E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Underpinned by Fed Stimulus Hopes

September E-mini NASDAQ-100 Index futures are inching higher during the pre-market session on Tuesday as investors clung to hopes of a stimulus-backed economic rebound. The index was boosted by a rise in Apple Inc and a strong recovery in shares of Facebook.

The rise in the number of new COVID-19 cases at hot spots throughout the country has been largely ignored by investors with most expecting the U.S. Federal Reserve to step in with additional monetary easing if economic conditions get really bad.

At 06:08 GMT, September E-mini NASDAQ-100 Index futures are trading 9978.50, up 4.75 or +0.05%.

In other news, data on Monday showed contracts to buy previously owned homes rebounded by the most on record in May, suggesting the housing market was turning around. Later this week, investors will focus on employment and consumer confidence data for June.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 10296.25 will signal a resumption of the uptrend. A move through 9368.25 will change the main trend to down.

The minor trend is down. This is controlling the momentum. The minor trend changes to up on a move through 10120.50. A trade through 9728.75 will indicate the selling pressure is getting stronger.

The first minor range is 10296.25 to 9728.75. Its 50% level at 10012.50 is potential resistance.

The second minor range is 9368.25 to 10296.25. Its 50% level at 9832.25 is potential support.

The short-term range is 8841.00 to 10296.25. Its retracement zone at 9568.50 to 9397.00 is a key support zone.

Daily Swing Chart Technical Forecast

Based on the early trade, the direction of the September E-mini NASDAQ-100 Index on Tuesday is likely to be determined by trader reaction to the 50% level at 10012.50.

Bullish Scenario

A sustained move over 10012.50 will indicate the presence of buyers. This could trigger a quick move into the minor top at 10120.50. Taking out this level could trigger an acceleration into the contract high at 10296.25.

Bearish Scenario

A sustained move under 10012.50 will signal the presence of sellers. If this created enough downside momentum then look for the selling to extend into 9832.25. If this level fails then look for further selling pressure into 9728.75, Monday’s low.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Held Support Zone at 25053 to 24484

September E-mini Dow Jones Industrial Average futures are trading higher at the start of the week, led by a more than 500 point jump in the cash market. The blue chip average was supported by a sharp rise in shares of Boeing and Apple.

Traders for the most part ignored the latest surge in coronavirus cases and worries over U.S.-China trade relations. Their focus instead was on stocks that would gain the most if states continue to reopen.

At 20:11 GMT, September E-mini Dow Jones industrial Average futures are trading 25358, up 408 or +1.64%.

Shares of Boeing and Apple were among the biggest contributors of gains on the Dow, climbing 11.3% and 1.8% respectively. Boeing rose as certification flights for the Boeing 737 Max began Monday.

Daily September E-mini Dow Jones Industrial Average

Daily Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower. The main trend will change to down on a move through the nearest main bottom at 22640. A trade through 27466 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum. The minor trend changes to up on a trade through 26294.

The minor range is 27466 to 24409. Its retracement zone at 25938 is resistance.

The short-term range is 22640 to 27466. Its retracement zone at 25053 to 24484 is support. This zone stopped the selling at 24743 on Monday.

Short-Term Outlook

On the downside, the support is a 50% level at 25053, an uptrending Gann angle at 24624, a Fibonacci level at 24484 and a minor bottom at 24409. Look for an acceleration to the downside if 24409 fails as support.

On the upside, the first potential resistance is a downtrending Gann angle at 25674. Sellers could come in on the first test of this angle. Overcoming it, however, could trigger an acceleration to the upside with the next target the minor retracement zone at 25938 to 26298.

For a look at all of today’s economic events, check out our economic calendar.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Momentum Turns Lower Under 9843.50

September E-mini NASDAQ-100 Index futures are up late in the session on Tuesday as the pace of decline in business activity slowed, bolstering hopes that the worst of the coronavirus crisis was over.

The index hit a fifth record high this month, with Apple Inc providing the biggest boost after at least three brokerages raised their price targets a day after it announced it would use its own chips for Mac computers.

At 15:26 GMT, September E-mini NASDAQ-100 Index futures are trading 10246.75, up 122.00 or +1.20%.

In other news, the pace of contraction in U.S. manufacturing and services sectors slowed in June as businesses reopened after the health crisis resulted in a lockdown in mid-March. Another set of data showed new home sales jumped 16.6% in May, blowing past estimates of a 2.9% rise.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Tuesday when buyers took out the previous main top at 10140.00. The main trend will change to down if sellers take out 9368.25.

The minor trend is also up. A trade through 9843.50 will change the minor trend to down. This will also shift momentum back to the downside.

The minor range is 9368.25 to 10296.25. Its 50% level or pivot is 9832.25. Major near-term support.

The main range is 6626.00 to 10140.00. Its retracement zone at 8461.00 to 8028.00 is major support. This zone is controlling the longer-term direction of the index.

Short-Term Outlook

The trend and momentum are both headed higher. Since there is no resistance, the only chart pattern traders need to be watching for is the closing price reversal top.

This chart pattern won’t change the main trend to down, but it will indicate the selling is greater than the buying at current price levels. At first, the chart pattern will be used to alleviate some of the upside pressure. This should lead to a normal retracement.

For a look at all of today’s economic events, check out our economic calendar.

Apple Shakes Off Headwinds and Rallies to All-Time High

Dow component Apple Inc. (AAPL) blew away Q2 2020 top and bottom line estimates in April, posting $2.55 earnings-per-share (EPS) on $58.31 billion in revenue. The company raised their dividend by 6% to $0.82 per share at that time and increased the share repurchase program by a hefty $50 billion. Even so, quarterly revenues rose just 0.5%, highlighting the impact of first quarter shutdowns and quarantines around the world.

Apple Second Quarter Uncertainty

The company posted strong results in most divisions, with iPhone, iPad, and Services beating estimates. However, China revenue came up short, which makes sense because their shutdown began well before Europe or the United States. It also wasn’t a surprise that no fiscal Q3 guidance was offered, given uncertainty that’s likely to extend through 2020. That wisdom came to light last week, when Apple had to close stores in 4 states due to surging COVID-19 cases.

CEO Tim Cook was just interviewed for a “60 Minutes” segment, in which he defended himself and the company on charges they aren’t paying their fair share of taxes. “We turned the company upside-down to help the world on COVID, and donated all of that, hundreds of millions of dollars. And so, I think my own view is, you pay what you owe in taxes. And then you give back to society. And Apple is clearly doing that.”

Wall Street and Technical Outlook

Wall Street analysts are nearly universal in their bullish outlook, with 28 ‘Buy’ and just 6 ‘Hold’ recommendations. Not one analyst is recommending that investors sell the stock at this time. Price targets range from a low of $250 to a street high $410 while Apple is now trading just 20 points above the median $348 target. Given the rapid pace of upgrades so far in 2020, it’s likely those estimates will keep rising in the second half.

