US Stock Market Overview – Stocks Whipsaw and Close Mixed Despite Mixed Economic Data

US stocks whipsawed between positive and negative territory ahead of the President’s press conference where he denounced Chinese actions. President Trump called COVID-19 the Wuhan virus, antagonizing the Chinese leadership. The Chicago PMI numbers came in worse than expected showing that manufacturing in the mid-west remains weak. The US personal savings rate hit a historic high, while spending tumbled. The Dow closed lower on the session while the S&P 500 and Nasdaq closed in the black. Sectors in the S&P 500 index were mixed, led higher by technology, real-estate was the worst-performing sector.

Total Energy Rigs Decline Buoying Oil

Oil prices rose into the close, climbing 5.6% for the week. Prices rose on Friday following a report from Baker Hughes which showed that the number of active U.S. rigs drilling for oil declined by 15 to 222 this week. The oil-rig count has now fallen for 11 weeks in a row, suggesting further declines in domestic natural gas output. The total active U.S. rig count, meanwhile, also fell by 17 to 301, according to Baker Hughes.

Manufacturing Declines

The Institute of Supply Management reported that the May Chicago PMI came in at 32.3 versus expectations it would rise to 40.0. This compares to 35.4 in April. That’s the weakest since 1982. Among the main five indicators, order backlogs and supplier deliveries saw the largest declines.

Personal Spending Falls while Savings Rise

The commerce department reported that the personal savings rate hit a historic 33% in April. The previous record savings rate was 17.3% in May 1975. U.S. consumer spending, the U.S. economy’s main engine, fell by a record 13.6% in April during coronavirus lockdowns, but there are signs that purchasing is slowly creeping up. Personal income, which includes wages, interest and dividends, increased 10.5% in April,. The jump reflected a sharp rise in government payments through federal rescue programs, primarily one-time household stimulus payments of $1,200.

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 – Trading Near Highs after ‘Trump Bump’

June E-mini Dow Jones Industrial Average futures are trading nearly flat during the last hour of cash market trading after clawing back earlier losses. Blue chips stocks fell earlier in the session ahead of a U.S. response to China’s national security law on Hong Kong that threatens to take the shine off another month of strong gains for the stock market.

At 19:09 GMT, June E-mini Dow Jones Industrial Average futures are trading 25418, down 39 or -0.15%. This is up from a low of 24991.

Traders breathed a sigh of relief after President Donald Trump’s much-awaited news conference on China Friday afternoon. During the news conference, Trump said he would take action to eliminate special treatment towards Hong Kong. However, he did not indicate the U.S. would pull out of the phase one trade agreement reached with China earlier this year, easing trader concerns for the time being. Investors celebrated this news with a late session rally.

In other news, the iShares PHLX Semiconductor ETF (SOXX) jumped to its session high following the news conference, trading more than 2% higher. Marvell Technologies and Lam Research were among the biggest gainers in the ETF, rising 6.7% and 2.9%, respectively. Nvidia and Micron Technology also advanced more than 2% each.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum shifted to the downside on Thursday with the formation of a closing price reversal top and its subsequent confirmation on Friday.

A trade through 25794 will negate the closing price reversal top and signal a resumption of the uptrend. A move through the last main bottom at 22704 will change the main trend to down.

The minor trend is also up. A trade through 24076 will change the minor trend to down. This will also confirm the shift in momentum.

The main range is 29506 to 18086. Its retracement zone at 25144 to 23796 is controlling the longer-term direction of the major average. Its Fibonacci level at 25144 is major support.

The minor range is 24076 to 25794. Its 50% level at 24935 is controlling the longer-term direction of the Dow.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the June E-mini Dow Jones Industrial Average futures contract into the close on Friday is likely to be determined by trader reaction to the major Fib level at 25144 and the minor 50% level at 24935.

Bullish Scenario

A sustained move over 25144 will indicate the presence of buyers. If they can create enough upside momentum then look for the Dow to make a run at 25794.

Bearish Scenario

A sustained move under 24935 will signal the presence of sellers. This is a potential trigger point for an acceleration to the downside with the next major target a price cluster at 24076, 23796 and 23571.

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 – Key Level into Close is 25534

June E-mini Dow Jones Industrial Average futures are trading higher at the mid-session on Thursday, boosted by gains in healthcare and technology stocks, as investors hoped for a swift economic recovery from a coronavirus-driven economic slump.

Boeing Co. climbed 3.3%, the most among the 30 blue-chip Dow components, as the planemaker said it had resumed production of its 737 MAX passenger jet at its Washington plant, although at a “low rate”.

At 16:42 GMT, June E-mini Dow Jones Industrial Average futures are trading 25684, up 150 or +0.59%.

Although the Dow is testing levels not reached since March 6, the buying has been tentative on Thursday. Worsening ties between Washington and Beijing over the handling of the coronavirus outbreak and a new national security law in Hong Kong pose a major threat to the stock market’s strong recovery from the crash earlier this year.

President Donald Trump has promised action over Hong Kong by the end of the week.

In other news, the number of Americans filing for unemployment benefits held above 2 million for a 10th straight week, while a separate report showed GDP contracted at a bigger-than-expected 5% annualized rate in the first quarter, the deepest drop in output since the 2007-09 Great Recession.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out yesterday’s high. The next objective is the March 3 main top at 26962. A trade through 22704 will change the main trend to down.

The minor trend is also up. A move through 24076 will change the minor trend to down. This will shift momentum to the downside.

The main range is 29506 to 18086. Its retracement zone at 25144 to 23796 is controlling the longer-term direction of the Dow. The nearest support is the main Fibonacci level at 25144.

Daily Swing Chart Technical Forecast

Look for the upside bias to continue as long as the June E-mini Dow Jones Industrial Average remains above 25144. If this is able to generate enough upside momentum then look for the rally to possibly extend into 26962.

A failure to hold 25144 should result in the loss of upside momentum. This could trigger a near-term correction into a minor pivot at 24935. Since the main trend is up, buyers are likely to come in on a test of this level. If it fails then look for the selling to possibly extend into a cluster of potential support levels at 24076, 23796 and 23571.

US Stock Market Overview – Stock Rally Lead By Financials, Travel Shares Also Rise

US Stocks surged higher as traders rotated out of the high flying technology shares and into value share, pushing the S&P 500 index further above the 200-day moving average. The Dow Industrials was the best performing sector. All sectors in the S&P 500 index were higher, led by Financial and Cyclicals, Utilities were the worst-performing sector in an up tape. Energy shares also lagged, as oil prices eased. Additional stimulus from the European Union and the Japanese government helped buoy riskier assets. US Rates edged slightly lower, which continued to help buoy the US mortgage market. Mortgage applications continued to rise climbing 9% in the latest week. The rotation was out of some of the large-cap technology shares which took a breather as travel-related shares which have been pummeled, rebounded sharply.

More Stimulus

The EU and Japanese governments gave riskier assets a one-two punch, helping to lift global equity bourses. The European Union announced a $2 trillion coronavirus response plan, including a massive pooling of national financial resources that, would deepen the bloc’s economic union. The proposal composed of a $824 billion recovery plan and 1.4 trillion budget over the next seven years. This news followed the release of Japan’s new stimulus plan.

Japan announced a stimulus package totaling $1.1 trillion as economic woes and eroding support for Prime Minister Abe’s government, pushed the government for aggressive measures.  Capital will be used to helping companies that are in trouble as well as, rent subsidies, and healthcare assistance.  It will be funded by a second supplementary budget.

Mortgage Applications Rise

Mortgage applications for new homes rose 9% last week from the previous week according to the Mortgage Bankers Association’s index. It was the sixth straight week of gains and a 54% recovery since early April. The 30-year fixed-rate mortgage has dropped 75-basis points since January. Homebuyers are getting a great deal over 30-years, The gains mirror an unexpectedly strong sales pace just reported for newly built homes in April. They were forecast to fall by 22% but instead rose nearly 1% for the month.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Setting Up for Reversal Top

June E-mini Dow Jones Industrial Average futures are trading higher shortly after the cash market opening, but has given up most of its earlier gains. The benchmark S&P 500 Index and the technology-based NASDAQ Composite have given back all of their earlier gains and are now trading lower for the session. Traders said a huge drop in tech shares is responsible for the reversal to the downside.

At 14:47 GMT, June E-mini Dow Jones Industrial Average futures are trading 25024, up 14 or +0.06%.

Based on the intraday downside momentum, it may be just a matter of time before the Dow cash and futures turn negative for the session. Weakness in Dow components Apple, Microsoft and IBM are weighing on the blue chip index.

Bank stocks were broadly higher earlier in the session as investors reacted to the prospects of the economy reopening. Gains were led by Citigroup which was up 4.9%, followed by JPMorgan Chase which posted an earlier gain of 3.6%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out yesterday’s high. The main trend will change to down if sellers can take out the last main bottom at 22704.

The minor trend is also up. A trade through 24076 will change the minor trend to down. This will also shift momentum to the downside.

The main range is 29506 to 18086. Its retracement zone at 23796 to 25144 is controlling the longer-term direction of the Dow. The major average is currently testing this zone.

The strongest support may be the price cluster at 23796 to 23571.

Daily Swing Chart Technical Forecast

Given the prolonged rally in terms of price and time, the direction of the June E-mini Dow Jones Industrial Average the rest of the session on Wednesday is likely to be determined by trader reaction to yesterday’s close at 25002.

Bullish Scenario

A sustained move over 25002 will indicate the presence of buyers. Overtaking the major Fibonacci level at 25144 will signal that the buying is getting stronger. If this is able to generate enough upside momentum over the near-term then look for a possible extension of the rally into 26962.

Bearish Scenario

A sustained move under 25002 will signal the presence of sellers. This will also put the Dow in a position to form a potentially bearish closing price reversal top. If confirmed, this could lead to a 2 to 3 day correction.

The first downside target is the minor bottom at 24076. This is followed by the support cluster at 23796 to 23571.

Midweek Market Drivers: Global Expand Of COVID-19, Situation In Europe, and US-China Tensions

The number of new COVID-19 cases across the globe has exceeded 5 million.

How the situation is evolving in the European Union?

Aside from Spain, which has had 1 blip of over  1,000, we’ve seen the most adversely affected see sub-1,000 new cases each day for 9 consecutive days. The most affected being France, Germany, Italy, and Spain.

We had some concerns over how quickly governments were easing lockdown measures. When we factor in the 2-week incubation period, these numbers are fairly positive. They should give the markets some hope that a 2nd wave can be avoided.

Governments are about a 4-5 day period and about a week out to convince the more pessimistic…

If we look at China as a base case that should also be supportive.

We can then also look at virus vaccine news that has also been market positive late last week and early this week.

It appears that the coronavirus crisis continues to hit the global economy dramatically.

In the meantime, are there any improvements?

From the economic data, shifting through May and June numbers, the focus remains on employment and business and consumer confidence figures.

In Germany this week, we saw both business and consumer confidence improve, coming off the back the easing of lockdown measures.

The key, however, remains labor market conditions, which need to materially improve to drive confidence and consumption.

Expect these to be the key areas of focus and to drive the market near-term.

A pickup in consumption would drive a service sector recovery that would then filter through to the manufacturing sector.

Despite positive forecasts, the US-China conflict continues to be in the spotlight. Also, the Chinese government introduced a new HK Securities Law.

How did these events affect the markets?

There was some skepticism over the phase 1 trade agreement. We then saw accusations fly over the cause of the coronavirus pandemic leading to a deterioration in relations.

China has responded with the HK Securities Law and the U.S government is expected to respond in kind this week. This could include sanctions.

The markets have been almost Teflon in the early part of the week. On Wednesday morning, however, we saw risk appetite tested, as focus shifted back to the U.S – China tensions.

This shift in focus came as Trump announced that the U.S will respond to China’s plans for HK.

Let’s see what happens there. Beijing is not going to sit back this time around, not after the year-and-a-half that it took to come up with a phase 1 trade agreement.

Risk appetite will be tested. We do have COVID-19 news to keep the markets buoyed and there is also vaccine talk to provide support.

U.S China tensions, that relationship isn’t going to improve any time soon. Could you imagine a China-Russia alliance against the U.S and anyone else who wants to jump on Trump’s bandwagon?

That would certainly give the markets a rough time, particularly with Iran there in the Middle East as well.

It seems like the US-China tensions do not influence the markets significantly.

Meanwhile, is there anything else notable in regards to commodities and geopolitics?

Other than COVID-19, vaccines, and U.S China relations, there’s very little else to consider from a global financial market perspective.

There is one thing to consider, however, looking further down the track. Will the markets be as optimistic about the economic recovery once June stats begin to come out.

We saw May’s economic indicators show economic activity pickup from the depths of the abyss in April figures.

If we see June numbers fall off from May, then that optimism will come into question. May would have seen a larger pickup just due to the fact that economies were reopening.

I’m not convinced that the global economy will recover as quickly as the markets suggest. When you look at the equity markets and the rebound in the Aussie Dollar and Loonie. These are quite big moves when considering the doom and gloom ahead.

So, let’s see what happens when we begin to see June numbers…

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

China and Hong Kong Pressures are Having Limited Knock-on Effects

The spill-over into today’s activity has been minor. The heightened tensions weighed on China and Hong Kong markets, but Japan, South Korea, Taiwan, and Indian equity markets rose.

Europe’s Dow Jones Stoxx 600 is higher for the third consecutive session, the longest streak this month. US shares are also trading higher, and the S&P 500 looks poised to rechallenge yesterday’s high, leaving yesterday’s opening gap unfilled. Benchmark bond yields are a little lower, and the US 10-year is hovering around 68 bp.

The greenback is bid against most of the major and emerging market currencies. Among the majors, the yen, the Canadian dollar, and New Zealand dollar are steady to higher, while the European complex, led by the Swiss franc, is nursing small losses. Turkey, Hungary, and South Africa led the losers among emerging market currencies.

The Chinese yuan (onshore and offshore) fell to its lowest level of the year. Gold drifted to two-week lows a little above $1700, while July WTI is consolidating in $33.50-$34.30 range as Russia seems to be balking at extending the maximum output cuts beyond next month.

Asia Pacific

President Trump is threatening “very interesting” action against China by the end of the week. Apparently, under consideration are a new set of sanctions against officials, businesses, and financial firms over the effort to crack down on dissent in Hong Kong.

There are actions the US could take, including limiting transactions and freezing assets. The US could suspend Hong Kong’s special trade privileges, but this seems potentially too disruptive for US companies and would punish Hong Kong more than China. Meanwhile, demonstrations and conflict with police have escalated in Hong Kong.

Pressure on the Hong Kong dollar is evident in the forward market. The 12-month forward points increased by almost 60 to 670. A week ago, they stood at 256. The 3-month forward points increased by almost 20 today to about 167. A week ago, they stood at 75.

Separately, the PBOC set the dollar’s reference rate at CNY7.1092, while the bank models implied CNY7.1144. However, the dollar rose to almost CNY7.1630 to approach the CNY7.1850 peak last September. The dollar rose to almost CNH7.1770 against the offshore yuan. It peaked last September near CNH7.1965. Chinese officials do not appear to cause the yuan’s weakness but are not resisting it forcefully.

Separately, China reported a 4.3% decline in April industrial profits, almost a third of the decline that the median forecasts in the Bloomberg survey anticipated and what seems like an improvement after the nearly 35% decline in Q1. However, the performance of the state-owned enterprises suggests a more complicated picture. Profits in this sector fell 46% in the January to April period, a little worse than the 45.5% decline reported in Q1.

Nevertheless, with the latest reserve requirement cuts for large banks, and additional efforts for small and medium businesses, and signs of more fiscal support coming from the National People’s Congress, China is stepping up economic and financial efforts. At the same time, Japan’s cabinet has approved a JPY117 trillion supplemental budget with JPY72.7 trillion of fiscal outlays. South Korea is expected to deliver another 25 bp rate cut tomorrow (bringing the seven-day repo rate to 50 bp).

