Chart of the Day US500 (S&P500)

US500 (S&P500) Potential Panic Low in Place

Following the Fed’s bazooka and the prospect of imminent US fiscal stimulus, S&P500 surged 9.38% overnight and the Dow registering its best day since 1933 in what is dubbed “turnaround Tuesday”, while UST bonds sold off with the 10-year bond yield up 7bps to 0.86%. Meanwhile, the White House has called for a 14-day quarantine for those leaving New York to stop the spread of Covid-19 and Fitch has cut US Prime Funds’ outlook from Stable to Negative, citing heightened redemptions and reduced liquidity in short-term markets. The latter follows Moody’s on 18 March which had cut its outlook on the global money-market fund industry to negative to reflect liquidity stress. 

Separately, US’ flash manufacturing PMI slipped into contraction territory to a record low of 49.2 in March from 50.7 in February, whilst European services and composite PMIs tanked to just 24.2 and 31.4 respectively, reflecting the Covid-19 outbreak’s impact on spending and the economy, raising the recession spectre which prompted German officials to hint of a post-virus aid package. With risk sentiments highly sensitised to big-bang stimulus plans and aggressive monetary policy easing, financial markets are likely to remain choppy in the interim.

Goldman Sachs Trading Desk Notes “Pensions Rebalancing is now $214b of US equities to buy vs a like amount of bonds for sale. Market traded like this trade was out there today with sell bonds to buy equities px action. For context, the second largest pension rebalancing we have on record was year end of 2018 ($82b of equites to buy vs bonds for sale). The current rebalance is already in motion but is likely most heavily weighted to the last week of the quarter. The exact numbers around these rebalancings are up for debate…the overall trend is not. This will be the largest pension rebalance that has ever taken place in the market.”

From a technical & trading perspective the US500 appears to be developing an impulsive move higher from the 2455 low, look this initial leg to fade above 2500 to set up a corrective pullback to the mid 2300 area this level will be pivotal in acting as a platform for another leg higher. If buyers emerge here then we can reasonably expect to see an equality move targeting offers and stops above 2700. A failure to find support at the 2300 would suggest a quick retest of the prior swing lows. Without support here 2000 would be the next likely downside objective. However the preferred scenario at this point is for additional corrective upside to play out also note the monthly close and the defense of the 11year bullish trendline.

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