Market Stability: Are We There Yet?

WORLD MARKETS

Further to my last post, world markets continued to plunge in Thursday's trading, as shown below.

Source: indexq.org

S&P 500 E-MINI FUTURES INDEX

The S&P 500 E-mini Futures Index (ES) is currently trading after-hours (8:00 pm ET) near its Thursday close, as shown on the monthly chart below.

Price is caught around/near major support, comprised of:

• the -1.75 deviation level of the long-term uptrending Andrew's Pitchfork channel taken from the 2009 low to 2020's high (2400ish)
• the 60% Fibonacci retracement level taken from the 2016 low to 2020's high (2400)
• the 40% Fibonacci retracement level taken from the 2009 low to 2020's high (2350)

Price has clearly broken below the bottom of the the channel around 2750, which usually signals that a new bearish trend will form.

The Rate-of-Change (ROC) and Average True Range (ATR) technical indicators have both spiked to new all-time extreme levels (I've shown them both with an input value of one period in histogram format to illustrate this clearly).

Such extreme spikes generally indicate that capitulation is near and that price may begin to stabilize soon.

We may see lower prices, however, in the meantime.

SPX:VIX RATIO

The SPX:VIX ratio has fallen off a cliff and closed at 32.87 (a level last seen in 2009), as shown on the following daily chart.

The moving averages have formed a new bearish Death Cross, signalling more weakness ahead for the SPX.

If that crossover holds, look for extreme levels of volatile price swings in both directions, with possible lower prices on the SPX around 2350ish, until we see a sustainable bounce, with conviction, and a possible retest of the lower edge of the channel around 2750.

A drop and hold below 2350 could produce a catastrophic spike down to somewhere between 2140 and 2030, or lower.

U.S., GERMAN & CHINESE FINANCIAL SECTORS

Finally, keep an eye on the XLF:SPX ratio daily chart. It's now down near a 5-year major support level and the moving averages have formed a new bearish Death Cross, signalling more weakness for the Financial Sector (XLF).

Price is attempting to stabilize the last several days, but if it drops lower, it could drag the SPX down, as well.

And, keep an eye on the next two ratios.

The first is the EUFN:DAX ratio (the European Financial Sector ETF compared with the German Index, DAX), and the second is the GXC:SSEC ratio (China's Financial Sector ETF compared with the Shanghai Index, SSEC).

They're also both at their respective major support levels.

A drop and hold below current price will likely drag their respective indices down, as well.

BOTTOM LINE

If the above-referenced three financial sectors remain much weaker than their index counterparts, then we'll likely see more weakness in world markets, in general, along with heightened volatility, notwithstanding a variety of monetary and fiscal stimulus measures currently being deployed or planned by central bankers and world governments.

As I mentioned in my last post, 2008/09 was a bank financial crisis.

This is an economic crisis, health crisis, and global supply-chain crisis, and one that is multiplying every several days in depth and breadth...not easily or quickly resolved by monetary and fiscal stimulus, particularly if they're not adequately and correctly targeted.

If conditions persist and market weakness persists, this may also become a bank financial crisis.

Watch for drops in consumer confidence and spending, along with rising unemployment numbers, for possible clues in this regard.

* UPDATE March 13...

A massive Friday the 13th turnaround occurred in the S&P 500 E-mini Futures Index (ES) following measures that were announced earlier by the Treasury Department, a subsequent White House press conference announcing a variety of measures that will be implemented in response to the coronavirus, including the declaration of a National Emergency by the President., as well as the passage of a virus relief package by the House late Friday evening, which has yet to be approved by the Senate.

Based on the above analysis of the Andrews Pitchfork study, 2750 is, technically, where the 10-year bull market trend reversed into a bear market trend.

We'll see if that level can be recaptured, with conviction, and held next week...especially if the US Fed cuts interest rates any further at their meeting on March 18.

The bear-market trend will be reversed once, and if, the ES eventually makes a new all-time high and establishes a subsequent series of new swing highs and lows on the daily timeframe.

World Markets Thrash and Bash

N.B. The following chart and data screenshots were taken between 2:00 & 3:00 pm ET today (March 11)...

S&P 500 Index (SPX) Daily chart

SPX:VIX Daily ratio chart

Source: ZeroHedge.com

Click link to view the video 

(he says an overall mortality rate of around 1%, but check out Italy's rate below)

Source: justthenews.com

2008/09 was a bank financial crisis.