For the sixth consecutive session, the dollar stuck on the JPY107-handle. It has not traded below JPY107.30 since May 18. It neared JPY108 yesterday but backed off. Today there are $1.7 bln in options in the JPY107.80-JPY107.90 area that expire. If that is not a sufficient cap, there is another billion-dollar option at JPY108.15 that will also be cut. The Australian dollar is in a narrow range below yesterday’s high near $0.6675. There is an option for nearly A$635 mln at $0.6650 that expires today.

Europe

The European Commission appears to be combining the German-French proposal with the other proposal by Austria, Sweden, Denmark, and the Netherlands to advance a 750 bln euro fiscal support effort. It would include 500 bln euro in grants and 250 bln euros in loans.

It seems a popular meme to see an EU bond as a step toward the mutualization of debt and a fiscal union. This seems exaggerated. There are already common obligations, such as bonds issued by the European Stabilization Mechanism and the European Investment Bank. The EU itself has issued bonds in the past.

ECB President Lagarde is laying the foundation for an increase in the central bank’s Pandemic Emergency Purchase Program next week. She cautioned today that the more mild scenario that had been considered was out of date and that the more likely scenario is the one that anticipates an 8-12% contraction this year.

The internal debate seems to be over relaxing more of the self-imposed limits. The capital key has already been diluted for PEPP, and the issue limit of 1/3 has also been waved. There does not seem to be much interest in taking rates deeper into negative territory.

There has been much discussion of the Bank of England adopting negative rates. We have understood officials to be keeping that option on the table, which may help lower UK rates, such as last week’s 3-year Gilt auction that resulted in a negative yield.

However, it does not seem to be imminent. More likely, the Bank of England will increase its bond purchases when it meets on June 18. The BOE’s chief economist, Haldane’s comments, were consistent with the idea that other policy options will be explored before negative rates.

The euro initially slipped to almost $1.0930 after stalling in front of $1.10 yesterday. However, with a running start in the European morning, the euro punched above $1.10 and above last week’s high to poke above the 200-day moving average (~$1.1015) for the first time since the end of March.

The $1.1050 area may hold some offers, but there is little chart-based resistance ahead of $1.1160-$1.1200. Sterling, on the other hand, is firm but through late in the London morning, has been unable to surpass yesterday’s high near $1.2365. The next target above there is around $1.2425.

America

The US reports the May Richmond Fed survey and the Fed’s Beige Book for ahead of next month’s FOMC meeting. Nearly every survey (diffusion indices and sentiment surveys) have shown some moderation in the weakness since in April. The improvement has also mostly been better than expected. And yesterday’s it was reported that April new home sales, which were forecast to have imploded by nearly a quarter, eked out a small (0.6%) gain.

Yes, there is little doubt that the world’s biggest economy has suffered a large hit in this quarter, but the data suggests ideas of a Q3 recovered may not be misplaced. Other data, including traffic patterns, are also pointing to a slight pick up in activity as the lockdowns ease. Canada and Mexico’s calendars are light today. Banxico issues its inflation report today, and coupled with the strength of the peso may spur speculation of another 50 bp rate cut at its next meeting.

Although Fed officials have played down the likelihood of negative rate policy in the US and the fed funds futures curve is not implying negative rates, the central bank may not be done. There is more virtual ink being devoted to the possibility of yield curve control, where the Fed would not target a certain amount of Treasuries to be bought, as it is now ($5 bln a day down from $75 bln a day at the peak) but to target another rate.

The Bank of Japan targets the 10-year yield, and the Reserve Bank of Australia targets the three-year yield. If the Fed adopts such a tool, it would more likely target a short or intermediate coupon such as something between a two- and five-year maturity. It would help steepen the curve and send a signal that rates will remain low for some time.

The Canadian dollar joined the Australian dollar in breaking out of its recent range. The US dollar fell below the lower end of its two-month range against the Canadian dollar near CAD1.3850 yesterday. The losses are being extended today. The break of CAD1.38 is important from a technical perspective as it coincided with the halfway mark of this year’s range.

The next retracement objective is near CAD1.3600. More immediately, a bid in the European morning was found near CAD1.3730. The old support near CAD1.38 now offers resistance. The greenback is also pushing below the halfway mark of this year’s range against the Mexican peso (~MXN22.15). A break of MXN22 would set the sights on the MXN21.00-MXN21.10 area. Mexico is reporting a record increase in virus cases and related fatalities. The peso’s strength largely reflects the broader risk-on mood.

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

European Shares Higher as New Stimulus Package Optimism Outweighs US-China Tensions

Asian shares finished mixed as investors focused on the regional turmoil in Hong Kong, but European shares are edging higher on Wednesday as investors eyed a fresh European Union stimulus plan. Meanwhile in the United States investors continue to remain optimistic over the reopening of the economy and progress toward a coronavirus vaccine. Nonetheless, the trade was a little tentative at all global exchanges on simmering U.S.-China tensions.

At 09:40 GMT, the UK’s FTSE 100 is trading 6160.20, up 92.44 or +1.52%. Germany’s Dax is at 11706.36, up 201.71 or +1.75% and France’s CAC 40 Index is trading 4699.60, up 93.36 or +2.03%.

Meanwhile, the pan-European STOXX 600 rose 0.3%, hovering near an 11-week high hit in the previous session, led by hard-hit banking, travel and leisure, and auto sectors.

The easing of lockdowns in many European countries and improving economic data have spurred buying in the growth-exposed cyclical sectors in recent weeks, putting European stocks on course for a modest 2.9% gain in May.

European Commission Prepares to Unveil New Stimulus Plan

Euro Zone stocks were also supported as the European Commission (EC) prepares to unveil a plan to help the EU economy recover from its coronavirus slump with a mix of grants, loans and guarantees exceeding 1 trillion Euros.

Hopes for a coordinated fiscal response to the coronavirus crisis have been boosted since France and Germany made proposals for a 500-billion-Euro Recovery Fund.

UK Midcaps Hit 11-Week High on Reopening Optimism

British midcaps hit an 11-week high on Wednesday as hopes of an economic recovery with the easing of coronavirus lockdowns offset concerns about growing political unrest in Hong Kong over Beijing’s proposed national security laws.

The domestically-focused FTSE 250 gained 1.2%, rising for an eighth straight session as thousands of retailers prepared to reopen from June 1 from a months-long shutdown that has crushed the UK economy.

UK Prime Minister Boris Johnson Faces Political Battle

In the U.K., pressure is mounting on U.K. Prime Minister Boris Johnson as a political battle over the position of his top aide Dominic Cummings, who is accused of breaking U.K. lockdown rules, intensifies. Cummings has refused to apologize and Boris Johnson has backed his advisor, despite widespread calls for Cummings to resign.

Dow Futures Surge in Pre-Market Trade

U.S. stock futures pointed to more gains at Wednesday’s open as optimism about the reopening of the economy and a potential coronavirus vaccine offset concerns about rising U.S.-China relations.

Dow futures pointed to an implied open of more than 400 points. The S&P 500 and NASDAQ futures also implied solid gains at the open.

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

US Stock Market Overview – Stock Rally Led by Financials as Sentiment Continue to Rise

US stock prices surged higher on Tuesday following the long holiday weekend. Stocks were buoyed by news that another company was in Phase 1 trials of a COVID vaccine. The S&P 500 index closed above the 200-day moving average, which is a positive sign for the broader index.

US housing prices continued to rise in March according to a recent report from S&P Case-Shiller. The Chicago Fed national activity index moved lower in April. All sectors in the S&P 500 index were higher, led up by Financials and Industrials, Healthcare was the worst-performing sector in the broader index. The VIX volatility index moved lower but failed to close below the 200-day moving average which means that options traders are more cautious than stock traders. Crude oil prices moved higher on Tuesday, following another large drop in the rig count Friday. WTI closed above $34 per barrel for the first time since early March. This helped buoy energy shares.

US Housing Prices Continue to Rise

US home-price appreciation continued to rise in March. The S&P CoreLogic Case-Shiller 20-city price index posted a 3.9% year over year gain in March, up from 3.5% the previous month. On a monthly basis, the index increased by 0.5% between February and March.

