Morning Notes – Friday September 4, 2020

Directional Bias For The Day:

  • S&P Futures are lower;
  • The odds are for a sideways to down day with elevated volatility – watch for a break above 3484.25 and below 3435.75 for clarity
  • Key economic data due:
    • Non-Farm Employment Change ( 1371K vs. 1375K est.; prev. 1763K) at 8:30 AM
    • Unemployment Rate ( 8.4% vs 9.8% est.; prev.10.2%) at 8:30 AM
    • Average Hourly Earnings ( 0.4% vs. 0.0% est.; prev. 0.2%) at 8:30 AM

Directional Bias Before Open:

  • Weekly: Uptrend
  • Daily: Uptrend Under Pressure
  • 120-Min: Down-Side
  • 30-Min: Down-Side
  • 15-Min: Down-Side
  • 6-Min: Side-Down

Key Levels:

  • Critical support levels for S&P 500 are 3427.41, 3413.13, and 3399.43
  • Critical resistance levels for S&P 500 are 3459.62, 3494.67, and 3528.03
  • Key levels for E-mini futures: break above 3484.25, the high of 6:00 AM and break below 3435.75, the low of 3:00 AM

Pre-Open

  • On Thursday at 4:00 PM, S&P futures (September 2020) closed at 3453.25 and the index closed at 3455.06 – a spread of about -1.75 points; futures closed at 3461.50 for the day; the fair value is -8.25
  • Pre-NYSE session open, futures are mixed – at 8:00 AM, S&P 500 futures were down by -7.25; Dow up by +50, and NASDAQ down by -135.25

Markets Around The World

  • Markets in the East closed lower
  • European markets are mixed – Germany, Switzerland, and STOXX-600 are lower; U.K., France, Spain, and Italy are up
  • Currencies:
    Up Down
    • Dollar index
    • USD/JPY
    • USD/CHF
    • AUD/USD
    • NZD/USD
    • EUR/USD
    • GBP/USD
    • USD/CAD
    • INR/USD
  • Commodities:
    Up Down
    • Crude Oil
    • NatGas
    • Gold
    • Silver
    • Copper
    • Platinum
    • Coffee
    • Cotton
    • Palladium
    • Sugar
    • Cocoa
  • Bond
    • 10-years yield closed at 0.622%, down from September 2 close of 0.651%;
    • 30-years is at 1.341% down from 1.375%
    • 2-years yield is at 0.133% down from 0.141%
    • The 10-Year-&-2-Year spread is at 0.489 down  from 0.510
  • VIX
    • Is at 32.30; down -1.30 from September 3 close; above 5-day SMA;
    • The recent high is 37.12 on June 14 and the low is 20.28 on August 11
    • Sentiment: Risk-Off

The trend and patterns on various time frames for S&P 500:

Monthly
  • Uptrend Resumed
  • August 2020 was a green candle with almost small upper shadow and almost no lower shadow;
    • Stochastic %K is above %D and above 90; %K Bearish Divergence in January
    • RSI-9 rising near 70; breaking above a downtrend line from January 2018 high
    • Rising above the upper band of the 120-month regression channel for the first time after February 2020; broke below the lower channel in march 2020
  • The sequence of higher highs and higher lows is resumed
Weekly:
  • The week ending on August 28 was a relatively large green candle with almost no upper and lower shadows
    • Stochastic (9,1, 3): %K crisscrossing %D; above 90
    • RSI (9) is rising above 75
  • The week was up +110.85 or +3.3%; the 5-week ATR is 73.65
  • The weekly week pivot point=3476.79, R1=3540.45, R2=3572.89; S1=3444.35, S2=3380.69; R1/R2/R3 pivot levels were breached
  • An up week; fifth in the last five weeks and eight in last ten weeks
  • Made all-time closing and intraday highs; last swing low 2965.66 made during the week of June 15
  • Above 10-week EMA, 39-week SMA, and 89-week SMA
  • Uptrend since March 23
Daily
  • A large red candle that opened lower and then traded down for the rest of the day; small lower shadow and almost no upper shadow;
    • %K is below %D; declined from above 90 to near 20; %D Bearish Divergence
    • RSI-9 decline from near 90 to just above 50; below 8-day RSI
  • At 20-day EMA; above 200-day SMA, above 50-day EMA; above 100-day
  • Uptrend Under Pressure
2-Hour (E-mini futures)
  • Declined from an all-time high of 3587.00 to 3424.50 after a brief sideways move; bouncing off from lows made near the close of the NYSE session
    • RSI-21 up from 16.41 at 2:00 PM to just above 40
  • Below EMA20, which is below EMA10 of EMA50
  • Bias: Down-Side
30-Minute (E-mini futures)
  • Moving sideways to down after breaking below a resistance level around 3480.00;
    • RSI-21 rising since 11:30 AM on Thursday; made a Bullish Divergence at 3:00 PM
    • %K is below %D from above 80
  • At/below EMA20, which is below EMA10 of EMA50
  • Bias: Down-Side
15-Minute (E-mini futures)
  • Bollinger Band (20, 2.0) moving sideways to up since 6:00 PM
  • The Bollinger Band narrowed from 6:00 PM to 3:15 AM; expanding since with price first walking up the upper band and then declining to the lower band
    • Stochastic (9, 1, 3): %K is crisscrossing %D below 20
  • Bias: Down-Side

