Bruised global marketplace seeks refuge in U.S. dollar

Thursday, March 19–Jim Wyckoff’s Morning Markets Report

Global stock markets were mixed in overnight trading, with Asian shares mostly down and European shares mostly up. U.S. stock index futures are presently pointed toward weaker openings when the New York day session begins. The coronavirus pandemic continues its stranglehold on the global marketplace. China did report overnight that there were no new reported cases of the illness in that country Thursday, although many wonder about the outbreak statistics’ veracity coming from the Chinese government.

Look for another volatile day in many markets. Speaking of volatility, the VIX index (called the volatility index) this week hit record highs above 80.0. For perspective, the European Union debt and financial crisis of a few years ago saw the VIX climb to 30.0, which at that time had the marketplace alarmed.

Following is an edited email dispatch from a market analyst, received this morning: “With fears over the spread of coronavirus intensifying, it’s reasonable and justified to see risk assets being sold aggressively. After all, the consequences on the global economy and corporate earnings may be enormous, depending on the duration of the pandemic. But what’s interesting in the current market turmoil is that even the safest assets in financial markets, U.S. government bonds, are being sold-off. In a bear market, traditionally investors have flocked to U.S. Treasury bonds, which historically have been inversely correlated to stock markets. In fact, we did see tremendous inflows into Treasuries at the beginning of the coronavirus outbreak. From mid-February to early March, yields on the 10-year Treasury bond declined by 80% to reach a record low of 0.32%. However, over the last several days this pattern has changed, with the sell-off in US Treasuries intensifying, especially on Tuesday and Wednesday with yields reaching 1.25%. This kind of market behavior is scary. It shows that investors are selling whatever they can to raise cash, and this also explains why the U.S. dollar is soaring to new highs. Investors are clearly being forced to build their cash reserves in order to survive a prolonged period of the current pandemic.”

In overnight news, the European Central Bank stepped in and said it would buy 750 billion Euros in securities to liquify the European financial system. The ECB labeled the effort the “Pandemic Emergency Purchase Program.”

After the markets closed Wednesday the Federal Reserve added still more short-term liquidity to the U.S. financial system. The U.S. government is set to unveil a financial assistance package to American citizens and businesses.

The U.S. dollar index is higher again in early U.S. trading and hit another three-year high. The world marketplace has seen confirmation that the greenback is still king when times get really tough. Nearly everyone who can wants to hold U.S. dollars as a safe-haven store of value. The big grab for greenbacks is perpetuating dislocations in the financial markets but there is a positive element from this week’s reaffirmation of supreme global confidence in the U.S. currency: The U.S. is about to possibly double its already record-large federal deficit due to expected company bailouts and financial assistance packages. At first blush, it appears the world’s investors will be very willing to purchase that big influx of U.S. government debt issuance.

The U.S. Treasury bond futures market has rebounded Thursday morning, from Wednesday’s major sell off. The benchmark U.S. 10-year Treasury note yield was trading around 1.2%–well up from levels well below 1.0% seen last week.

Nymex crude oil futures prices are solidly up after hitting an 18-year low of $20.06 a barrel on Wednesday. Crude prices are currently trading around $22.85 a barrel. One bright spot for the U.S. consumer is that unleaded gasoline futures wholesale price from the refinery is now trading at 68 cents a gallon—suggesting much lower gasoline prices at the pump heading into spring and summer.

U.S. economic data due for release Wednesday includes the weekly jobless claims report, which in the coming weeks will become a major data point—likely showing massive increases from normal numbers. Other reports Thursday include the Philadelphia Fed business survey and leading economic indicators.

–Jim

U.S. STOCK INDEXES

June S&P 500 e-mini futures: Prices are lower in early U.S. trading and not far above this week’s contract low. Bears have the solid overall near-term technical advantage. The shorter-term moving averages (4-, 9- and 18-day) are bearish early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at the overnight high of 2,460.000 and then at 2,500.00. Buy stops likely reside just above those levels. Downside support for active traders today is seen at Wednesday’s contract low of 2,262.00 and then at 2,250.00. Wyckoff’s Intra-day Market Rating: 3.0

June Nasdaq index futures: Prices are lower in early U.S. trading. Bears have the solid overall near-term technical advantage. Shorter-term moving averages (4- 9-and 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day average is below the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at the overnight high of 7,424.00 and then at 7,500.00. On the downside, short-term support is seen at 7,000.00 and then at Wednesday’s contract low of 6,810.00. Wyckoff’s Intra-Day Market Rating: 3.0.

U.S. TREASURY BONDS AND NOTES FUTURES

June U.S. T-Bonds: Prices are sharply higher in early U.S. trading. Bulls have lost their overall near-term technical advantage as a price uptrend has been negated. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at the overnight high of 171 26/32 and then at Wednesday’s high of 174 20/32. Shorter-term support lies at 169 even and then at this week’s low of 167 5/32. Wyckoff’s Intra-Day Market Rating: 6.0

June U.S. T-Notes: Prices are higher in early U.S. trading. Bulls have lost their overall near-term technical advantage as a price uptrend on the daily bar chart has been negated. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term resistance lies at the overnight high of 135.04.0 and then at 135.16.0. Shorter-term technical support lies at 134.00.0 and then at the overnight low of 133.21.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 5.5

U.S. DOLLAR INDEX

The June U.S. dollar index is solidly higher and hit another three-year high in early U.S. trading. Bulls have the strong overall near-term technical advantage. The shorter-term moving averages for the dollar index are bullish early today, as the 4-day is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Short-term oscillators for the dollar index are bullish early today. The dollar index finds shorter-term technical resistance at 102.500 and then at 103.000. Shorter-term support is seen at 102.00.0 and then at the overnight low of 101.045. Wyckoff’s Intra Day Market Rating: 8.0

NYMEX CRUDE OIL

April Nymex crude oil prices are solidly higher in early U.S. trading. Bears are still in solid overall near-term technical control. The shorter-term moving averages are bearish early today as the 4-day is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral to bullish early today. Look for buy stops to reside just above technical resistance at the overnight high of $24.02 and then at $25.00. Look for sell stops just below technical support at the overnight low of $21.36 and then at Wednesday’s low of $20.06. Wyckoff’s Intra-Day Market Rating: 6.0

GRAINS

US grain futures are solidly up in early US pre-market trading, on short covering and bargain hunting following recent selling pressure. The best grain traders are hoping for right now is for their markets to stabilize. The overnight price action suggests that is beginning. Still,
after ag futures markets have been hammered to contract lows in most markets, the global stock and financial markets need to stabilize before the grain markets start to see sustained rebounds. Grain market bears still have the solid technical advantage at present.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission
(CFTC) has said about futures trading (and I agree 100%):
1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS.
Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff