16-Mar-2020

1) The Fed Is All In, But US Stock Futures Still Hit Limit Down
2) GBP/CHF: Key Level of Support to Keep an Eye At
3) S&P’s Prices and Targets: December 2018 V March 2020

 

 

1) The Fed Is All In, But US Stock Futures Still Hit Limit Down

The coronavirus outbreak is proving to be stronger than any measures taken by governments and central banks.

In another surprise move, the US Federal Reserve slashed its interest rates to zero on Sunday and added a sweetener by expanding its balance sheet by $700 billion to purchase Treasuries and mortgage-backed securities.

China’s PBOC also made a surprise move on Friday with a fresh round of liquidity injections. The central bank cut its reserve requirements for banks to free up $79 bn in funds to support companies hit by the outbreak. Meanwhile, the Bank of Japan was the last to join central bank action by announcing several measures to ease monetary policy.

It’s becoming evident that the major central banks across the globe are using all their available tools to prevent a crisis, but it seems the fear of the pandemic is taking control of investors.

At the time of writing, all three major US indices were trading at their lower pre-open limit, a decline of 5%. When stocks futures reach their limit down in pre-market trading, they leave investors wondering how bad it can get when the market resumes normal trading hours. Markets will continue going through this phase of extreme volatility until they are able to assess the scale of damage caused by the virus outbreak.

The longer the outbreak persists and countries stay in emergency status, the harder the global economy will be hit. A recession seems almost impossible to prevent at this stage, but the question remains, how bad is it going to be? Equity strategists, especially bottom-up ones, will not be able to provide meaningful targets for stock prices. That’s because even companies themselves cannot project revenue targets in such situations.

From a macro perspective, economic data released by China today has provided a snapshot on how bad things could turn out to be. Industrial production plunged 13.5% in the first two months of the year; that’s the worst reading ever for the sector. Retail sales fell 20.5% as consumers were locked at home, fixed income investments dropped 24.5% and the jobless rate rose to a record 6.2%.

While China has started to recover from the epidemic, we do not expect to see a V-shaped recovery. The simple reason is that the rest of the world is sick now, with the majority of infections outside China. That means demand for Chinese products will remain low for the foreseeable future. Whether US and Europe will receive a similar economic hit remains to be seen. However, the biggest risk is if this health crisis turns out to be a debt crisis. The answer largely depends on the time and scale of the outbreak.

 

2) GBP/CHF: Key Level of Support to Keep an Eye At

GBP/CHF has been bearish on the daily chart. The pair produced a big bearish candle on Friday as well. Thus, the sellers may look to go short on the pair. Today’s intraday price action suggests that the pair is on consolidation. The intraday sellers may go short upon bearish breakout at 1.6650 drive the price towards the South further. However, the level of support is extremely strong, which may change all the equations.

The D1 chart shows that the price made a big bearish move and found its support at the level of 1.22175. It consolidated and continued its bearish journey upon a bearish breakout at consolidation support. Last Friday’s candle closed within the level of 1.16650. This is where the price had a bounce earlier. If it makes a bearish breakout at this level, the pair is going towards the South with more bearish momentum. On the contrary, the level of support is strong. If the level holds the price and produces a bullish daily reversal candle, the buyers may take over and push the price towards the North.

The H4 chart shows that the price has been having consolidation around the level of 1.16650. It may head towards the level of 1.18290 to find its resistance. If the level produces a bearish reversal candle, the sellers may go short below the level of 1.16650. The price may find its next support at the level of 1.14300. In case of a bullish breakout at the 1.18290 level, the price may find its next resistance at 1.21130. By looking at the chart, the sellers have an upper hand though.

The H1 chart shows that the price has been having consolidation around the level of 1.17410. If the level keeps driving the price towards the South, and the price makes a breakout at the level of 1.16650, it may head towards the level of 1.13875. Since it is a weekly and monthly level of support, the price may get extreme bearish momentum in case of a bearish breakout. Once the price finds its next support on the intraday charts, the price sometimes produces a big spike on the intraday charts.

The H1 and the H4 chart look good for the bear. The daily chart has been bearish too, but the strength of the level of support may play a vital role in determining the pair’s next direction. The sellers on the daily chart may wait to go short again upon daily breakout and breakout confirmation.

 

3) S&P’s Prices and Targets: December 2018 V March 2020

The S&P’s 500 dropped 600 Points December 2018 and now March 2020, the drop was 900 points. The 2 year currency price cycle applies to stock Indices and all market prices. The key is 2 years. The current March 900 point drop is perfectly in line to the 2 year currency price cycle. The 2018 currency price cycle began in February, off slightly to December 2018 S& P’s or advance warning to February and currency price moves.

The cycle takes 2 years to complete and begins from February /March to April / May about every 2 years. Complete means takes 2 years for maximum overbought or oversold. Next big stock market cycle move is scheduled for February / March 2022.

After the big 2018 and 2020 Stock moves, price becomes settled, normalized, oversold and rests as it requires information to move or breaks at pertinent averages. The settled price, like a currency price, ranges as it lacks a long term target. Previous 2018 and current 2020 drops achieved long term targets. Upon target completion, 2018 and now 2020 S&P prices is now normalized.

From 2018 to March 2020, the S&P’s rose 1000 points from 2300’s to 3300’s to become severely overbought. Both the 2018 and 2020 rise was driven by shortest term 1 year monthly averages. The averages due to short term became overbought quickly, 2900’s in 2018 and 2800’s in March 2020.

For stock indices, the 2 year cycle means the 1 big and easy trade exists to profit much and quickly. The 2 year currency price cycle means many big and easy trades exists to profit much and quickly. No challenge exists, just click.

The December 2018 drop for 600 points is wrong. Actual drop was 400 points and 200 points were unaccounted. The March 900 point drop is wrong. Actual drop was 600 points and 300 points were unaccounted. Actual point drops and percentages is wrong.

Most vital to drops is magic numbers in markets, 300 and 600. The 2018 drop was 400 and 600 points for 2020. A highly normal move. Explains the unaccountability to 2018 at 200 and 300 for 2020.

Bear market is wrong. The 2018 drop was a correction from deep overbought and failed to break the 5 year average at 2300’s. The 2020 drop was a correction and failed to break and sustain the 5 year average at current 2505.25. Only a break at 2505.25 will prices head lower and bear market declaration is correct. Note 2 year and 200 point rise to the 5 year average from 2300’s to 2500’s.

Bear market was declared by analysts and commentators in 2018, same bear market story to 2020. Both are wrong as written in 2018 and now 2020.

Correct forecast for 2018 and 2020. Written in February 2018, updated in December as follows.

Extreme prices located from 2698.59 to 2988.25 and top is 2900.00. The top traded 2942 in September and October 2018, big drop materialized from 2700’s to 2300 in December 2018.

2018 targets are located at 2648.45, 2542.31, 2454.13, 2391.50, 2351.47, 2312.33, 2262.46 and 2213.65. Target achieved at 2348.

2020 trade targets as written in October 2019 as follows: 2955.71, 2904.21, 2869.13, 2813.70, 2742.65, 2681.77, 2646.07. S&P’s traded to 2400;s and 200 missed points as part of the unaccounted points.

Next moves are governed by breaks lower at 2505.25 to target 2420.84 and 2322.15, 2136.55 and 2034.05. Above must break 2638.48, 2766.22, 2867.85 and 2985.27.

Absolute range top is 3138.71. Most extreme is located at 3445.59. Extreme below is located at 2524.95 and just above the 5 year average. Note correct 600 point range from 2505 to 3138.71.

Strategy is long 2524.95 to target easily 2800’s beginning at 2807.63, 2836.83 and 2873.95. Politically, I wouldn’t short a Trump Presidency nor expected re election by 1 point especially if the Republicans gain control of the House.

To gauge the S& P’s by other market barometers then GBP/CHF is the stock market indicator and usually an early warning system. For the VIX, GBP/JPY is the master early warning indicator.