Previous Session

Major U.S. indices closed sharply lower on Thursday, September 3 in higher volume. Most indices made Bearish Engulfing candlestick pattern. NASDAQ Composite made Evening Star pattern. All S&P sectors closed lower.

From Briefing.com:

The S&P 500 dropped 3.5% on Thursday in an orderly retreat led by the mega-caps and growth stocks. The Nasdaq Composite underperformed with a 5.0% decline due to its greater exposure to these names, while the Dow Jones Industrial Average (-2.8%) and Russell 2000 (-3.0%) declined about 3%.

[…]

Losses were broad, evident by all 11 S&P 500 sectors closing in negative territory, but there was a relative divergence between the losers.

A bulk of the losses were found in the high-momentum stocks within the information technology (-5.8%) and consumer discretionary (-3.6%) sectors, which were the only sectors that declined more than the S&P 500. The Philadelphia Semiconductor Index fell 5.7%.

[…]

U.S. Treasuries ended the day on a higher note, as investors assumed some safety amid the weakness in stocks and lingering growth concerns. The 2-yr yield declined one basis point to 0.12%, and the 10-yr yield declined three basis points to 0.62%. The U.S. Dollar Index declined 0.1% to 92.73. WTI crude futures declined 0.5%, or $0.20, to $41.34/bbl.

[…]
  • Initial claims for the week ending August 29 decreased by 130,000 to 881,000 (Briefing.com consensus 915,000), which is the lowest they have been since the week ending March 14. Continuing claims for the week ending August 22 decreased by 1,238,000 to 13.254 million.
    • The key takeaway from the report is that initial claims were the lowest they have been since the COVID pandemic hit the U.S. economy in force in mid-March. That has fostered some confidence in the view that, even with initial claims still alarmingly high, the economy continues to heal from that impact.
  • The ISM Non-Manufacturing index for August slipped to 56.9% (Briefing.com consensus 56.7%) from 58.1% in July.
    • The key takeaway from the report is that it featured a notable slowing in the New Orders Index (56.8% from 67.7%) and a notable pickup in the Prices Index (64.2% from 57.6%).
  • Q2 Productivity growth was revised to an annualized 10.1% (Briefing.com consensus 7.0%) from the advance estimate of 7.3%. Unit labor costs were up 9.0% (Briefing.com consensus 12.6%) versus the advance estimate of 12.2%.
    • The key takeaway from the report is that the huge productivity gain (largest since Q1 1971) is only formulaic as opposed to a true picture of strength. To wit, output declined 37.1% (largest on record) while hours worked fell 42.9% (largest on record).
  • The July trade deficit widened to $63.6 billion (Briefing.com consensus -$58.6 billion) from a downwardly revised $53.5 billion (from -$50.7 billion) in June. Exports were up $12.6 billion from June while imports were up $22.7 billion.
    • The key takeaway from the report is that exports and imports both rose, which is consistent with a global economy in recovery mode.
[…]
  • Nasdaq Composite +27.7% YTD
  • S&P 500 +6.9% YTD
  • Dow Jones Industrial Average -0.9% YTD
  • Russell 2000 -7.4% YTD

..NYSE Adv/Dec 585/2320. ..NASDAQ Adv/Dec 683/2436.

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