Korea’s Kospi zoomed 5.9%. Australia’s S&P/ASX 200 soared 5.5% and Hong Kong's Hang Seng gained 3.8%. China's Shanghai was higher by 2.2%.

U.S. Economy

MBA Mortgage Applications dropped -29.4% last week, the largest slide since 2009, and follows the prior week’s -8.4% decline. However, the index is still up 72.3% year-over-year. The refi index declined -33.8%, and the purchase index fell -14.6%, following respective declines -10.4% and -0.9%. Nevertheless, refis are up 195.4% year-over-year while the purchase index is now down -11.2 year-over-year. Refis comprised 69.3% of the loans last week, compared to 74.5% previously. The 30-year mortgage rate rose to 3.82% from 3.74%.

Durable Goods Orders increased 1.2% in February after edging up 0.1% in January. Transportation orders climbed 4.6%, versus the prior -0.9% slide. Excluding transportation, orders were down -0.6% versus a 0.4% bounce, previously. Nondefense capital goods orders excluding aircraft fell -0.8% following the prior 1% January rebound. Shipments were up 0.8% versus -0.1%. Nondefense capital goods shipments excluding aircraft dropped -0.7% after rising 1.1% previously. Inventories were unchanged in February following a -0.1 dip in January. The inventory-shipment ratio fell to 1.72 in February versus 1.74 in the prior two months.

FHFA House Price Index rose 0.3% to 284.4 in January, missing forecasts for a rise of 0.4%, and follows the 0.7% December increase to 283.5. The index is up 5.2% year-over-year, down from the 5.4% clip previously. The 12-month changes were all positive for the nine census divisions, paced by a 6.4% year-over-year rate for the South Atlantic division, with the Middle Atlantic bringing up the rear with a 4.1% year-over-year pace.

Market Sentiment

St. Louis Fed's Bullard is looking for a national pandemic adjustment period and said most of the hurt will be to Q2, where GDP will be reduced on purpose to contain the coronavirus. He doesn’t want to call it a recession by saying it's an investment in public health, and a planned partial shutdown of the economy.

As to the $2 trillion package approved by the Senate, Bullard said it's a relief measure designed to keep everyone whole, not stimulus. He went on to say Q3 should be a transition quarter, with a lot of production coming back into the latter part of the year, especially with pent up demand. He noted Q4 and Q1 2021 could be boom quarters, and then things should get back to normal.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session despite trading to an intraday high of $166.68. Near-term and lower resistance at $166.50-$167 was cleared but held. A close above the latter would be a bullish signal for a retest toward $167.50-$168.

Current support is at $162.50-$162 followed by $163-$162.50. A close back below the $160 level would signal another near-term top.

Volatility Index

The S&P 500 Volatility Index ($VIX) extended its winning streak to 2-straight sessions after tapping an opening high of 68.86. Lower resistance at 67.50-70 was breached but held. A close above the latter would be a renewed bearish development for a retest towards 75-80.

The midday fade to 58.03 challenged upper support at 57.50-55 but a level that held. Continued closes below the 50 level would be a very bullish signal for a continued market rebound.

Market Analysis

The Invesco QQQ Trust (QQQ) had its 2-session winning streak snapped on the opening fade to $179.98. Current and upper support at $180-$179.50 was breached but held. A close below the latter would signal additional weakness with backtest potential towards $177-$175.

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Near-term and lower resistance at $189.50-$190 was cleared but held on the midday rebound to $189.51. Continued closes above the latter would be a slightly bullish signal with retest potential towards $195-$197.50 and the 200-day moving average.

RSI has leveled out with current resistance at 45-50. A move above the latter and key support throughout the back half of January would signal additional strength towards 55-60. Support is at 40 with weakness towards 35-30 on a move back below this level.


The Consumer Discretionary Select Spiders (XLY) extended its winning streak to 3-straight sessions following the intraday surge to $101.07. Current and lower resistance at $101-$101.50 was cleared and held. A close above the $102.50 level would be an ongoing bullish signal for additional strength towards the $105 area.

Near-term support is at $97-$96.50. Another move below the $95 level would signal additional weakness towards $92.50-$90.

RSI remains in a slight uptrend with resistance at 45-50. A move above the latter would signal additional momentum towards 55-60. Support is at 40 with risk towards 35-30 on a close back below this level.

All the best,

Roger Scott