This is an economic crisis, health crisis, and global supply-chain crisis, and one that is multiplying every several days in depth and breadth...not easily or quickly resolved by monetary and fiscal stimulus, particularly if they're not adequately and correctly targeted.

N.B. How U.S. markets closed...

SPX Weekly chart

N.B. There are 3 types of gaps in a trend: 
breakaway, continuation and exhaustion.
If the second gap holds, we could see much lower prices 
before the final exhaustion gap is made.

When will emerging markets (EEM) catch up with, or overtake, the U.S. market flush?

N.B.

Check out my recent articles on my Blog for details on charts and market gauges I'm monitoring during these chaotic times.

P.S.

Following President Trump's oval office (9:00 pm ET) address to the nation on the coronavirus pandemic, the S&P E-mini Futures Index (ES) nearly tagged 2600 right before trading was limit-down halted Wednesday night, as shown on the following daily chart.

Tomorrow should be interesting.

S&P 500 E-mini Futures Index (ES) Daily chart

S&P 500 E-mini Futures Index (ES) Monthly chart
Overnight trading almost touched the confluence (2600) of
the bottom of a long-term uptrending Andrew's Pitchfork channel 
(taken from the 2009 low to 2020's high)
and 
the 50% Fibonacci retracement level 
(taken from the 2016 low to 2020's high).

Click this link to view the video

From This Week's "Smile File"...Is This A Scam?

If only predictions were that simple...😉

XLF: U.S. Financial Sector Flattened

There is lots of "air" below Monday's closing price of 22.81, as shown on the monthly chart below of the U.S. Financial Sector (XLF).

Major support lies at 20.00, while major resistance (formerly support) is now 23.50.

Since February 19, the Financial Sector is -26.73% and is now in 'bear market' territory, as shown on the following graph of the 9 Major U.S. Sectors, second, only, in weakness to Energy.

Get ready for more volatile swings in both directions until such time as the S&P 500 Index (SPX) begins to stabilize, as described in my last post.

SPX Retreats From The Outer Limits

As of Monday's close (2746.56) (it's a full moon today), the S&P 500 Index (SPX) is -18.89% from its peak at 3393.52 on February 19 -- just 1.11% from reaching 'bear market' status -- amid a sea of red following a meltdown in global markets.

WORLD MARKET INDICES (Source: indexq.org)

Prior to its massive 13-day purge, it touched the outer limits (+5 standard deviation) of its long-term uptrending regression channel, as shown on the following 20-year monthly chart.

SPX major support lies another 150 points, or so, below Monday's close, around 2600 (blue line). That level is a convergence of:

• its 50-month moving average (red)
• the -1 standard deviation level of this channel
• the upper edge of the value area (blue line) of a 10-year weekly TPO Profile, as shown on the weekly chart of the S&P 500 E-mini Futures Index (ES), below
• the lower edge of the value area (blue line) of a 2-year daily TPO Profile, as shown on the daily chart of the S&P 500 E-mini Futures Index (ES), below (as more fully discussed in this recent post)

SPX 20-Yr. Monthly

ES 10-Yr. Weekly

ES 2-Yr. Daily

BOTTOM LINE:

We may see the SPX slide further down to around 2600, or lower, before it begins to stabilize, inasmuch as accelerating downside momentum (rate of change shown with an input value of one period in histogram format) has not yet reached a new 20-year extreme capitulation level, as shown on the following 20-year monthly chart of the SPX.

Keep an eye on the above-referenced levels, together with my recent posts here and here, which describe other gauges that I'm monitoring in the near term for possible clues as to SPX directional moves.

SPX 20-Yr. Monthly

REMINDER:

FINALLY:

In his Monday evening opening monologue regarding the Chinese coronavirus epidemic, Fox News TV host Tucker Carlson highlighted this rather startling warning that was posted in the official paper of the Chinese Communist Party last week:

"If China retaliates against the United States at this time, in addition to announcing a travel ban on the United States, it will also announce strategic control over medical products, and ban exports to the United States...If China announces that its drugs are for domestic use and bans exports, the United States will fall into the hell of a new coronavirus epidemic."

You can view Tucker's 7-minute monologue in the video below...the aforementioned quote is taken from around the 6-minute mark.

Given that China manufactures most of the antibiotic drugs and many others for U.S. consumption, this is a dire warning, indeed, and is all the more reason for the U.S. to plan for and implement such manufacturing capabilities themselves, sooner rather than later.

I don't think President Trump will be announcing a Phase II trade deal with China anytime soon, with that kind of pejorative, pugnacious, disdainful and downright threatening attitude toward the U.S.



Furthermore, Tucker's interview, that followed, with Dr. Marc Siegel highlights important and developing aspects of the virus, as discussed in the following video.

Sunday Swoon: Saudi Arabia, OIL, USD/JPY, S&P 500 Futures

Saudi Arabia's Tadawul Index (TASI) gapped down on the open and closed at 6846.36 on Sunday. It's back around the October 2004 lows. It has gapped well below the neckline of a sloping bearish head and shoulders formation that began in late 2017, as shown on the following weekly chart.

It's currently caught in a weak level of prior price support and is vulnerable to further downside, nothwithstanding the oversold RSI level.

No doubt, Saudi's open reflects that of OIL's large gap down on Sunday's open, as well. It also broke below a bearish head and shoulders neckline and fell to levels seen in 2000, as shown on the following weekly chart. The low, as of 6:40 pm ET, is 30.01.

It's currently caught at a major level of prior price support and is vulnerable to further downside, nothwithstanding the oversold RSI level...particularly if Russia continues its refusal to cut oil output, as is being pushed by OPEC, and if demand continues to drop due to the global spread of the coronavirus.

The S&P E-mini Futures Index (ES) and USD/JPY forex pair have followed suit and gapped down, as well, as shown on their respective weekly charts below.

My latest support and resistance levels for the ES can be found in my last post here, as well as other market gauges I'm monitoring for potential directional strength/weakness.

Price on the USD/JPY has fallen back to long-term price support in a large bearish falling wedge formation...suggesting further weakness, nothwithstanding the oversold RSI level.

BOTTOM LINE:

These four instruments are strongly suggesting that further weakness is in store for global markets and their economies, inasmuch as they are at critical levels, which, if breached with force, could begin a global bear market in short order, with a possible global recession following sometime this year.

Money Flow & Volatility: U.S. Equities & Bonds

Volatility hit an all-time 'catastrophic high' of 89.53 in October of 2008, as shown on the following monthly chart of the VIX.

On Friday, the VIX hit an 'extreme high' of 54.39 before retreating to close at a 'frothy high' of 41.94.

Activity above 30.00 ('frothy') is unusual and has been, historically, short-lived, except during and in the aftermath of the global 2008/09 financial crisis.

The question is, is the 'extreme high' volatility of February and the first week of March going to be short-lived, or is it forecasting a longer-lasting period of equity weakness, perhaps into the summer, or even for the rest of the year?

The following two daily SPX:VIX ratio charts show that price fell below an extreme low of 60.00, before closing at 70.87 on Friday.

For possible clues on SPX direction in the near term (and from quarter to quarter for the remainder of the year), here's what I'll be monitoring:

• the ratio moving averages are about to form another bearish moving average Death Cross...if that holds, look for more volatility and equity weakness
• if the ratio drops and holds below 60.00, we should see a sharp and deep drop on the SPX
• if the ratio bounces to anywhere between 80.00 and 100.00, we'll likely see further wild swings in both directions on the SPX
• if the ratio manages to recapture and hold above 100.00, then we'll likely see the SPX consolidate or move higher on lower volatility...in that scenario, watch for a bullish Golden Cross to form and hold on the moving averages to confirm further equity strength...also, watch for bullish crossovers to form and hold on the MACD and PMO, and for the RSI to retake and hold above 50.00
• I recently identified major support and resistance levels for the S&P 500 E-mini Futures Index (ES) in this post, and I'd say they're relevant for the remainder of 2020 (N.B. the 2-yr daily chart below is from that post and, as such, its closing price is that of February 28)

The following year-to-date percentages gained/lost graph shows the general rotation of money out of equities and into bonds this year, as well as the extreme level of volatility.

On March 3, the U.S. Federal Reserve cut rates as the US10YT was plunging below 1.00. It has continued to drop and closed at 0.773 on Friday, after making a new 60-year low of 0.660, as shown on the daily chart below.

Further bond strength and falling bond yields do not bode well for sustainable strength in U.S. equities.

So, watch for any kind of turnaround to occur and hold in bonds before conviction in equity strength resumes, in addition to the items I've identified above.

Whether such a sustainable scenario requires emergency assistance in the form of further monetary stimulus from the Fed and/or fiscal stimulus measures from the government remains to be seen.

In the meantime, buckle up!