The stock sold off 114 points in the first quarter and turned tail, recouping the entire loss into May. It broke out to a new high in early June and has added more than 30 points since that time, carving a steady uptrend. However, accumulation readings have failed to keep up with bullish price action, signaling a bearish volume divergence that could short-circuit the rally with a minor bearish catalyst.  Even so, a pullback could mark a low risk buying opportunity, ahead of even stronger upside into 2021.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Straddling Key Pivot at 25938

September E-mini Dow Jones Industrial Average futures are trading higher shortly after the opening on Tuesday after trade advisor Peter Navarro clarified that the U.S.-China trade deal is not over. During the pre-market session, the Dow broke sharply after investors misinterpreted Navarro’s comments about U.S.-China trade relations.

“My comments have been taken wildly out of context”, Navarro said in a statement. “They had nothing at all to do with the Phase I trade deal, which continues in place.”

President Trump also tweeted that the existing trade deal remains in place.

At 13:46 GMT, September E-mini Dow Jones Industrial Average futures are trading 26164, up 211 or +0.81%.

Helping to boost the Dow early in the session are components Apple and JPMorgan Chase. Tech giant Apple is up about 1.7% and JPMorgan Chase gained more than 2%.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on June 9.

A trade through 27466 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through 22640.

The minor trend is down. This also confirms the downside momentum. A trade through 26658 will change the minor trend to up.

The minor range is 27466 to 24409. Its 50% level or pivot is 25938.

The short-term range is 22640 to 27466. Its retracement zone at 25053 to 24484 is support.

The main range is 29467 to 18053. Its retracement zone at 25107 to 23760 is the major support. This zone is controlling the longer-term direction of the Dow.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average the rest of the session on Tuesday is likely to be determined by trader reaction to the minor pivot at 25938.

Bullish Scenario

A sustained move over 25938 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the minor top at 26658. Taking out this level could trigger an acceleration into the main top at 27466.

Bearish Scenario

A sustained move under 25938 will signal the presence of sellers. This could trigger a break into a series of levels including a minor bottom at 25230, a main Fibonacci level at 25107 and a short-term 50% level at 25053.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – 3156.25 Next Target, Breakout Trigger Point

September E-mini S&P 500 Index futures are trading higher shortly before the cash market opening on Tuesday after White House trade advisor Peter Navarro clarified that the U.S.-China trade deal is not over.

Earlier in the session, the benchmark index plunged after White House trade advisor Peter Navarro made comments about U.S.-China trade relations that were misinterpreted. The market turned around after Navarro clarified that the U.S.-China trade deal is not over.

At 13:02 GMT, September E-mini S&P 500 Index futures are trading 3142.50, 31.75 or 1.02%.

Ahead of the opening, Apple was among the best-performing stocks, gaining 1.7%. That advance put the tech giant on pace to hit a fresh record high at the open.

Banks stocks rose broadly. JPMorgan Chase, Citigroup, Wells Fargo and Bank of America all gained more than 2%. Retailers such as Gap, Kohl’s and Nordstrom – which are directly linked to the economy reopening – were all up at least 2%. MGM and Wynn Resorts gained more than 2% each.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 2923.75 will change the main trend to down. A move through 3220.50 will signal a resumption of the uptrend.

The minor trend is down. A trade through 3156.25 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 3220.50 to 2923.75. Its 50% level or pivot is 3072.00.

The short-term range is 2751.50 to 3220.50. Its 50% level support is 2986.00.

The main retracement zone support is 2926.25 to 2781.00. This zone is controlling the longer-term direction of the index.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini S&P 500 Index the rest of the session on Tuesday is likely to be determined by trader reaction to 3072.00.

Bullish Scenario

A sustained move over 3072.00 will indicate the presence of buyers. The next upside target is the minor top at 3156.25. Taking out this level could trigger an acceleration into the main top at 3220.50.

Bearish Scenario

A sustained move under 3072.00 will signal the presence of sellers. This could trigger a break into the minor bottom at 3027.25, followed closely by the 50% level at 2986.00.

Longs are likely to get nervous if 2926.25 to 2923.75 fails as support. This could trigger the start of an acceleration to the downside.

For a look at all of today’s economic events, check out our economic calendar.

On This Market, Bearish Gap is Just a Bullish Opportunity

Monday morning was the same as Friday night for global indices; we saw a visible risk aversion. Fundamental triggers pointed us into that direction, rising COVID-19 cases around the world and most noticeably Apple’s announcement that it would be shutting down some shops which have been strongly affected by the crisis. Otherwise, a bearish opening for the markets on Monday morning did not spook investors. Instead, traders rushed to buy, supported by lower and more attractive prices.

The DAX created a bearish gap in today’s market open, which allowed the price to break the rectangle pattern. The first movement to close the gap, which has been anticipated by buyers, went as far as pulling the price much higher. The movement created a false bearish breakout, which is generally viewed as a sweet buying opportunity. Despite turbulences, sentiment is once again positive.

Gold has been locked in a long-term sideways trend in between the 1740 USD/ oz resistance and 1670 USD/ oz support. The strong Friday market close, and initial risk aversion on Monday morning allowed the price to break the upper line of the range. The price is still relatively firm and stayed above the resistance level. Gold buyers have outperformed DAX sellers. As long as the price stays above the 1740 USD/ oz support, sentiment will remain positive.

Lastly let’s take a look at the EURUSD, which has been drawing a head and shoulders pattern for the last couple of days. The price was right above the neckline, waiting for a proper breakout, but the bearish potential blurred out the breakout and it didn’t happen. Instead the head and shoulders pattern eventually got a wedge, which promotes an upswing. If the price breaks the upper level of this pattern, we’ll have a buy signal.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Shares Settle Mixed on Second Wave Concerns

The major Asia-Pacific stock indexes finished mixed but mostly lower on Monday as investors reacted to a rise in the number of coronavirus cases with most of the surge occurring stateside. The price action suggests investors are taking a cautious approach as they deal with the conflict between exuberance over the reopening of several economies and the real danger of second wave infections risk.

On Monday, Japan’s Nikkei 225 Index settled at 22437.27, down 41.52 or -0.18%. Hong Kong’s Hang Seng Index finished at 24515.23, down 128.66 or -0.52% and South Korea’s KOSPI Index closed at 2126.73, down 14.59 or -0.68%.

China’s Shanghai Index settled at 2965.27, down 2.36 or -0.08% and Australia’s S&P/ASX 200 Index closed at 5944.50, up 1.90 or +0.03%.

Rising Number of Coronavirus Cases in the US

Investors reacted to a jump in the number of COVID-19 cases in the U.S., with more than 30,000 new infections reported on Friday and Saturday – the highest daily totals since May 1 – according to data compiled by Johns Hopkins University.

Meanwhile, in China, an official said Sunday that Beijing is capable of screening almost 1 million people a day for the coronavirus. That development came in reaction to a recent cluster of infections that was found in the city.

China Holds Rates Steady

China kept its benchmark lending rate unchanged on Monday, with the 1-year loan prime rate left at 3.85%. The 5-year loan prime rate was also kept steady at 4.65%.

The move left the benchmark lending rate unchanged for the second straight month at its June fixing, matching market expectations, after the central bank kept borrowing costs on medium-term loans steady last week.

China’s Startup Board Index Hits 4-1/2-Year High on Fresh Reforms

China’s startup board index hit its highest in more than four years on Monday, as investors cheered Beijing’s fresh reforms in its capital markets to help bolster the world’s second-largest economy.

The start-up board ChiNext Composite Index climbed 1.01%, its highest since January 7, 2016.

