pebblewriter

Category: Charts I’m Watching

  • One Million Coronavirus Cases, Market Oblivious

    It’s a day we all knew was coming — over 1 million cases of coronavirus cases officially diagnosed in the US, over 3 million worldwide. Experts such as Scott Gottlieb, former head of the FDA, estimate that actual US cases are 10 to 20 times the reported figure. Deaths currently stand at 56,803 – about 30% of all closed cases.

    Social distancing has slowed the rate at which new cases are being diagnosed. But, with many states reopening, a shortage of tests, no contact tracing, and no viable therapeutic or vaccine yet available, the number of cases and deaths seems likely to accelerate.

    The market continues its oblivious ways with last night’s low-volume meltup good for about 1.5% so far as the Fed begins its two-day meeting.continued for members… (more…)

  • Forward Looking…Sometimes

    Some say that it makes sense the market is off only 16% from its highs in the middle of the biggest economic meltdown since the GFC because it’s forward-looking.  Things will be better 2-3 quarters from now, so it’s anticipating the return to normalcy. So, how do we explain its ongoing failure to anticipate the impact the COVID-19 pandemic would have on the global economy?

    A better explanation is that central banks have directly and indirectly crushed volatility.  VIX is off 28% since Apr 21 and 60% since Mar 18.Stocks have responded accordingly, with this weekend’s ramp job just the latest “breakout” from a bearish chart pattern and the sixth time in a row when an initial downturn during the after-hours reversed to a strong rally going into the open.

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  • Durable Goods Crater

    March durable goods plunged 14.4%, falling even greater than the expected 12% drop. This is the worst read since 2014 and the second worst since the GFC.

    Meanwhile, COVID-19 deaths in the US topped 50,000 as daily growth in cases and deaths remains stubbornly high…

    …and, in the world, nearly 200,000 have died and cases have topped 2,750,000.

    The most promising therapeutic, remdesivir, was dealt a setback when results of a study in China implied it was not useful at all.  The FDA should announce hydroxychloroquine’s uselessness later today.

    The futures, of course, ignored all this and have rallied 55 points – the third session in a row… …on the back on VIX’s nearly 20% smackdown since Tuesday.continued for members… (more…)

  • A Battle of Wills

    Futures were flat until 8:00, when VIX’s pre-opening dump was unleashed, popping ES back above its 10-DMA. ES studiously avoided retaking its SMA10 at yesterday’s close, slumping almost 40 points from its highs.

    Today, the battle should be between VIX’s continuing beatdown – now 16% off Tuesday’s highs – and USDJPY’s impending death cross.

    As always, ignore the politicians, particularly Dr. (not) Steven Mnuchin’s prediction that most, if not all, of the economy should be open by later in the summer.

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  • The New Normal?

    With May contracts in the rear view, we wondered whether oil markets would revert to some sense of normalcy.  A steep contango continues, however, with June contracts assuming the role of the panic stricken expiration month.

    Futures tested our initial downside target yesterday, the Fib 2.24 extension at 2728.79, and bounced overnight… …as oil and gas prices bounced sharply off our downside targets……and VIX collapsed after tagging our backtest target.The question, as is often the case, is whether the relief rally can continue once equities’ cash market reopens.  And, will SPX ever get to test its own critical support?

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  • Breaking It Down

    We’ve been bearish on oil for ages, shorting back in October 2018 and playing most of the bounces and downdrafts along the way. So, we weren’t terribly surprised when May WTI futures dropped to zero, having suggested that very possibility when CL was testing its channel bottom just last week.

    A drop through 19.27 would be reason enough to revert to short with 17.12 and 10.65 the only support between here and zero.

    The drop to -40, however, was pretty shocking. The other huge surprise is that the Fed didn’t step in and “fix” things.

    Futures held up remarkably well under the circumstances, though we’re seeing more fallout this morning, with ES currently off about 2%.This sets up an important test for ES and potentially SPX – the 2.24 Fibonacci extensions at ES 2728 and SPX 2703. More importantly, it could quite possibly trigger widespread selling as the 10-day moving averages (SPX 2775.12) and channel bottoms are breached – the two we identified as potential sell signals two weeks ago:

    As we discussed last week, SPX’s SMA10 has crossed above its SMA20 – a bullish cross… For those inclined to follow the Fed’s lead, the safe strategy is to keep your stops reasonably close and to watch out for a drop back through the SMA10 and/or channel bottom. Either one is a signal for traders to sell and for buy-and-hold types to rein in risk.