Chicago Fed National Activity Index Dropped

The Chicago Fed’s national activity index came in lower dropping to negative 16.74 in April, down from a revised negative 4.97 in March. The index’s three-month moving average decreased to a negative 7.22 in April from negative 1.69 in the prior month. The contribution of production-related indicators declined to negative 5.63 to the index, down from negative 2.31 in March. Employment-related indicators contributed negative 9.06 to the index in April, down from negative 1.06 in the prior month.

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 – Potential Breakout Over 25144 Fib Level

June E-mini Dow Jones Industrial Average stocks are surging at the mid-session, helped by growing optimism over the reopening of the U.S. economy as several more states lifted restrictions over the long Memorial Day holiday weekend. The blue chip average was also supported by a potential coronavirus vaccine. The 30-stock average also traded at levels not seen since early March, jumping above 25,000.

At 16:24 GMT, June E-mini Dow Jones Industrial Average futures are trading 24985, up 561 or +2.30%.

CNBC reported that American biotech company Novavax said Monday it started the first human study of its experimental coronavirus vaccine. The company said it expects initial results on safety and immune responses in July. Last week, another biotech Moderna reported positive development on its vaccine trial where all 45 participants had developed coronavirus antibodies. There are 10 vaccines in clinical evaluation and 114 in pre-clinical evaluation, according to a running tally by Fundstrat.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The trade through 24765 signaled a resumption of the uptrend after several days of sideways activity. A trade through 22704 will change the main trend to down.

The minor trend is also up. A trade through 24076 will change the minor trend to down. This will also shift momentum to the downside.

The main range is 29506 to 18086. Its retracement zone at 23796 to 25144 is controlling the longer-term direction of the Dow. The market is currently trading at the upper-end of its zone.

On the downside, additional support is being provided by the 23571 to 22524 retracement zone.

Daily June E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at 24985, the direction of the June E-mini Dow Jones Industrial Average the rest of the session on Tuesday is likely to be determined by trader reaction to the main Fibonacci level at 25144.

Bullish Scenario

A sustained move over 25144 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with the next major target the March 3 main top at 26962.

Bearish Scenario

A sustained move under 25144 will indicate the buying is getting weaker or the selling stronger. If this creates enough downside momentum then look for a possible break into the minor bottom at 24076. This is followed by a support cluster at 23796 to 23571.

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

Fear is Still on Holiday

Equity markets have rebounded strongly. Nearly all the equity markets in the Asia Pacific region rose (India was a laggard) led by an almost 3% rally in Australia, which was seen as particularly vulnerable to the Sino-American fissure.

The Nikkei is approaching its 200-day moving average as it reached the best level since March 5. Europe’s Dow Jones Stoxx 600 is up around 1% after a 1.5% gain yesterday. It is at its best level since March 10.

The S&P 500 is set to gap sharply higher, above 3000, and its 200-day moving average for the first time since March 5. Benchmark 10-year bond yields are mostly firmer (US ~70 bp), but peripheral yields in Europe are softer, which is also consistent with the risk-on mood. Germany sold a two-year bond today with a yield of minus 66 bp and saw the strongest bid-cover in 13 years.

The dollar is heavy. Among the majors, the Antipodean and Norwegian krone lead the way. The yen is least favored and is struggling to gain in the softer dollar environment. Emerging market currencies are higher, led by more than 1% gains by the Mexican peso, South African rand, and Polish zloty. Gold is consolidating at softer levels (~$1725-$1735), while oil prices continue to recover. July WTI is probing the recent highs around $34 a barrel.

Asia Pacific

The risk-on mood has not been sparked by any sign of a thaw in the US-Chinese tensions. Indeed, the PBOC set the dollar’s reference rate against the yuan a little higher than the bank models suggested (CNY7.1293 vs. CNY7.1277). It was the second successive fix that was the highest since 2008. Still, the yuan snapped a three-day decline and rose less than 0.1%.

Legislation that makes it easier to crack down on dissent pressured Hong Kong, where the stock market fell more than 5.5% before the weekend, and forward points for the Hong Kong dollar exploded. The Hang Seng stabilized yesterday and gained more than 1.8% today. The 3-month and 12-month forward points are more than double what they were a week ago, but have eased from the extreme readings before the weekend. The situation is far from resolved despite the market moves.

The focus in Japan is on the government’s second supplementary budget for nearly JPY1 trillion. It could be approved by the Cabinet as early as tomorrow and would nearly double the government’s efforts. Japan is lifting the national state of emergency.

The dollar is firm against the yen but held just short of JPY108.00 (last week’s high was ~JPY108.10). There is an option for a little more than $400 mln struck at JPY107.90 that expires today. The market looks poised to challenge the highs in North America today. Note that the 200-day moving average is found near JPY108.35, and the greenback has not traded above it since mid-April.

The Australian dollar is punching above $0.6600 and is at its best level since March 9. Its 200-day moving average is found near $0.6660. The dollar peaked against the Chinese yuan at the end of last week near CNY7.1437. It rose against the offshore yuan on the same day near CNH7.1646, just below the high set on March 19.

Europe

The EU responded to Germany’s proposal to take at least a 20% equity stake (~9 bln euros) in Lufthansa by requiring it to give up some slots at airports in Frankfurt and Munich. Meanwhile, the larger focus is on the EC’s proposal for a recovery plan now that the German-French proposal has been countered by Austria, Denmark, Sweden, and the Netherlands.

However, the basis for a compromise does appear to exist in the form of some combination of grants, loans, and guarantees and in terms of access. With the European Stabilization Mechanism and the European Investment Bank issuing bonds for which there is a collective responsibility, we are not convinced that an EU bond is a step toward mutualization of existing debt or a fiscal union. In fact, such claims do little more than antagonize the opposition.

The ECB’s Pandemic Emergency Purchase Program (PEPP) has spent a little more than a quarter of its 750 bln euro facility in the first two months. Hints from some officials suggest that this could be expanded as early as next week when the ECB meets. At the current pace, PEPP will be out of funds toward the end of Q3 or early Q4. Talk in the market is that a 250-500 bln euro expansion is possible.

The political controversy of UK’s Cummings violation of the lockdown seems to have little impact for investors. Sterling, the worst performing of the major currencies this month, is bouncing back smartly today, and while the UK stock market was closed yesterday, it is playing a little catch-up today. The benchmark 10-year Gilt yield is a few basis points higher, but faring better than German Bunds and French bonds (where the 10-year yield is now back into positive territory, albeit slightly).

The euro has bounced a full cent from yesterday’s low near $1.0875. The market has its sights on last week’s high just shy of $1.1010 and the 200-day moving average a little above there. The euro has not traded above its 200-day moving average since the end of March. Above there, the $1.1065 area corresponds to about the middle of this year’s range. Sterling is near its best level in a couple of weeks.

After finding support near $1.2160 in the past two sessions, it bounced to about $1.2325 today to toy with the 20-day moving average (~$1.2315). The short-covering rally has stretched the intraday technical readings, and it may be difficult for the North American session to extend the gains very much before some consolidation.

America

The US reports some April data (Chicago Fed’s National Economic Activity Index) and new home sales. The reports typically are not market-movers even in the best of times. Moreover, it is fully taken on board that the economy was still imploding. May data is more interesting. The Dallas Fed’s manufacturing survey and the Conference Board’s consumer confidence surveys will attract more attention and are expected to be consistent with other survey data suggesting the pace of decline is moderating. This is thought to be setting the stage for a recovery in H2.

Canada’s economic diary is light today, and Mexico is expected to confirm that Q1 GDP contracted by 1.6%. Yesterday Mexico surprised by with a nearly $3.1 bln trade April deficit. The median forecast in the Bloomberg survey was for a $2 bln trade surplus. Apparently, none of the economists surveyed expected a deficit. Exports fell by nearly 41%, and imports tumbled by 30.5%. Many economists are revising forecast for Mexico’s GDP lower toward a double-digit contraction this year.

Nevertheless, the peso is flying. It is the strongest currency here in May. The 1.75% gain today brings the month’s advance to a dramatic 9%+ gain. The US dollar is near MXN22.10, giving back about half of this year’s appreciation. A break of the MXN22.00 area would target the MXN21.30 area.