Meanwhile, over the weekend, China said it would revamp its benchmark equity index by introducing more high-tech strength and removing loss-making companies.

The inclusion of STAR stocks in the SSEC will make its structure more reasonable and representative, as STAR companies represent the development direction of China’s economy, Ma Wenyu, analyst at Shanxi Securities noted in report.

The reforms would bode well for the equities market, while securities and tech stocks would benefit first, Ma added.

Tokyo Shares Dip on Worries Over Rising Coronavirus Cases

Japanese shares edged lower on Monday, moving in a narrow range, as worries about the growing number of coronavirus infections across the world kept investors on edge.

The World Health Organization reported a record increase in global coronavirus cases on Sunday, with the biggest rise in North and South America.

Sentiment was also weighed by iPhone maker Apple Inc. announcing a temporary shutdown of its 11 stores in Florida, Arizona, South Carolina and North Carolina on Friday.

The announcement hit Apple-related stocks in Japan, with Alps Alpine, Murata Manufacturing Co. Ltd. and Rohm Co. Ltd. Falling between 0.67% and 1.25%.

Some market players said the rising daily infections in Tokyo dampened hopes of Japan’s economic recovery, others noted that its impact was small.

“It is not regarded as a huge risk, at least in Japanese markets, since Japan is still far from an outbreak that could lead to restrictions being imposed again,” said Yutaka Masushima, market analyst at Monex Securities in Tokyo.

For a look at all of today’s economic events, check out our economic calendar.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Rally Fizzles as Apple Re-Closes Stores

September E-mini NASDAQ-100 Index futures finished lower on Friday after giving up earlier gains after Apple said it was closing some stores due to a rise in coronavirus cases, stoking fears of further restrictions and possibly another lockdown of the economy.

Apple Inc. said it would re-close nearly a dozen stores across four states where cases of the coronavirus have spiked, showing wariness in the business community about the safety of reopening in some places. Apple said it’s reclosing a total of 11 stores in Florida, Arizona, South Carolina and North Carolina. All of the stores had been re-opened since Apple initially closed them in March amid the outbreak. Shares of the tech giant traded 0.5% lower.

On Friday, September E-mini NASDAQ-100 Index futures settled at 9923.50. In the cash market, the tech-heavy NASDAQ outperformed, rising 3.7%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, the closing price reversal top is an early sign that momentum may be getting ready to shift to the downside.

A trade through 10140.00 will signal a resumption of the uptrend. The main trend will change to down on a move through the last main bottom at 9368.25.

The minor trend is also up. A trade through 9866.50 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 9368.25 to 10112.50. Its retracement zone at 9740.25 to 9652.50 is the nearest downside target zone. Since the main trend is up, buyers could come in on a test of this area.

Short-Term Outlook

The good news is the September E-mini NASDAQ-100 Index futures contract closed within striking distance of its all-time high at 10140.00. The bad news is that momentum may be shifting to the downside. The scary news is that a bad announcement regarding COVID-19 from just one company like Apple can kill a rally and reverse the market lower.

The bad news may not actually turn out to be bad news if buyers re-emerge following a test of 9740.25 to 9652.50. However, I do believe that trader reaction to this zone will be a major determinant as to whether we see new highs next week or a further decline into 9490.50 to 9337.25.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Secondary Lower Top Could Be Forming

September E-mini Dow Jones Industrial Average futures finished lower on Friday after posting a volatile, two-sided trade throughout the session. Gains were capped by spiking cases of COVID-19 and Apple Inc’s announcement of fresh store closures. Prices were underpinned throughout the week on anticipated stimulus and continued economic recovery.

On Friday, September E-mini Dow Jones Industrial Average futures settled at 25529.

Apple Inc announced it is temporarily shutting some stores in Florida, Arizona, South Carolina and North Carolina, which have seen a spike in coronavirus cases in recent days.

The Dow posted a solid gain for the week and is now 8.5% shy of its all-time high reached in February.

In other news, in a video conference, U.S. Federal Reserve Chair Jerome Powell warned the economic recovery from the pandemic is set to be challenging and there will be no quick fix.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. The formation of a secondary lower top is weighing on momentum.

A trade through 27466 will signal a resumption of the uptrend, while a trade through 22640 will change the main trend to down.

The minor trend is down. A move through 26658 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 27466 to 24409. Its retracement zone at 25938 to 26298 is resistance. This zone had a hand in stopping the buying last week.

The short-term range is 22640 to 27466. Its retracement zone at 25053 to 24484 is support. This zone stopped the selling last week.

Short-Term Outlook

The Dow closed higher last week, but also settled lower three out of five trading sessions. Additionally, we are seeing early signs of a secondary lower top. This usually indicates the selling is becoming greater than the buying at current price levels. Also, it is often viewed as a precursor to a change in trend.

An early look at the price action suggests a downside bias could develop on Monday on a sustained move under 25938, while a sustained move over 26298 is likely to signal a resumption of the rally.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Weaker After Apple Recloses Some Stores

September E-mini  S&P 500 Index futures are trading mixed on Friday after giving up earlier gains. Futures are trying to hold on to gains but the cash market is trading lower. This divergence indicates investor uncertainty and when traders become uncertain, they tend to sell.

The catalyst behind the selling pressure is the news that Apple said it will reclose some stores given recent spikes in coronavirus cases. The tech giant said a total of 11 stores will be closed in Florida, Arizona, South Carolina and North Carolina.

Apple shares dropped more than 0.7% on the news. Earlier in the day, they hit an all-time high.

At 17:23 GMT, September E-mini  S&P 500 Index futures are trading 3092.75, down  5.25 or -0.17%.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart; however, momentum is trending lower. The main trend will change to down on a trade through 2896.25. A move through 3220.50 will signal a resumption of the uptrend.

The minor trend is down. This is creating the downside momentum.

The short-term range is 3220.50 to 2923.75. Its retracement zone at 3072.00 to 3107.25 is currently being tested. Trader reaction to this zone will determine the near-term direction of the market.

The minor range is 2923.75 to 3156.25. Its 50% level at 3040.00 is the next potential support level.

The main retracement zone target is 2986.00 to 2930.50.

Short-Term Outlook

A potentially bearish secondary lower top may be forming at 3156.25. This chart pattern could attract enough sellers to trigger an eventual change in trend.

Essentially, we’re looking for the upside bias to re-establish itself on a move through 3107.25, and for a downside bias to begin on a move through 3072.00.

The big test for buyers will be following a break into 2986.00 to 2930.50. This zone has to hold or the market could collapse as much as 200 points over the near-term.

Closing lower for the week will also be a bearish sign. Traders fear that Apple’s closing of stores in several states that have seen spikes in new coronavirus cases could open the door to another round of lockdowns and restrictions.

For a look at all of today’s economic events, check out our economic calendar.

Just Who Would Trust Yesterday’s Stock Upswing?

Just when it appeared that the bears will get a third consecutive daily close lower, stocks rebounded from the 50% Fibonacci retracement. Having stabilized and adding to the intraday gains within the final hour before the closing bell, have the sellers been banished now?

That’s unlikely in our view.

S&P 500 in the Short-Run

Let’s start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks opened with a bearish gap, going deeper below the 50% Fibonacci retracement. The bulls stepped in though, striving to repair the daily price damage.

