Futures are off sharply, eyeing a bevy of gaps and Fib levels left in the wake of last week’s nonsensical algo-driven ramp.

Our yield curve models swung bearish last week, as did a number of other sentiment-based indicators. Perhaps the most compelling is the 2Y, which plunged below critical support at 17 bps, testing 10 bps before bouncing.

The 2s10s is currently confirming, though CL and USDJPY are swinging into action in an effort to stave off a significant downturn. Under ordinary circumstances, a breakout in USDJPY would prop up stocks. But, current circumstances are anything but ordinary.continued for members… (more…)

Unemployment reaches 14.7%.  It’s a sobering headline, but it could be worse.  As the BLS explains…

Due to the impact of the COVID-19 pandemic, the relationship between the two was no longer stable in April. Therefore, the establishment survey made modifications to the birth-death model.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical April) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than reported (on a not seasonally adjusted basis).

In other words, actual unemployment (U-6) is nearly as high as the 24.9% registered during the Great Depression.

Since the futures have already ramped 30 points (50 points from overnight lows) higher… …on the usual nightly collapse in VIX……we’ll have to wait until the cash market opens to see whether or not carbon-based investors agree that 85-year highs in unemployment are insignificant.

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Yes, we’re getting yet another ramp job in front of the latest dismal economic news.

Like all the others, this one was driven by another sharp drop in VIX, which finally managed to tag our 100-DMA target (but, only because the 100-DMA has been steadily rising.)It was also driven by a pop in oil prices, driven by Aramco’s announcement that it was raising the official selling price of Arab light crude offered to Asian customers by $1.40/barrel, to US customers by $1.50/barrel, and to Northwest European customers by $6.55/barrel.

The announcement did manage to push prices slightly above the Feb 2016 26.05 lows.  But raising prices in a buyers’ market is obviously an exercise in futility.  Its value is primarily in signaling algos that better times lie ahead — at least for a few hours so that any damage wrought by the unemployment data starts from a higher bar.

Speaking of unemployment, initial claims totaled 3.17 million, slightly above the 3 million consensus, and points to a total of 33.5 million for the past seven weeks for an unemployment rate of 16%. From Bloomberg:

It remains to be seen whether reopening some states will make a material difference.

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SPX and ES tagged our downside targets yesterday and proceeded to close at overhead resistance. Of course, that was before the overnight ramp got started. Now, with oil and gas breaking out in response to much of the country re-opening and VIX taking a larger than usual pre-market dive……ES is up 37 points and seemingly in the clear.

Is it time to jump on board stocks again?

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When Warren Buffett – normally one of the market’s biggest cheerleaders – says he can’t find any compelling buys, traders take notice.

“We have not done anything because we don’t see anything that attractive to do,

They might also be wondering just how ugly March Durable Goods (due at 10AM) will be and what to make of escalating tensions between the US and China.

S&P futures tagged our next downside target overnight and are struggling to retake the 20-DMA.

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Futures were off sharply overnight, tagging our SMA10 target, and even a little more as the moving average actually dropped a little (a rarity lately.)

As is so common these days, the rest of the backtest came after the close and before the cash market opened this morning – the better to keep the bigger players out of the mix. Meanwhile…remember that trade spat with China and how it disrupted markets? You know when Larry Kudlow goes on CNBC talking up King Dollar, it’s front and center all over again. And, with Trump looking to blame China for everything coronavirus related, you ain’t seen nothin’ yet.

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Powell’s press conference was everything a bull could want: unlimited support for an unlimited time, propping up everything the law might allow – and maybe more.  But, we already knew that. As I asked yesterday morning, how do you improve upon “whatever it takes?”

The market rallied anyway, spiking past an important Fib level on more Remdesivir hopium and a fair amount of short covering.  This morning, we find that the economy is doing even worse than expected……millions of people are still being laid off with the latest tally topping 30 million……and thousands of people are still dying of COVID-19 every day. And, the trillions that central banks are throwing at the markets won’t change any of the above.

Futures have given up the 61.8% Fib support and are headed south.continued for members… (more…)

It was perhaps inevitable that the latest Remdesivir puff piece would hit mere seconds before the (not coincidentally) delayed and (even more) disastrous -4.8% GDP (vs -3.5% expectations) print.

At -7.8%, personal consumption dropped more than it has in 40 years.But, pay no attention to the crumbling economy.  Remdesivir! (which killjoy Scott Gottlieb reminds us is not a cure and peer-reviewed research presented in The Lancet reminds us has no net benefit versus a placebo.)

In this study of adult patients admitted to hospital for severe COVID-19, remdesivir was not associated with statistically significant clinical benefits.

The net effect: a 73-pt (so far) ramp job off the after-hours lows on a day when it’s hard to imagine what more the FOMC might do to push stocks even higher.  How do you improve on “whatever it takes?”For those who missed it, CNBC’s interview with former Dallas Fed President Richard Fisher was quite interesting. The highlight was his prediction that the Fed’s balance sheet expansion is targeting $10 trillion. As a frame of reference, the market cap of the entire S&P 500 at the end of March was $21.4 trillion.  Japan, here we come.

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