The intraday momentum indicators are stretched. The US dollar is heavy against the Canadian dollar as well. It is approaching the lower end of its two-month trading range near CAD1.3850. The next important chart point is around CAD1.3800. Here too, the greenback’s slide in Asia and Europe is leaving intraday technicals indicators stretched as North American dealers resume their posts.

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

Optimism Prevailed Last Week, but Have US Stocks Moved Too Far, Too Fast?

The major U.S. stock indexes finished higher last week on optimism over the reopening of the states’ economies and some positive developments in the quest to find a vaccine for coronavirus. That was in the beginning of the week. Later in the week, prices retreated as caution returned due to geopolitical tensions as China announced a plan to impose a new security law on Hong Kong and as a U.S. Senate bill was introduced that could force Chinese firms to delist from U.S. exchanges.

Over the short-run, it looks as if these issues are going to be a source of volatility, but longer-term, the huge government fiscal and Federal Reserve monetary stimulus packages should help investors weather the storm. However, traders do face headwinds due to simmering U.S.-China relations that could lead to a new “Cold War”. Furthermore, there is also the possibility of a second-wave of coronavirus cases that would wreak havoc on the already devastated economy.

Last week, the benchmark S&P 500 Index settled at 2955.45, up 91.75 or +3.20%. The blue chip Dow Jones Industrial Average finished at 24465.16, up 779.74 or +3.29% and the technology-based NASDAQ Composite closed at 9324.59, up 310.03 or +3.44%.

The World Has Changed Just Three Months Since the All-Time Highs Were Reached

The world is very different now, and the key fundamental conditions investors were watching in February have changed. At that time, investors were worried about whether the economy could stand to continue to add upwards of 200K new jobs each month to sustain the longest expansion in history.

Some experts saw the economy as “too hot”, but no one foresaw a global pandemic and ensuing unprecedented health-crisis-driven recession. Just like no one predicted the markets would turn from bull to bear in a matter of weeks, no one forecast solid week after week gains of more-than-30% over the past two months. This move has prompted the analysts at Morningstar Direct to call the rally since March 23, the strongest “bear-market rally” in the last 75 years and the sharpest two-month gain for the S&P 500 since before 1990.

Looking Ahead …

This weekend, the analysts at Edward Jones asked the question:  Has the market come too, too fast? Here are their three takeaways to consider:

This rally is based on the future, not the present.

The stock market is forward-looking. The market sold off in February and March because of the uncertainty around the growing pandemic and anticipation of a resulting recession. Stocks are now rallying on expectations that have leaped forward to the reopening of the economy and a rebound in GDP and corporate profits. Furthermore, the incoming economic data has been somewhat backward-looking.

Recoveries Take Time.

The stock market can and will move faster than the economy, but the two are connected, and over time, the path for the economy sets the foundation for market performance over the broader term.

It took 3.5 years for GDP to recover following the Great Recession of ‘08/’09, corporate profits rebounded more quickly, supporting solid stock market gains in 2009 and 2010.

There is reason to be optimistic while also realistic.

The pendulum of market sentiment has swung decidedly more positive lately. The market is pricing in a somewhat smooth re-opening of the economy. This essentially means that evidence of setbacks or slower progress pose potential risks in the near-term.

While we acknowledge that the size and duration of the current rally has been a pleasant surprise, we don’t expect it to persist at the same pace or magnitude uninterrupted. We anticipate headlines on the coronavirus, economic and earnings data to display a mixture of encouraging green shoots as well as periodic setbacks. This being said, continue to have appropriate and realistic expectations for near-term market swings and longer-term returns.

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

The Week Ahead – Geopolitics, Central Banks and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 22nd May. In the week prior, 57 stats had also been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic data front.

A quiet 1st half of the week leaves May consumer confidence figures in focus on Tuesday. The markets will be looking for a pickup in confidence as the government eases lockdown measures. A continued rise in jobless claims, however, may lead to softer than anticipated numbers.

In the 2nd half of the week, April durable goods orders and weekly jobless claims will be in focus on Thursday.

While the markets may be able to stomach a slide in durable goods order, the weekly jobless claims will need to slide back considerably.

At the end of the week, April inflation figures, personal spending, and May’s Chicago PMI will also be in focus.

Barring any downward revision, we would expect 2nd estimate GDP numbers to have a muted impact on Thursday.

Other stats in the week include the April housing sector and trade data and finalized Michigan consumer sentiment figures. Expect the markets to also brush these numbers aside in the week.

Outside of the numbers, we will expect chatter from Capitol Hill and COVID-19 numbers to remain key drivers. On the monetary policy front, FOMC members will also draw more attention. At the end of the week, FED Chair Powell delivers a speech to wrap things up.

The Dollar Spot Index ended the week down by 0.54% to 99.863.

For the EUR:

It’s another busy week ahead on the economic data front.

In the 1st half of the week, key stats include German business and consumer confidence figures and 2nd estimate GDP numbers on Monday.

Barring a downward revision from 1st estimates, expect the consumer and business confidence figures to have a greater impact.

The markets will then need to look ahead to a relatively busy Friday.

Key stats include German and French retail sales figures for April and 2nd estimate GDP numbers from France.

The data is unlikely to have a material impact on the EUR, however. With the Eurozone in lockdown throughout April, the markets should be able to look beyond any dire numbers.

Over the course of the week, prelim May inflation figures are also due out but will have little influence.

For the EUR, a continued easing in lockdown measures and a downward trend in new COVID-19 cases is a must.

From the ECB, ECB President Lagarde is due to speak on Wednesday ahead of the ECB Financial stability review. Expect EUR sensitivity.

The EUR/USD ended the week up by 0.75% to $1.0901.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of the UK to provide the Pound with direction.

A lack of stats will leave the Pound in the hands of Brexit and COVID-19 news updates.

We’ve seen the Pound under tremendous pressure as a result of the lack of progress on Brexit.

Boris Johnson has stated that, in spite of the lockdown, there would be no extension to the transition period. Based on progress to date, the chances of a hard Brexit have increased as a result. A change in stance by the British PM and the Pound would find support, else expect a reversal of last week’s gains.

Brexit news from the weekend was Pound negative…

The GBP/USD ended the week up by 0.47% to $1.2173.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

For the Loonie, however, the markets will need to wait until Friday for economic data.

Key stats include 1st quarter GDP numbers and April’s RMPI.

We’ve seen GDP numbers from elsewhere. Will Canada see a similar contraction? Economists think so. It may be for that very reason that BoC Governor Poloz is scheduled to speak on Tuesday and Wednesday…

Away from the calendar, the upward trend in crude oil prices and a continued easing in lockdown measures remain Loonie positives. It remains to be seen whether crude can continue on the road to recovery, however.

Downside risks do remain. These include any signs of a 2nd wave pandemic and the U.S and China moving beyond words…

The Loonie ended the week up by 0.80% to C$1.3996 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another quiet week ahead for the Aussie Dollar.

Key stats include 1st quarter construction work done and private new CAPEX on Wednesday and Thursday.

On Friday, April private sector credit figures will also be in focus.

With the economy in meltdown going into April, however, we would expect the numbers to have a muted impact.

The RBA has talked of material contraction in the 2nd quarter, so don’t expect 1st quarter and April stats to do too much damage.

Expect COVID-19 updates and any U.S or China move to influence, however.

The Aussie Dollar ended the week up by 1.93% to $0.6537.

For the Kiwi Dollar:

It’s another relatively quiet week ahead on the economic data front.  Key stats include April trade figures on Tuesday and May business confidence figures on Thursday.

The RBNZ downplayed the market optimism in its last policy statement. That should limit any material upside for the Kiwi Dollar from the stats.

While trade data has stood up well considering the economic lockdown, will business confidence see some improvement?

Concerns over global trade terms and tourism will certainly be two major issues that businesses will continue to face.

Outside of the numbers, the RBNZ Financial Stability Report Wednesday will draw attention. The Kiwi will also be sensitive to any chatter or action from Beijing and Capitol Hill.

The Kiwi Dollar ended the week up by 2.68% to $0.6094.

For the Japanese Yen:

It’s a relatively busy week ahead on the economic data front.