This is how we have summarized their efforts some 75 minutes before the closing bell in our latest intraday Stock Trading Alert that day:

(…) The stock bulls continued to push higher, while the corporate junk bonds didn’t confirm the stock advance to such a degree. So, where are the stock advance engines and are they likely to go on firing?

Healthcare (XLV ETF), financials (XLF ETF) and consumer discretionaries (XLY ETF) are among the best performing sectors today – but still, they have only retraced certain parts of their yesterday’s downswing. Technology (XLK ETF) hasn’t managed to do that (Amazon, Microsoft, Apple and Alphabet are not today’s shining stars) while the stealth bull trio (energy, materials and industrials) continue lagging behind in their retracing attempts too.

But the stock index is still attempting to move higher, regardless of not having the key upswing drivers aligned behind the attempt. Smallcaps (IWM ETF) are also performing less than strongly, trading with a sizable upper knot and well below yesterday’s closing prices. This subtly points to the bear takedown risks being still very much present in the market.

Okay, these are the clues for the 500-strong index. But we are trading the index and have to respect its swing structure with the potential overshoots. And it tells us that should stocks (driven by the tech comeback later today) play catch-up and take prices above 2870, the risk of further gains in the lead up to tomorrow’s retail data would be there. That’s true regardless of the incoming data likely to be worthy of a horror show, and the market selling off in its wake.

The mentioned trio (healthcare, financials and consumer discretionaries) have indeed added to their intraday gains in the final hour of trading – during which neither technology (XLK ETF) nor smallcaps (IWM ETF) have exactly outshined them.

Tellingly, our overnight target of 2870 that would have the power to flip the very short-term outlook bullish, hasn’t been reached by a long shot. And as we see the futures having rolled over to trade at around 2820, we’re getting a real-time confirmation of the yesterday-presented bearish outlook for stocks – both in the regular Stock Trading Alert and its intraday follow-ups.

On top, today’s bearish plunge comes in anticipation of the upcoming retail sales figures, providing us with one more hint of which way stocks are likely to trade after the US market open. In short, expect the bears to reappear.

How did the credit markets perform during yesterday’s session exactly?

The Credit Markets’ Point of View

While high yield corporate debt (HYG ETF) refused to go much lower or higher since yesterday’s open, it’s relative stabilization on a daily basis seems to have ignited stocks more than justified. A bridge too far for the stock bulls? Looking at the shape of things, probably.

The high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) also hints at the prevailing bearish overtones. This ratio too is well positioned to exert downside pressure on the overlaid S&P 500 chart (the black line).

Key S&P 500 Sectors and Ratios in Focus

Technology’s volume on the upswing didn’t match or overcome that of the preceding downswing. Is the sector likely to catch up with more upside price action later today? Judged by the daily indicators, that’s unlikely.

The prospect of bearish upcoming performance in the short-term will serve to put pressure on the whole index – just as the performance of the stealth bull market trio will, and healthcare (XLV ETF), consumer discretionaries (XLY ETF) or financials (XLF ETF) can’t be counted on to save the S&P 500’s day.

Materials (XLB ETF) were the strongest ones yesterday, with energy (XLE ETF) and industrials (XLI ETF) lagging behind the attempts to retrace Wednesday’s declines. This doesn’t bode well for the the index as such, and their upcoming opening prices and performance later in the day would likely confirm that.

Yes, financials scored an upswing yesterday, but that didn’t flip the financials to utilities ratio (XLF:XLU) over to bullish. Coupled with its daily indicators‘ posture, this leading ratio maintains its bearish short-term outlook.

And so does the consumer discretionaries to consumer staples ratio (XLY:XLP). After retracing all the downswing since its February highs, this leading metric appears to be rolling over to the downside.

And we fully expect the upcoming retail data to put pressure on yesterday’s star performers, the discretionaries (XLY ETF). There is no other logical conclusion to be made as the V-shaped recovery is increasingly being recognized by the market place for what it truly is – a pipe dream.

 

From the Readers’ Mailbag

Q: the S&P is showing strong support at the 2720 range where you have put the target. However the Dow shows support at 23100 (which was breached today). How do you know which one to go by?

A: Yes, the 2720 area is a meaningful S&P 500 support zone as both the 50-day moving average and the late April lows are located there. The other indices such as Dow Jones Industrial Average or Russell 2000 give us valuable clues, but foremost, we have to focus on the S&P 500 itself.

Applied to the current situation, we see that DJIA rebound yesterday mirrored that of the S&P 500 – also in terms of volume relative to the preceding daily downswing. In latter stages of stock advances (and as the repeated showing at the 61.8% Fibonacci retracement shows, we think that’s a true description of the S&P 500 status), it’s not unusual to see broader-based indices (S&P 500) hold up ground better than the narrower ones (DJIA).

As for smallcaps though, that’s a different story. The Russell 2000 (IWM ETF) hasn’t performed as strongly as the S&P 500 did on the rebound (i.e. the backbone of US economy hasn’t been confirming the advance by leading higher relatively), which is yet another bearish piece to the puzzle. And odds are the unfolding puzzle will be resolved with another downswing before too long.

Summary

Summing up, despite the bullish finish to yesterday’s trading, the buyers don’t appear to be as strong as they project themselves to be. Unless we see a turnaround in the credit markets and renewed vigor among the formerly leading S&P 500 sectors and their ratios, Thursday’s session is likely to mark a temporary reprieve only. Should the HYG ETF break below the late April lows, the bearish case would get a new lease of life. Combining the technical and fundamental developments (the increased reflection of serious downside risks and overly rose-tinted glasses of the reopening and V-shaped recovery saga), the sellers are holding the upper hand currently. Our profitable open short position remains amply justified as stocks are likely to break down below the 50% Fibonacci retracement. The increasing US-China trade deal tensions only serve to add fuel to the fire – S&P 500 downswing catalyst.

We encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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Monica Kingsley

Stock Trading Strategist

Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

U.S. Stocks Set To Open Lower As Trump Threatens New Tarrifs On China

Donald Trump Wants To Punish China For Failure To Contain Coronavirus

U.S. has signed the first phase of a trade deal with China back in January, and tariffs are still applied to many Chinese imports. However, the coronavirus pandemic, which originated in China, may lead to another wave of tariffs.

The desire to hold China to account is growing around the world, but the timing of the additional tariff proposals could not have been worse as the world tries to gradually reopen following the acute phase of the coronavirus crisis.

In addition, China is the only major economy which is mostly back on track after the epidemic, so hurting it would push the world economy deeper into the red zone.

Not surprisingly, the market is nervous about the tariff idea, and S&P 500 futures are down more than 2% in premarket trading.

Apple And Amazon Are Down In Premarket Trading

Apple and Amazon, which are the U.S. market’s second and third companies by market capitalization, have reported their earnings yesterday after the market close.

Both stocks have done well during the current crisis (especially Amazon) and the market’s expectations were very high. The reports were decent but it looks like the market wanted to see a better guidance for the upcoming quarter.

As a result, both stocks are under pressure during the premarket trading session, and their dynamics will have a material impact on the whole market today because of their huge market capitalization.