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  • Crude Carnage

    May WTI futures are off almost 35% since Friday’s close.  This drops it below the 17.12 target we first identified in March 2019 when, at 59.32, CL had completed a rising wedge and tagged multiple channel lines.

    Members might recall the 17.12 target was originally set for April 2023 in keeping with a March 2019 cycle study [see: Macro Factor Cycles and Regime Shifts.] The chart patterns and Fib levels fit nicely with the concept of a recurring 2600-day cycle for significant lows.We’ve reiterated the 17.12 target many times, including last December as CL finished on a high note after plunging 45% in the wake of Jamal Khashoggi’s Oct 2018 murder (when the US achieved maximum leverage over the Saudis – see: Coincidences and Consequences.) The last significant bounce accommodated both the Aramco IPO and the year-end equity ramp.

    Oil has been a favorite tool of not only the Saudis but also central bankers and politicians.  In fact, understanding the relationship between oil/gas and inflation, interest rates and equity valuations has made it possible to accurately forecast most of its major moves over the years.

    At times, this has meant ignoring the frequently misleading supply/demand data, OPEC deliberations, and presidential tweets and focusing instead on where central bankers needed oil/gas to go in order to achieve a particular inflation and interest rate goals.

    As interest rates rose over the past few years, for instance, it became obvious that inflation would need to moderate to relieve the building budgetary pressure.

    One major theme on which we’ve focused since calling the top on interest rates in October 2018 [see: Suddenly Interest Rates Matter] has been the relationship between CPI and the YoY delta in gas prices. By “managing” the price of RBOB, CPI and, thus, interest rates could be managed higher or lower as needed.This was a very reliable theme for most of 2018, 2019, and early 2020 – when the focus shifted to oil’s strong correlation to stock prices.

    Oil has long been a major factor in triggering algos to bid up stocks. So, when oil’s major channel from 2016 broke down in February, we knew stocks were in deep trouble.

    With CL dropping through its 2001 lows and approaching its 1998 lows, what might we expect from oil and what are the implications for stocks? As we discussed last week:

    A drop through 19.27 would be reason enough to revert to short with 17.12 and 10.65 the only support between here and zero.

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  • Hope Springs Eternal

    On “news” of a potentially beneficial therapeutic and the promise of reopening parts of the economy in the days ahead, the S&P futures have shot up above the 50-day moving average. We shouldn’t be surprised.

    This, in fact, has been the way this recovery has worked from the very beginning. Every single moving average has been topped via a gap higher on something or another, with the biggest gap higher accomplishing the 10/20 cross on April 6.

    It’s a gambit which has worked beautifully so far. While pundits debate which letter of the alphabet this rebound will most resemble, SPX has regained its 50% retracement in 13 sessions versus the 17 it took during the V-shaped recovery in Dec 2018-Jan 2019 – when the world wasn’t gripped by a pandemic and a stunning drop in GDP.

    Unfortunately, that is our lot. And, as the futures start to slip coming up on the open, the gap higher method is going to fall a little short.

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  • Futures Rally on Abysmal Economic Data

    So far, the futures are ignoring another round of abysmal economic data:

    Instead of plunging, ES is up nearly 20 points as the algos are more concerned with VIX’s breakdown.Nothing new here, of course…but can it last past the open?  Not if yesterday’s close by DJIA and COMP are any indication.  The Dow passed up an opportunity to break out above its 2.24 extension……and COMP pulled back and closed below its SMA200. Not exactly the behavior of a market intent on higher highs…  Meanwhile, global COVID-19 cases reached 2mm yesterday – up from 1mm on April 2.  The US now accounts for over 30% of all cases and moved up from 44th to 43rd in testing per capital in the world.

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  • The Art of the Deal

    I’m guessing this isn’t the result President Trump was hoping for when arm-twisting (or was it horse trading?) Russia and Saudi Arabia into the “beautiful deal” he continues to tout.

    Apparently, he forgot to convince pretty much every analyst and trader out there that a 10 million bpd cut could offset the 25 million bpd in excess production.Not even the algos are buying the line that this stinker will stabilize prices. Even before this morning’s abysmal Retail Sales and Empire Manufacturing data, futures were off a bundle. Thanks to yesterday’s nonsensical ramp, however, the drop was from a much higher level and the latest H&S Pattern was busted. Cue the talk about opening the country on May 1.

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