The markets will need to wait until Friday for the numbers, however.

Key stats include May inflation figures and April industrial production and retail sales numbers.

With the Japanese government only just lifting the COVID-19 state of emergency, April figures are likely to be dire… There shouldn’t be too many surprises, however.

May inflation figures will also have little influence on the Yen. A pickup in crude oil prices will provide support but unlikely to be material, with consumption having tanked…

Outside of the numbers, risk sentiment will continue to influence, though it may be too soon for the Dollar to give up the safe-haven mantle…

The Japanese Yen ended the week down by 0.54% to ¥107.64 against the U.S Dollar.

Out of China

It’s another quiet week ahead on the economic data front. Economic data is limited to April’s industrial profits. No one is expecting any major rebound, which leaves the markets exposed to any accelerated decline…

Ultimately, the market focus will remain on COVID-19 news and moves by Beijing and Washington amidst the latest spat.

Beijing’s plans to impose a security law on HK will also need close monitoring… U.S President Trump has promised a strong U.S response to any such move.

The Chinese Yuan ended the week down by 0.39% to CNY7.1294 against the U.S Dollar.

Geo-Politics

UK Politics:

Brexit and lockdown measures remain the key areas of focus in the week ahead.

While the Pound found much-needed support last week, a lack of progress on Brexit will be an issue.

News hit the wires over the weekend of the EU beginning to prepare for a hard Brexit. This may price out the element of hope that has continued to support the Pound.

COVID-19 news will also be of influence, as the UK government struggles to contain the spread of the virus.

U.S Politics:

Rising tensions between the U.S and China will likely be a key driver in the week ahead.

If Trump signs the Bill to target Chinese companies, expect China to target U.S companies with heavy reliance on China…

The markets will also be watching to see how the U.S responds should China formally introduce the security law for HK.

The Coronavirus:

Easing measures will continue in the week.

We’ve yet to see a marked increase in the number of COVID-19 numbers across the EU or the U.S, though concerns will linger over what lies ahead. Some comfort will be taken from the fact that China reported zero new cases on Saturday.

From the market’s perspective, there are 3 key considerations that remain:

  1. Progress is made with COVID-19 treatment drugs and vaccines.
  2. The downward trend in new coronavirus cases continues.
  3. Governments continue to progress with the easing of lockdown measures.

All of this will need to translate into a marked decline in jobless claims and a pickup in consumer confidence and consumption… U.S Jobless claims figures released last week were disappointing, raising some doubt over how quickly the job markets will recover.

At the time of writing, the total number of coronavirus cases stood at 5,396,972, with the U.S reporting 1,666,246 cases to-date.

Predictive Modeling Suggests US Markets 12% Over Valued

Our Adaptive Dynamic Learning (ADL) predictive modeling system has called some incredible moves over the past 24+ months.  It predicted the moves in Gold moving from $1340 to $1750 – including many of the trend changes that took place over the past 15+ months.  It predicted the collapse in Crude Oil back in July 2019 – even calling for a sub-$20 price collapse in March/April 2020.  Overall, the abilities of this unique predictive modeling tool have been nothing short of incredible.

For many weeks, we’ve been suggesting the US stock market has entered a no man’s land after the bottom setup near March 20, 2020.  The US Fed and global central banks have stepped in to attempt to support the markets and to take pressures off financial institutions and consumers.  These efforts presented a very real opportunity for technical traders to attempt to “ride the Fed wave” over the past 3+ weeks. Right now, things appear to be a bit more fragile going forward into the Summer months and the ADL predictive modeling system is showing us what to expect.

One of the most important benefits of the ADL predictive modeling system is to identify “consensus” predictions of price activity looking forward in time.  Sometimes, the ADL system makes very bold predictions – like the Crude Oil predictions.  Other times the ADL system makes rather mundane predictions.  Today, the ADL system is suggesting the US major indexes (and stock market) is about 10% to 15% overvalued and will attempt to revert back to fair valuation levels.

This prediction suggests that a downside price move, or price reversion, is likely to set up over the next few weeks where price level may fall to near (or below) the predicted ADL levels.  When price reverts like this to a valuation level, it can sometimes move beyond the predicted price level before settling closer to the predicted ADL level.  Price can also set up an “anomaly” pattern where it avoids the ADL predictive levels for a period of time, then aggressively reverts back to levels near the ADL predicted price levels.  These anomalies can be really great trades for technical traders.

WEEKLY S&P500 E-MINI FUTURES ADL CHART

This weekly ES (S&P500 E-Mini Futures) ADL chart suggests a downside price reversion totaling more than 14% is very likely over the next 3+ weeks.  Should the downside reversion extend below the CYAN predicted ADL levels, this move could result in a 20% or more downside price collapse.

Notice how the ADL predictive price levels flatten out over the next 8+ weeks.  This suggests volatility may increase as price attempts to form a sideways FLAG or other extended patterns.

WEEKLY DOW JONES INDUSTRIAL ADL CHART

This Weekly INDU chart shows a similar ADL price prediction – an 11% to 13% downside price move followed by moderate downside price weakness over the next 8+ weeks.  Pay very close attention to the  21,000 level which appears to be lower support based on the ADL predictions.  We believe any downside move in the INDU could attempt to breach the 21,000 level as it attempts to find and establish future support.

WEEKLY SPDR S&P500 ETF (SPY) ADL CHART

Lastly, this Weekly SPY ADL chart suggests a 13% to 15% downside price move is setting up which also suggests price may move beyond the lower ADL predictive ranges over the next 3+ weeks.  If this happens, the SPY may collapse toward levels near $240~$245 (or lower) before finding any real support and moving back towards the ADL predictive price levels.

If you’ve been following our research and articles, you already know we’ve been warning about a “double-dip” move in the stock market and have also been advising readers to stay prepared for the incredible swings that are about to happen in the markets in 2020 and 2021.  Our research team issued a Black Swan warning on February 21, 2020 – just days before the start of a collapse in the US stock market.  We’d been warning about the setup and potential for this Black Swan event for nearly 5+ weeks before it happened.

This current ADL predictive modeling research suggests the US stock market will likely stall through the Memorial holiday weekend and begin next week with a measurable downside price bias – starting the move towards the lower ADL predicted levels.  Now is the time to prepare for this move if you are long and holding any “at-risk” trades.

It is very likely, based on this research, that a downside price move to levels just above recent lows will take place over the next 5+ weeks.  This will set up many great trading opportunities for skilled technical traders.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year. Visit my Active ETF Trading Newsletter.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

The Weekly Wrap – Optimism Delivered Riskier Assets a Boost as Lockdown Measures Eased

The Stats

It was a particularly busy week on the economic calendar, in the week ending 22nd May.

A total of 57 stats were monitored, following the 61 stats from the week prior.

Of the 57 stats, 28 came in ahead forecasts, with 25 economic indicators coming up short of forecast. 2 stats were in line with forecasts in the week.

Looking at the numbers, however, just 24 of the stats reflected an upward trend from previous figures. Of the remaining 33, 31 stats reflected a deterioration from previous.

For the Greenback, it was the 1st week in the red out of 3. The U.S Dollar Spot Index fell by 0.54% to end the week at 99.863. In the previous week, the Dollar had risen by 0.67%.

COVID-19 news, geopolitics, and central bank chatter continued to be key drivers in the week.

Looking at the latest coronavirus numbers.

The total number of coronavirus cases stood at 5,297,959, rising from last Friday’s 4,617,740 total cases. Week-on-week, the total number of cases was up by 680,119, on a global basis. This was higher than the previous week’s increase of 616,865 in new cases.

In the U.S, the total rose by 163,260 to 1,645,094. In the week prior, the total number of new cases had risen by 163,330.

Across France, Germany, Italy, and Spain combined, the total number of new cases increased by 19,110 to bring total infections to 872,494. In the previous week, the total number of new cases had risen by 29,514.

Out of the U.S

It was a relatively busy week on the economic calendar. On the economic calendar, however, the main area of focus was on the weekly jobless claims figures for the week ending 15th May.

Another 2.438m jump in jobless claims in the week tested risk sentiment and weighed on the Dollar.