More Economic Data Ahead

U.S ISM Manufacturing PMI for April is set to be released today soon after the market open. Analysts expect that PMI will come at 36.9 compared to the previous reading of 49.1.

All upcoming economic reports will highlight a huge blow to the economy which was dealt by virus containment measures. The key question is whether the market will continue to shrug off bad data and maintain its current upside trend or if grim economic reports will lead to a pullback.

May is historically not the easiest month for markets, and this fact may also play a role, especially after the major rebound that took S&P 500 from 2200 to above 2900 in a very short period of time.

U.S. Stocks To Watch Today

Gilead Sciences

Gilead‘s remdesivir showed some success as anti-COVID-19 drug in early studies so the company attracts a lot of attention these days.

Gilead has reported its first-quarter results and held its earnings call on April 30 after the market close. The company reported GAAP earnings of $1.22 per share, missing analyst estimates. Revenue of $5.55 billion was higher than analysts expected.

During the earnings call, the company stated that it decided to donate 1.5 million doses of redesivir and that it was too early too talk about the potential pricing of the drug in case additional studies prove that it is effective against coronavirus.

The company’s shares lost some ground in the after hours trading session, but recent trading in Gilead stock has been so volatile that things may change very quickly.

Amazon

Amazon was the leader of the market rebound from mid-March lows, and the stock has just broken to all-time highs as investors and traders viewed the shares as an ideal safe haven asset during the current crisis.

Expectations were sky-high. Amazon reported its first-quarter results on April 30 after the market close. The company’s earnings of $5.01 per share missed analyst estimates by $1.10, while revenue of $75.5 billion was higher than expected.

Amazon stated that coronavirus-related costs will increase as the company has to spend heavily to ensure worker safety. In addition to safety costs, Amazon also  increased wages for frontline workers which will also put pressure on second-quarter results.

It remains to be seen whether the company’s stock will continue its rally after the release of the report but investors and traders can be sure that Amazon’s share price dynamics will heavily impact the direction of S&P 500 today.

Apple

Apple, which is currently the second biggest company by market capitalization in S&P 500, has also presented its quarterly results on April 30 after the market close.

Apple easily beat analyst estimates on both earnings and revenue. In addition, Apple has increased its quarterly dividend from $0.77 per share to $0.82 per share.

However, the company did not present its guidance for the next quarter as the coronavirus pandemic made it hard to estimate demand and shipments.

Apple shares have fully recovered from the downside they experienced during the current crisis so expectations were high. Due to this, the good report has so far failed to provide an additional boost to the company’s shares, and Apple stock was down more than 2% in the after-hours trading session.

Was That an S&P 500 Reversal? Most Probably Not

Despite opening with another bullish gap, the buyers just could push stocks higher yesterday. But the futures have rebounded in the overnight trading, so can the S&P 500 upswing continue now?

Let’s check yesterday’s developments on the daily chart (charts courtesy of http://stockcharts.com ).

S&P 500 in the Short-Run

Yesterday’s red candle shows the reversal of fortunes. The key question is whether it’s a short-term, one-day phenomenon, or whether it marks a local top.

Volume would slightly lean in favor of the bears, but the daily indicators haven’t suffered much with yesterday’s downswing. Preceding price action supports upswing continuation – after all, we have made neither a lower high, nor a lower low.

As a result, the benefit of short-term doubt still goes to the bulls. With prices back above the 50% Fibonacci retracement, it’s up to them to show us they can make it to the 61.8% Fibonacci retracement next, and close the early March bearish gap in the process.

Let’s dive into the reasons why we think the upswing has a pretty good chance of continuing.

The Credit Markets’ Point of View

Credit markets are a key ingredient in stock analysis. Does the riskier corner (well, considering the breadth of the Fed intervention, what is actually the riskiest one now?) of the debt instruments support stocks going higher?

Just as high yield corporate bonds (HYG ETF) themselves, their ratio to short-term Treasuries (SHY ETF) kept more than steady yesterday. That’s an encouraging sign pointing to the stock market recovery being not too far behind. In other words, yesterday’s setback is likely a short-term phenomenon only.

How did yesterday’s S&P 500 decline reflect upon its key sectors?

Key S&P 500 Sectors in Focus

There’s no denying that technology reversed yesterday, led by the heavyweights. As Alphabet (GOOG) was about to release its earnings after the market close, the uncertainties-driven downswing is understandable. But the disappointment wasn’t really there to the degree feared. Yes, ad sales slowed down but revenue climbed 13% as the net income has scored merely a 1.5% gain. This illustrates that the ad market downturn is starting to cut into profitability.

The upcoming quarter will be hard on advertising. Being as diversified as Alphabet is though, the company will weather the storm. Its shares liked the earnings conference call message, and reacted with an upswing in aftermarket trading.

This bodes well for the other tech behemoths such as Amazon (AMZN), Microsoft (MSFT), Apple (AAPL) or even Intel (INTC) as they report. And as a result, for the tech sector as such.

Healthcare was the other sector leading yesterday’s S&P 500 downswing. It also happened on sizable volume, and the extended daily indicators have taken a hit. Considering the sharpness and momentum of the recovery from the Mar 23 lows, it wouldn’t be unimaginable to see the sector taking a breather and consolidate over the coming sessions.

Which sectors would then help drive the index upswing? Despite the lackluster oil performance, energy (XLE ETF) and materials (XLB ETF) with industrials (XLI ETF) not lagging behind, are the places to look at. And among the S&P 500 sectoral heavy-weights, financials (XLF ETF) are doing quite well too.

Let’s quote our yesterday’s observations:

(…) Our Friday’s takeaway was that financials don’t appear to be willing to decline much further these days and that the odds favor their next move to be up. And in line with anticipation and the signals from the credit markets, they’ve indeed turned steeply higher yesterday. This development bodes well for the risk-on assets and further index gains.

Even accounting for yesterday’s downswing, they still closed the day higher than on Monday. Coupled with the discussed resilience in credit markets, this bodes well for the upcoming strong showing of the sector.

Please note the low volume of yesterday’s session – it doesn’t point in the direction of us having seen a reversal yesterday. The daily indicators haven’t suffered much either, and looking at the premarket S&P 500 upswing (futures are trading back around 2885 currently), it’s more than likely that financials will finish up today.

The Fundamental S&P 500 Outlook

Later today, the Fed will announce its new monetary policy decisions, and of course hold a press conference. These were our yesterday’s thoughts:

(…) Do the markets expect a new move out of this meeting? Yesterday, Bank of Japan took some more action, whetting the appetite around the world. But will the Fed deliver in a meaningful way? Probably not, as we look rather to the wait-and-see attitude to win overall at this meeting with perhaps a few bones thrown here and there.

Should the Fed meeting outcome be largely along these lines, stocks may waver thereafter. But the tape tells us that the expectations are for the Fed to have the bulls’ back.

These points remain valid. We’ll monitor the unfolding news and market reactions in real-time, and issue an intraday Stock Trading Alert to discuss the breaking developments and our moves.

