All Over The Map

All over the map.  Stocks slid yesterday as a steady stream of bad news caused bulls to lose their nerve.  Selling accelerated into the close as many wondered if the prior week's optimism was a bit overdone.

N O T E W O R T H Y

A pattern to the madness.  I don’t know about you but I am sure I am not the only one who has lately felt like Bill Murray in the movie Groundhog Day, in which the star of the film relives the same day over and over.  I am not referring to our extended work from home world, though it sure would be nice to see some of my colleagues in person.  I am referring of course, to the markets.  The aggressive record breaking pull back and comeback staged in March aside, there appears to be a repeating theme to the markets’ daily movements. A slight hint of good news, markets go up.  A bit of not-as-bad-as-expected-but-still-pretty-bad news, markets go up. A day of remorse in which even the most delusional bull can’t find a hint of optimism, markets retreat… reality days.  Lately, we have had more of the former two than the latter, which has tempted some sidelined investors to consider getting back in.  Even more interesting is that the daily gyrations of the hardest-hit sectors are even more accentuated than the broader indexes which are most quoted.  If we step back and look at the price action of the S&P500, a notable technical pattern is emerging. The index had a recent high close on April 29th where bulls were sure that the 3000 level was a sure shot.  The S&P pulled back in the next 3 sessions bouncing off of 2800 and rallying back to the prior high… until yesterday’s pullback.  Technicians will note that 3000 has become a natural point of resistance.  Further, a look at the Fibonacci lines will reveal, even more accurately, that the market is bouncing between support from the 50% retracement to the resistance of the 61.8% line.  Yesterday’s weak close has set up what could become a technical pattern known as the double top.  If stocks continue to decline and close below the 50% support line, the pattern is a bearish signal. The bearish signal can be avoided however if the index closes above the recent high close of 2940. That is just 70 points above yesterday’s close, and if recent history repeats itself… well you know.  To learn more about Fibonacci lines, read my note on the topic here: https://www.siebertnet.com/blog/index.php/2018/11/07/good-to-know/ .

Fed take the wheel.  Chairman Powell is scheduled to speak today and just about everyone will be listening.  The Fed has really taken a forward-leaning stance with its unprecedented monetary policy, which is still ongoing and, well, massive.  Just yesterday, the Fed began to wade into uncharted waters by starting to purchase bond ETF’s.  Historically the bank would not deal with retail products or even the public markets for that matter.  This time it is different.  The Fed will leverage up $75 billion allocated to it by the Treasury to purchase as much as $750 billion in mostly-investment-grade bond products and ETF’s.  There has also been a lot of talk around negative interest rates.  Fed Funds futures indicate that traders are anticipating negative rates in 2021.  This doesn’t mean that rates will go below zero, just that buyers of the contract are expecting, if not hoping, that they will.  The Fed has the final say however and they have been pretty clear that “it ain’t gonna’ happen”… so far.  The bar is high right now and Powell will surely have to address the issue in his speech today.

As the cards would have it. 

Yesterday, I briefly mentioned the NFIB Small Business Optimism Index, which came in slightly better than expected.  Investors like to monitor small businesses because they are a more realistic, “on-the-ground” indicator of economic conditions. I had a chance to delve further into the number.  Not surprisingly Actual Earnings are down, as would be expected, but Outlook For General Business Conditions in six months from now spiked up from 5.0 in March to 29.0 in April. So, small businesses are also looking to 2021 to return to better times.

THE MARKETS

Stocks sold off yesterday as bad news piled up, causing the bulls to head for the exits.  Stocks spent most of the day at break-even levels and selling increased into the close.  The S&P500 fell by -2.05%, the Dow Jones Industrial Average dropped by -1.89%, the Russell 2000 sold off by -3.46%, and the Nasdaq Composite Index erased -2.06%. Bonds advanced, and 10 year treasury yields dipped by -4 basis points to 0.66%.

NXT UP

- The Producer Price Index Ex Food and Energy (April) is expected to have dropped by -0.1% bringing the year over year inflation number to 0.8% compared to last month's read of 1.4%.

- Fed Chairman Jerome Powell will speak at 9:00 AM EST this morning.

- The Treasury will sell $22 billion 30-year bonds today.

- DOE Crude Oil Inventories (May 8) are expected to have declined from 4.58 million barrels to 4.32 million barrels.

daily chartbook 2020-05-13