While May’s prelim private sector PMIs were also out in the week, the numbers had a muted impact on the Dollar.

Housing sector conditions deteriorated drastically in April, by contrast, though much of this was attributed to the lockdown.

Existing new home sales slumped by 17.8%, in spite of U.S mortgage rates sitting at record lows.

FED Chair Powell had managed market expectations going into the week, talking of a slow economic recovery.

While the FOMC minutes and the FED Chair spoke of plenty of ammunition left to support the economy, rising tension between the U.S and China pressured the Dollar.

In the week, the House of Representatives passed a Bill to oust and ban Chinese companies from U.S exchanges.

China warned of retaliation and the rhetoric failed to ease over the course of the week.

In the equity markets, the Dow rose by 3.29%, with the NASDAQ and S&P500 gaining 3.44% and 3.20% respectively.

Out of the UK

It was a busy week on the economic calendar. April employment, inflation, and retail sales figures pinned the Pound back in the week.

A slower rate of contraction across the private sector failed to support a late rally in the Pound, with geopolitics in focus.

A lack of progress on Brexit and an extended lockdown were negatives for the Pound in the week. In spite of this, support kicked on off the back of Dollar weakness and hopes of a pickup in economic activity.

In the week, the Pound rose by 0.47% to $1.2173. The FTSE100 ended the week up by 3.90%, reversing a 2.29% loss from the previous week.

Out of the Eurozone

It was also a relatively busy week economic data front, with the stats skewed to the positive for once.

ZEW’s May economic sentiment and consumer confidence figures were in focus in the 1st half of the week.

In Germany and the Eurozone, economic sentiment amongst economists improved, with consumer confidence also improving across the Eurozone in May.

May’s prelim private sector PMIs also pointed to a possible bottoming out in April, which supported the EUR.

Positive stats, progress towards a COVID-19 recovery fund and a continued easing of lockdown measures delivered the upside in the week.

From the ECB, the monetary policy meeting minutes had a muted impact. There were no surprises, with the minutes continuing to call for fiscal support from member states.

For the week, the EUR rose by 0.75% to $1.0901, reversing a 0.18% loss from the previous week.

For the European major indexes, it was a bullish week. The DAX30 rallied by 5.82%, with the CAC30 and EuroStoxx600 gaining 3.90% and 3.63% respectively.

Elsewhere

It was a particularly bullish week for the Aussie Dollar and the Kiwi Dollar, with a Friday pullback being the only day in the red.

In the week ending 22nd May, the Aussie Dollar rose by 1.93% to $0.6537, with the Kiwi Dollar up by 2.68% to $0.6094.

For the Aussie Dollar

It was a particularly quiet week for the Aussie Dollar on the economic data front.

There were no material stats to provide the Aussie Dollar with direction. That left the Aussie Dollar in the hands of market risk sentiment and the RBA meeting minutes from Tuesday.

While the minutes painted a grim picture, however, upbeat sentiment towards an easing of lockdown measures delivered the upside.

The gains came in spite of rising tensions between the U.S and China. There was also talk of positive results in early COVID-19 vaccine trials…

For the Kiwi Dollar

It was a quiet week on the economic calendar.

Key stats included 1st quarter wholesale inflation and retail sales figures.

While the numbers were skewed to the negative, there was little interest in the Q1 figures.

Rising demand for commodities from China and an easing of global lockdown measures delivered the upside.

For the Loonie

It was a busy week on the economic calendar. Economic data was limited to March and April stats, however, that garnered little attention.

As expected, inflationary pressures eased further, with consumer prices on the slide in April.

The effects of COVID-19 were evident in March retail sales figures as well, which disappointed on Friday.

Ultimately, a jump in crude oil prices in the week, fueled by news of a jump in demand and falling output delivered the upside.

The markets are expecting demand to pick up as lockdown measures ease further. This was also positive for the Loonie in the week.

A sharp pullback on Friday limited the upside, however, as the Loonie slid back from C$1.38 levels.

The Loonie rose by 0.80% to end the week at C$1.3996.

For the Japanese Yen

It was a busy week on the data front. Key stats included 1st quarter GDP and April trade figures, and May private sector PMIs.

At the end of the week, April inflation figures were also in focus. It was a mixed bag on the data front, leaving the Yen in limbo.

While the economy contracted at a slower pace, trade data going into the 2nd quarter was particularly dire. Exports tumbled by 21.9%, with imports also in decline.

Private sector PMIs delivered little confidence on Thursday, with manufacturing sector activity contracting at a faster pace.

Adding more angst was the return of deflation in April, with core consumer prices falling by 0.2% year-on-year…

In spite of a pickup in market risk appetite in the week, the Yen failed to find support.

The Japanese Yen fell by 0.54% to end the week at ¥107.64. In the week prior, the Yen had fallen by 0.38% against the U.S Dollar.

Out of China

There were no stats in the week for the markets to consider. On the monetary policy front, the PBoC also left loan prime rates unchanged, leaving geopolitical risk in focus.

There was plenty to consider in the week as a Bill to oust Chinese firms from U.S exchanges progressed.

China responded with threats of its own before the news hit the wires on Friday of a new security law heading HK’s way. The law is set to ban acts against the government in a bid to end future protests. Unsurprisingly, the threat of more protests and riots weighed heavily on risk sentiment at the end of the week…

In the week ending 22nd May, the Yuan fell by 0.39% to CNY7.1294 against the Greenback.

The CSI300 and Hang Seng ending the week down by 2.27% and by 3.64% respectively. A Friday sell-off left the pair in the red as the markets responded to the news of China’s proposal to impose the security law on HK SAR.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Ranging Between 23796 to 25144

June E-mini Dow Jones Industrial Average futures are trading nearly flat late Friday as traders prepared for the long U.S. holiday weekend. Volume was well below average. Despite an earlier sell-off, the market is still in a position to finish the week with strong gains.

Helping to drive the earlier volatility were concerns over U.S.-China tensions amid ongoing uncertainty about the pace of economic recovery from the coronavirus. Contributing to the week’s 2% gains were optimism about an eventual coronavirus vaccine and the easing of virus-related curbs.

At 20:12 GMT, June E-mini Dow Jones Industrial Average futures are trading 24418, up 42 or +0.17%.

Some of the price action this week was driven by mixed earnings from retailers Walmart, Inc., Best Buy Co. Inc. and Home Depot, Inc. The results showed online shopping gaining traction with the lockdown orders, a trend that could damage brick-and-mortar players already feeling pressure from internet rivals.

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 May 19.

A trade through 24765 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 22704.

The minor trend is also up. A trade through 24076 will change the minor trend to down. This will confirm the shift in momentum to down.

The main range is 29506 to 18086. Its retracement zone at 23796 to 25144 is controlling the longer-term direction of the market.

The intermediate range is 26962 to 18086. Its retracement zone at 23571 to 22524 is potential support.

Combining the two zone creates a major support cluster at 23796 to 23571.

Simmering US-China Tensions Drag Wall Street Lower

The major U.S. stock indexes were down across the board on Thursday, a day after hitting two-month highs, on simmering U.S.-China trade relations, raising doubts about the trade deal reached early this year between the world’s two largest economies.

While earlier beefs with China centered on its responsibility in the spread of the coronavirus, this one is over Hong Kong. President Donald Trump said the United States would react strongly if China imposes national security laws for Hong Kong in response to last year’s often violent pro-democracy protests.

In the U.S. cash market on Thursday, the benchmark S&P 500 Index settled at 2948.51, down 23.10 or -0.88%. The blue chip Dow Jones Industrial Average finished at 24474.12, down 101.78 or -0.46% and the technology-based NASDAQ Composite closed at 9284.88, down 90.90 or -1.17%.

Earlier, Secretary of State Mike Pompeo criticized Beijing’s handling of the coronavirus outbreak, while a Chinese official said the country will not flinch from any escalation in tensions.

The current squabble between the world’s two largest economies over the coronavirus pandemic has raised doubts about the Phase 1 trade deal signed earlier this year, interrupting a rally on the U.S. stock market, Reuters reported.