Summary

Summing up, even accounting for yesterday’s downswing, S&P 500 trades solidly above the 50% Fibonacci retracement, and remains primed for further gains. Among the key sectors, technology and healthcare were hardest hit, while financials held up fine and the stealth bull market trio (energy, materials and industrials) continued to perform. The key ratios (financials to utilities, and especially discretionaries to staples) haven’t really suffered a profound setback yesterday either. More than a cursory examination of yesterday’s Alphabet earnings report also supports the case for the tech sector moving higher later today. The balance of risks remains skewed to the upside and our profitable long position remains justified.

We encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Monica Kingsley

Stock Trading Strategist

Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Amazon in Good Position to Outperform Benchmark S&P 500 Index

First we had the FAANGs – Facebook, Apple, Amazon, Netflix, and Google. With Facebook and Netflix out of favor and Microsoft returning to good graces, we now have MAGA. Not the MAGA promoted by President Trump, but Microsoft, Apple, Google, Amazon.

Amid the broader stock market sell-off, these four tech giants aren’t doing so well, having erased $1.3 trillion in value since their February all-time closing highs.

During the current stock market rout, Microsoft has taken the biggest hit, down $405.2 billion. Apple has lost around $371.8, billion, while Alphabet (Google’s Parent) is down $311.1 billion. Amazon has dropped $239.4 billion.

Of the four tech titans, only Apple and Microsoft remain valued at over $1 trillion.

While the benchmark S&P 500 Index and blue chip Dow Jones Industrial Average have fallen more than 20% from their record highs, thereby entering a bear market, these four stocks have also made similar moves. Amazon, the best performer in the bunch, is down 20.8%. Apple is off its high by 25.4%, while Microsoft has plunged 26.9%. Alphabet (Google) is the worst performer, plummeting 29.3%.

Microsoft

Microsoft hasn’t been in the news lately, probably because it doesn’t own any stores. However, it was one of the first companies to warn about the coronavirus’ impact on its bottom-line. Three weeks ago Microsoft said it doesn’t expect the quarterly revenue guidance it previously provided for the segment that includes Windows.

Apple

Even before Microsoft disclosed trouble, Apple disclosed that it did not expect to reach its own quarterly revenue forecast because of lower iPhone supply globally and lower Chinese demand as a result of the coronavirus outbreak. On March 14, Apple said it was closing all stores outside of China until March 27 to reduce the spread of the virus.

Amazon

Amazon warned it’s experiencing Prime delivery delays and running out of stock of popular household items amid the coronavirus outbreak.

The issues are a result of a “dramatic increase in the rate that people re shopping online,” Amazon said in a blog post that was updated Saturday. Some popular brands and items in the “household staples” categories were out of stock, while Amazon said some of its “delivery promises are longer than usual.” The issue markets a rare disruption to Amazon’s signature two-day and one-day Prime delivery service.

Google

Alphabet’s Verily coronavirus site screening website for Silicon Valley residents went live on Sunday evening. By Monday it appeared to be overloaded and cannot currently offer appointments for screening, according to the website. The site, build by Google sister-company Verily, is supposed to offer people who live in San Mateo or Santa Clara counties and think they are experiencing COVID-19 symptoms a way to schedule a test.

Near-Term Outlook for MAGA

All four MAGA stocks are highly correlated with the benchmark S&P 500 Index, but given their different business models, it looks as if Amazon should outshine the rest. Consumers are still going to need products and if there are mass quarantines in the United States, these consumers will have to rely on the internet to place their orders.

Google is likely to be the worst performer in the bunch because it relies on small business advertising, which is expected to decline during the coronavirus crisis.

Is Pandemic Pandemonium Setting In?

Risk-off extended further overnight. S&P500 down a further 2½% heading into the close. Selling intensified in the afternoon after the US Centers for Disease Control and Prevention indicated they expect a sustained spread of COVID-19 in the US and advised communities to prepare: “it’s more a question of when.”

Fixed income rallied again, as the preferred hedge of choice with US 10Y yields slipping a further 5bps to 1.33%; 30yrs set a fresh record low of 1.8%. Oil down an additional 2.8%, gold lower into the close. GOLD LOWER?? Are gold markets selling to cover more equity margin calls?

To suggest the market is a tad skittish over the coronavirus becoming a pandemic could very well be the understatement of the century with the virus morphing into the market’s biggest macro worry of the decade.

Given the lack of testing facilities, “As of Monday, only five US states – California, Illinois, Nebraska, Nevada, and Tennessee – can test for the virus, according to the Association of Public Health Laboratories (APHL).” ( Reuters ) it’s feared that there are far more cases than what is currently reported.

And since the containment strategy in the US is initially more penetrable owing to looser enforcement, and greater reliance on voluntary cooperation suggest a clustered super spreader virus crisis could accelerate in an exponential manner.

Every few minutes, I see another travel ban headline while corporations and government agencies are stepping up efforts to stop travel to infected or suspected countries. Supply chain disruptions are coming, and if we were struggling to determine which particular straw broke the market’s back, its the susceptibility of the US market to this insidious virus that needs to rank beyond all other. And you can’t unscramble this egg. And without question, it seems to be the bearer of the truth.

The global habitat, let alone the market is ill-prepared to deal with an epidemic of these proportions as the porous containment strategies outside China could lead to an exponential flurry in new cases reported. God helps us if, as suggested by some medical experts, 40-70% of the world’s population becomes infected over the next 12 months.

Wasn’t this supposed to be over by now??

And only a week ago, it would still have been considered scaremongering to talk of a COVID-19 in pandemic terms. But now the markets must deal with the harsh reality that the COVID-19’s global footprint is likely to grow.

Gold and cross-assets 

Renewed concerns about the depth and duration of the coronavirus impact on global growth were triggered by Apple‘s lower revenue guidance and exacerbated by US PMI data. But the outbreak of cases in the US has seen risk pricing jump to December 2018 levels.

So far, the market sell-off has been reasonably well controlled in US markets. Still, the SPX is now nearly 8% below its 19-Feb intraday high, and the VIX breached 30.

Cross-asset moves were also plentiful with the US 10-year below 1.4% for the first time since July 2016, rates markets pricing 2.5 cuts over the next year, but gold is lower?

I don’t have a particularly salient answer for that, but I’m wondering just how much of a factor a consorted shift to global fiscal stimulus shift rather than monetary impulse might be altering the market safe haven view of gold above $1700.

Modeling for gold fair value indicates the following are consistent: Treasury 10y yields plummet by 80 bps, S&P falls by 20%, inflation break-even drop to 1.35% or below, and gold rises to USD 2000/oz. Indeed we are a long way from paydirt in the fair value analysis, especially is a fiscal impulse kicks in.

I guess the big question today is with correlations pointing higher why we did have back to back daily price gaps lower in gold as surely these moves are beyond just a healthy market correction after all its raining rate cuts.

Raining rate cuts

A total of 13 EM central banks have cut rates in response to the threat of an economic slowdown so far this year with the market convinced the Fed would start cutting deep, and we are even back to discussing rate cuts in Europe. Which should be positive for gold

Equity market margin call-related sell-off?

But the back to back late NY afternoon gold liquidation has the hallmarks suggesting the sell-off could be related to equity margin calls rather than any underlying market weakness, given the overtly risk-off tone dominating the markets. So as was the case yesterday, once these margin obligations are covered, gold could rebound a touch.

The facts

As most gold traders will tell you, it’s virtually impossible to understand where the supply and demand factors will drive gold on a daily basis. But given the real possibility of pandemic pandemonium setting which will cripple the financial market, and could cause a run on the banks Similar to the toilet paper hoarding mentality in Asia, only people want to store cash under their mattress rather than toilet paper under the bathroom sink( poor analogy but you get the picture). Bullion should continue to find more support from accommodative monetary policy worldwide, a rapidly shrinking pool of risk-free assets, and lower beta of traditional risk-off currencies even without triggering worst-case pandemic fears.

Oil markets

The oil market at the best of time isn’t known for measured thinking tending to adopt the approach of “shoot first, ask questions later.” But Oil traders have called this one right from the get-go as they were never buying into the G20 view or the idea of a v-shaped recovery in China and limited impact on the rest of the world.

But for immediate concerns, the shift in focus from just an external demand shock from China to an overwhelming US economic blow could send oil prices into a faster tailspin.

The reality is that the coronavirus has not been contained and is now spreading like wildfire across the world, and you can’t put that smoke back in the wood.

Although I expect the API inventory report to fall through the cracks at least, there was one bulb working on a broken string of lights as WTI regained the $50 handle on a smaller than expected crude inventory build.

Currency Markets

I might be excused this morning; it is 5 AM in Bangkok after all, as I don’t have a blueprint prepared for a rapid spreader scenario across the US markets, which from a Federal Reserve Board perspective makes this flu situation different. We have to admit the Federal Reserve is the only Central Bank that matters. And with global supply chains grinding to a halt, what the world most desperately needs is a deluge of US dollars.

Sure the ECB and BoJ can cut further, but that is unlikely to happen, and another rate cut from a smaller central bank like RBA might prop up the domestic housing market, but what is that going to do in the bigger global scheme of things.

So, it will be up to the Federal Reserve Board to do the heavy market lifting. As such, we could be on the precipice of an emergency inter meeting rate cut as the world is in dire straits and in need of a massive helicopter drop to buttress the virus crisis.

The US dollar has lost its Teflon status as the coronavirus arriving on the US doorstep. With Rate Fat rate cut probabilities on the rise US bond yields sliding fortunately for the global risk market, the US dollar has started to weaken as reverse Yankee mania sets in. But will it be enough before risk aversion crushes commodity markets as what was perceived as a supply shock from the COVID-19 outbreak is morphing into an unknown

A negative US demand shock would represent an essential change for markets. However, before jumping into trades this morning, it might be time to catch our breath as I still think its to early to start fading the currency moves at the epicenter of the crisis wall of worry CNH and KRW as well as the G-10 China proxies AUD and NZD.

 

Asia Pacific Shares Tumble on Apple Guidance Reduction, HSBC Pre-Tax Profit Miss

The major Asia Pacific stocks indexes closed mostly lower on Tuesday after Apple Inc. said it will not meet its revenue guidance for the March quarter as the coronavirus outbreak slowed production and weakened demand in China.

The company said Monday it is “experiencing a slower return to normal conditions than we had anticipated” after the extended Lunar New Year holiday.

“…We do not expect to meet the revenue guidance we provided for the March quarter due to two main factors,” Apple said in a statement. “The first is that worldwide iPhone supply will be temporarily constrained.” “The second is that demand for our products within China has been affected.”

Apple also said, “The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary. Our first priority – now and always – is the health and safety of our employees, supply chain partners, customers and the communities in which we operate.”

At 09:00 GMT, Japan’s Nikkei 225 Index settled at 23193.80, down 329.44 or -1.40%. Hong Kong’s Hang Seng Index finished at 27530.20, down 429.40 or -1.54% and South Korea’s KOSPI Index closed at 2208.88, down 33.29 or -1.48%.

China’s Shanghai Index settled at 2984.97, up 1.35 or +0.05% and Australia’s S&P/ASX 200 Index finished at 7113.70, down 11.40 or -0.16%.

HSBC Misses Expectations on 2019 Pre-Tax Profit

Europe’s largest bank, HSBC, reported a 33% fall in 2019 pre-tax profit to $13.35 billion after it took a goodwill impairment of $7.3 billion. The write down was related to its European investment banking and commercial banking businesses, HSBC said.

In terms of HSBC’s business in Asia, where the bank derives the bulk of its earnings, Quinn warned of pressure from the ongoing coronavirus outbreak.

“Since the start of January, the coronavirus outbreak has created significant disruption for our staff, suppliers and customers, particularly in mainland China and Hong Kong,” he said.

“Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China,” he added. “Longer-term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains.”

Energy, Tech Sectors Drag Down Australian Shares on Coronavirus Impact

The S&P/ASX 200 Index tumbled on Tuesday, led by losses in the energy and technology sectors, due to worries over the impact of the coronavirus epidemic on China’s economy and its global supply chains.

Apple Inc.’s warning that it will not meet its revenue forecast in the March quarter was the catalyst behind the 1.2 percent decline in Australia’s technology index.

Woodside Petroleum led the losses among energy stocks as oil prices declined due to demand worries put forth by the fears of the spreading virus.

RBA Policymakers Reviewed Further Rate-Cut Case, Worried About Borrowing, Coronavirus

The Reserve Bank of Australia (RBA) reviewed the case for a further interest-rate cut, but decided against it in order to avoid encouraging additional borrowing as house prices climb, minutes of its February 4 meeting in Sydney showed, Bloomberg reported.

The RBA also expects the coronavirus outbreak to “subtract from growth in exports over the first half of 2020,” the minutes released Tuesday showed. It acknowledged it was “difficult to assess potential indirect effects on activity” from the epidemic and devastating wildfires over summer as data were yet to be published.

The RBA also maintained an easing bias and reiterated its expectation rates were likely to stay low for “an extended period,” the bank retained a broadly upbeat view of the economy’s prospects.

Apple Cuts Revenue Guidance for Fiscal Q2 Due to Coronavirus

U.S. investors are preparing for a lower opening on Tuesday as stock index futures retreated from record highs early in the session after Apple Inc. said it will not meet its revenue guidance for the March quarter as the coronavirus outbreak slowed production and weakened demand in China.

The warning from the company with the highest market cap in the United States served as a wake-up call to investor optimism that economic stimulus by Beijing and other countries would shield the global economy from the effects of the coronavirus epidemic.

Investors initially trimmed positions in mid-January on concerns the coronavirus would have some effect on China’s economic growth and on U.S. companies doing business in the country, but those worries were put to bed in early February when China’s government made a preemptive strike against those concerns by providing massive amounts of stimulus.

The move was enough to send U.S. equity prices to record highs last week, but the warning from Apple and the subsequent sell-off in the U.S. futures indexes indicates that the damage could be significant if China cannot gain control of the virus.

As late as Monday, China’s central bank was still at by announcing an interest rate cut on medium-term loans. This was supposed to pave the way for a reduction in the benchmark loan prime rate on Thursday.

The move was also expected to provide a boost to global equity markets this week, instead sentiment was stunned when Apple informed investors its manufacturing facilities in China have begun to re-open but are ramping up more slowly than expected, reinforcing signs of a broader hit to businesses from the epidemic.

“Apple is saying its recovery could be delayed, which could mean the impact of the virus may go beyond the current quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell.”