“It seems like China is going to be used as a punching bag for the upcoming elections,” said Bob Shea, CEO and co-chief investment officer at TrimTabs Asset Management in New York.

“The White House has resolved to itself that it is more effective to swing at China than to salvage what was going to already be a watered-down Phase 1 trade deal. You don’t score any points for that,” Shea said.

The Internals

Advancing issues outnumbered declining ones on the NYSE by a 1.11-to-1 ratio; on NASDAQ, a 1.02-to-1 ratio favored decliners.

The S&P 500 posted five new 52-week highs and no new lows; the NASDAQ Composite recorded 51 new highs and four new lows.

Discount Retailer TJX Biggest Boost to S&P 500

Although the S&P 500 Index settled lower on Thursday, its losses were offset by an upbeat outlook from retailer TJX.

The discount chain’s shares jumped 7.6% to a more than two-month high and were the biggest boost to the benchmark S&P 500 after it flagged strong sales at its stores that had reopened post-coronavirus lockdowns.

Fall in Unemployment Claims Lifts Sentiment

A fall in unemployment claims from the previous week also lifted sentiment as the reading reaffirmed views that the worst of the pandemic’s damage on the labor market was over.

First-time filings for unemployment insurance totaled 2.44 million last week, about in line with economist estimates. That brings the total filings during the coronavirus pandemic to 38.6 million.

The report showed the trajectory of job losses has come down dramatically. Furthermore with states starting to reopen, we will see some jobs come back. We may actually see a few more weeks of bad jobless claims before we start to see things bottom out.

US Stock Market Overview – Stocks Slip on Weak Jobless Claims Data

US stocks were lower on Thursday as stocks took a break from their mid-week rally. Some of the drivers like Facebook and Amazon, which made fresh highs on Thursday, eased slightly into the close. Retail stocks were solid performers on Thursday as better than expected financial results buoyed the discretionary sector. Most sectors in the S&P 500 index were lower, led down by technology, cyclical bucked the trend. Initial jobless claims came out higher than expected while existing home sales tumbled in April. The Chinese tif with the United States continues to grow. Senators look to pass a bipartisan bill that would force Chinese firms to admit they are not controlled by the Chinese government for them to list their shares on a US exchange. The US pledge 1-billion dollars to AstraZeneca to help the company create a vaccine and distribute it.

Jobless Claims Rise

New Jobless Claims in the US  totaled 2.44 million last week according to the labor department. Expectations were for a rise of 2.4 million. Last week’s numbers were revised lower from 2.98 million to 2.69 million. In the nine weeks since the coronavirus-induced lockdown has closed large parts of the U.S. economy, some 38.6 million workers have filed claims.

Existing Home Sales Tumble

The US Existing home sales fell 17.8% month over month, and were down 17.2% year over year according to the National Association of Realtors. That puts the annualized pace at 4.33 million units, the slowest sales rate since September 2011. The supply of homes for sale fell 19.7% annually to 1.47 million units for sale at the end of April. That is the lowest April inventory figure ever.

Critical Price Level Could Prompt A Big Move After The Holiday Weekend

As technical traders and researchers, we’ve been paying very close attention to the GREEN ARC Fibonacci resistance level on the SPY as a key level for the US stock market and any hope of a continued upside price rally.  The SPY has traded near this level for the past three weeks and appears to be attempting a bit of an upside breakout right now.  Yet, we understand a long holiday weekend is upon us in the US, Memorial Day, and after a big upside GAP on Monday, the US stock market has stalled over the past few days.

SPDR S&P500 ETF WEEKLY CHART

Our researchers believe this GREEN ARC is still acting as critical price resistance and believe the SPY may sell off into the end of the week resulting in a failed attempt to breach this key resistance level.  If this happens, the failed attempt to break this resistance could prompt a change in price trend and initiate a new downside price trend.  If this resistance level is broken by the end of this week, then we have a pretty solid indicator that continued bullish price trending may continue.

Absent of any real news that may drive the market trend this holiday weekend and with most of the US still in shutdown mode, we believe the US stock market has continued to trade within this no man’s land area for many weeks now.  From the end of April till now, we’ve seen moderate upside price action in certain sectors, yet other sectors continue to show signs of weakness.

TRANSPORTATION INDEX WEEKLY CHART

This Transportation Index Weekly chart is a perfect example of the weakness that is evident away from the S&P500, NASDAQ, and Dow Industrials.  Compare the last 6+ weeks of trading on this TRAN chart to the SPY chart above.  Notice that the TRAN chart shows a very congested sideways price channel (highlighted in YELLOW) as well as a much deeper upside price move from the lows near March 20.  While the US major indexes have rallied substantially, the broader market indexes are not experiencing the upside price advance and continue to suggest overall weakness.

This disconnect in the markets suggests speculation is driving the US major indexes higher and not real fundamental appreciation based on earnings and revenues.  When this speculation ends, typically when speculators realize the price has been driven a bit too high compared to reality, then the trend can change in an instant.

ISHARES RUSSELL 2000 ETF WEEKLY CHART

This IWM Russell 2000 ETF Weekly chart highlights a similarly week upside price rally since the March 20th bottom.  The WHITE LINE on this chart represents a support/resistance level from early trading low price levels in 2017.  Our research team believes these levels represent a very important support/resistance level for the Russell 2000 ETF as this level coincides with the GAP in price that was generated within the recent selloff on March 9, 2020.  That GAP cleared this key support/resistance level with a very big downside price move.  We believe this level will act as intense resistance as price attempts to fill the GAP.

Concluding Thoughts:

Overall, the US stock market has continued to trade within this no man’s land recently.  There have been some pretty decent upside price moves in certain sectors over the past few weeks.  Precious metals, certain travel/leisure stocks, and, of course, technology and services stocks.  Yet, we continue to warn our friends and followers to be very aware that the US stock market is far from immune to more downside price activity.  A deep selloff like we experienced will very often react with a “recovery move” – a dead cat bounce type of move.  While the NQ has been a big mover, these other sectors suggest we may be nearing a tipping point and we urge technical traders to stay very aware of the risks as we head into this long holiday weekend.

Please take a moment to visit www.TheTechnicalTraders.com to learn more.  I can’t say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trapped Inside Major Retracement Zone

June E-mini Dow Jones Industrial Average futures are edging higher shortly after the cash market opening after clawing back earlier losses. The catalysts behind the early strength are a pair of U.S. economic reports that seemed to have calmed the nerves of investors.

First-time filings for unemployment insurance totaled 2.44 million last week, close to economist estimates. Investors weren’t spooked by the news because the number indicated the number of claims was flattening out.

In other news, both the Flash Manufacturing PMI and Flash Services PMI came in better than expected although both signaled the sectors were still in contraction.

At 13:59 GMT, June E-mini Dow Jones Industrial Average futures are trading 24565, up 46 or +0.19%.

On Wednesday, Dow components Apple, Disney and McDonald’s all added at least 30 points to the blue-chip index amid a surge in reopening optimism.

Daily June E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart although upside momentum has taken a slight dip since Tuesday.

A trade through 24765 will signal a resumption of the uptrend, while a move through 22704 will change the main trend to down.

The main range is 29506 to 18086. Its retracement zone at 23796 to 25144 is controlling the longer-term direction of the Dow. The average is currently trading inside this zone.

The intermediate range is 26962 to 18086. Its retracement zone at 23571 to 22524 is support.

The two zones form a support cluster at 23796 to 23571.

Daily Swing Chart Technical Forecast

Shortly after the opening on Thursday, the June Dow Jones Industrial Average is trading inside the retracement zone at 23796 to 25144. These are the major levels.

Bullish Scenario

A sustained move over 24765 will indicate the presence of buyers. This should lead to a test of the next main top at 24792, followed closely by the Fibonacci level at 25144.

Taking out 25144 with conviction could trigger an acceleration to the upside with the next major target the March 3 top at 26962.

Bearish Scenario

A sustained move under 24076 will be the first sign of weakness. This should lead to a test of the 50% level at 23796 and the Fibonacci level at 23571. Since the main trend is up, buyers are likely to step in.

If 23571 fails as support then look for an acceleration to the downside with the next major targets 22704 and 22524.