Apple Expects to Miss Second-Quarter Forecast for Revenue

Apple said Monday that it does not expect to meet its quarterly revenue forecast because of lower iPhone supply globally and lower Chinese demand as a result of the coronavirus outbreak, CNBC reported.

The company initially said that it expected to report net sales between $63 billion to $67 billion in its fiscal second quarter, Apple did not provide a new forecast for its fiscal second-quarter revenue on Monday.

The company said it provided a wider range than usual in late January, citing the uncertainty around the coronavirus outbreak.

“As you can see from the range, anticipates some level of issue there. Otherwise, we would not have a $4 billion range,” CEO Tim Cook said at the time.

iPhones and Other Products in China Affected

Apples makes most iPhones and other products in China. The Coronavirus has caused it to temporarily halt production and close retail stores in China. Some Apple retail stores reopened in China with reduced schedules last week.

The company said Monday it is “experiencing a slower return to normal conditions than we had anticipated” after the extended Lunar New Year holiday. All iPhone manufacturing facilities in China have reopened, but Apple said it still expects supply shortages of the phone globally.

This is the second time in the last 13 months that Apple has had to cut its guidance due to concerns in China. In January 2019, Apple was forced to slash revenue guidance for its fiscal first quarter of 2019 due to weak iPhone sales in China, CNBC reported.

Apple is widely expected to announce a new, cheaper iPhone model this spring. It’s unclear if the delays in China will affect that launch.

Key Quote

“This disruption to our business is only temporary,” Apple said. “Our first priority – now and always – is the health and safety of our employees, supply chain partners, customers and the communities in which we operate.”

Asia Open: Does One Bad “Apple” Spoil The Whole Bunch, Girl?

 Markets 

US markets were closed Monday for President’s day. Still, the tone was better, likely underpinned by the PBOC’s decision Monday to lower its one-year MLF lending facility by 10bps to 3.15%, its lowest level since 2017.

Chinese measures to help support the economy in the wake of the coronavirus saw onshore Chinese equity markets outperformed yesterday. The CSI 300 was up 2.25%, and the Shenzhen composite rose 3.18%. This policy shift helped lifted offshore China proxies, the Hang Seng and China H shares, but had a minimal bearing on other markets. Investors outside of China markets continued to mildly fret about supply chains and demand contraction, two channels which are difficult to assess.

This morning’s latest Apple quarterly guidance did little to arrest those concerns, as the report suggests that due to the Covid19 knock-on effects, “that worldwide iPhone supply is temporarily constrained, though demand remains strong, production is ramping up slower than expected.”

Indeed, the market’s ability to look through these types of short-term supply chain concerns will likely guide short term momentum. Mind you, investors have shown remarkable resilience to look through just about everything that has been thrown at them of late.

Still, Apple is one of the growth leadership stocks which has been driving the markets higher in part due to the Fed repo remedies. So, the tricky question is “does” one bad “Apple” spoil the whole bunch girl.”

Mainland equities have now retraced losses, SHCOMP significant gains yesterday are taking prices back to pre-coronavirus levels, and now the aftershock remains in EUR, commodity complex, and the tourist parts of EM Asia. However, going forward, it isn’t so effortless to see a big push into the “Rest of Asia” assets unless growth very quickly surprises to the upside.
Still, this might not stop investors from trying to front-run the manufacturing rebound trade.

It’s a tricky market environment. There isn’t intemperate fear, and there isn’t unreasonable optimism. While the virus stories don’t carry the same headline gravitas, it’s still a focal point, but the economic data concerns continue to simmer on the back burner. Korea’s 20-day exports on Feb. 21 is the first data point barometer of how the month is panning out. It will be an essential test of investors’ resolve, given some positioned for a post-coronavirus manufacturing rebound.

Oil markets

News flow around Covid-19 hasn’t significantly improved, but crude markets have normalized in reacting to it, while a significant hit to demand 1Q appears priced into the scrim. That’s assuming Russia plays ball, of course, with the JTC production cut remedies.

While the long-term implication of the outbreak remains uncertain, the immediate impact on productivity is becoming apparent 1) decision to extend the CNY holiday, 2) transport restrictions, & 3) mandatory 14- day quarantine for returning workers will be an obvious impediment to crude prices. But how correctly has the market priced in these concerns is the burning question?

While its more comfortable to call oil higher, given the likely pent-up demand to lead to a recovery from Q2, it’s far too early to suggest oil market concerns have dissipated.

The US rig count showed a +2 rise in oil rigs. Still, we are not seeing the average 1Q growth we might typically expect, which is alleviating oversupply concerns a touch – but this is understandable given the pressure on E&P cash flows and the lower price.

Gold markets

Any glean of a sell-off in stock markets due to the Covid 19 knock-in effects will continue to drive gold demand higher as the bias to be hedged long gold in the current environment remains enduring. This morning Apple downgraded forward guidance due to Covid19 concerns and has provided that fillip to gold prices this morning as risk-on sentiment has soured precipitously.

While gold’s negative correlation with equities suggests that investors remain quite sensitive to fluctuations in risk sentiment, indeed, gold is very much on everyone’s radar. And this suggests bids will stay firm on dips to $ 1575-65 levels even more so as there are now more cuts priced for the Fed than any other central bank as Friday’s core US retail sales data does raise questions over core consumption in the US. And while Fed members have been quick to play up the strength of the US consumption, the trend appears to be weakening, and the markets continue to price in Fed rate cuts into the summer. Bullish for Gold.

Currency markets

Asia FX

Even although coronavirus risk premia are reducing and vols are taming, there’s a gigantic swath of economic carnage left in Covid-19 wake so even with Hubei province now reporting fewer infections with Korea’s 20-day exports on Feb. 21, the first data point barometer of how the month is panning out, Asia FX optimism could weigh on local risk today.

Still, on moves to USDCNH 7.0 and correlated proxy gaps , investors will be looking for a buying Asia FX opportunity but could remain cautious about adding more currency risk before assessing the depth of the economic fallout. But with regional policymakers taking protractive actionable measures to thwart of the legacy effects of Covid-19, this should be viewed as growth positive. But unless growth very quickly surprises to the upside, which I don’t expect, Asia FX risk is probably best expressed through Asia FX higher yielders at the moment.

The Malaysian Ringgit

With the Yuan backing up this morning suggesting investors need to get a better look into regional economic data to make sure growth carnage is not worse than expected, the Ringgit could struggle for traction today. But the biggest issue for the Ringgit very much relies on a pickup in growth expectations to recover sustainably and that growth spurt might not occur to Q2.

The Singapore Dollar

The SGX forwards market is unusually quiet ahead of today’s budget release (1500 SGT). The curve is either “bid without,” or you could drive a truck through the spread. The lack of liquidity bid side liquidity along the curve suggests that locals are cautiously optimistic about a significantly large budget delivery, which could see the 6m-1y SGD FX get smashed of that comes to fruition.

The Euro 

The EURUSD is still trading at the lows of the latest sell-off the week at the lows, struggling to recover. Price action is telling, and the consensus is more and more for a lower EURUSD; positions are accordingly. CFTC data most bearish since June 2019 and risk reversals most in favor of puts since September 2019. But with the market adequately positioned for a move lower, the risk of a short squeeze looms the longer it takes to break through 1.0800