E-mini S&P (June)
Last week’s close: Settled at 2288.50, down 100.50 on Friday and 407.50 on the week
Fundamentals: U.S benchmarks finished Friday on a very ugly note, settling below the December 2018 low, and kicked off this week by gapping lower. The S&P traded to the lowest level since the week after President Trump’s 2016 election. Hopes of massive fiscal stimulus are stalling in the Senate. Despite headlines over the weekend touting a $2 trillion injection to the economy, passing such an extensive bill immediately was always overshadowed by some foreseeable deadlock. The Senate is expected to revote by noon today in Washington. The bill, according to White House Chief Economic Advisor Kudlow, would be about 10% of GDP or more than $2 trillion. Some of the key sticking points are aid to Boeing and General Electric as well as setting a standard in slicing cash payments to Americans. It would also seem that at least $300 billion will be earmarked for loans to small businesses who would not have to repay if they kept workers. Everyone should brush up on their Modern Monetary Theory (MMT) playbook. All in all, this is by far the largest aid package in U.S history, however, as a percentage of GDP it sits far below that from Germany, the U.K, Denmark and Spain which are upwards to at least 15% of GDP.
On the monetary side, the Federal Reserve has already slashed rates to zero and unleased a $700 billion QE program. According to Bloomberg, since the March 15th announcement the Fed has already purchased $340 billion; $272 billion of government debt and $68 billion of mortgage-backed securities. With the Fed expected to pick up another $75 billion in government debt today, and another $100 billion in MBS’s this week, there is a rising belief we see the central bank expand its asset purchases to corporate and municipal bonds. As we are wrapping up our writing, the Fed announced open-ended Treasury and MBS purchases, two facilities for the liquidity of Corporate Bonds, expanded money-market liquidity facility and more.
Today’s economic calendar is bare, but tomorrow we look to March Flash PMIs from Europe and the U.S. Given the NY and Philly Manufacturing reads last week, we expect this data to begin shedding some light on the economic damage and cessation. Estimates for the toll on U.S Q2 GDP are mounting. Goldman Sachs and Morgan Stanley are predicting -24% and -30% respectively. Another one to keep an eye on is Initial Weekly Jobless Claims. During the Great Financial Crisis, the largest one-week print did not top one million. Goldman Sachs estimates 2.25 million this week.
Technicals: The S&P closed last week below the December 2018 low of 2316.75 and this inarguably opens the door down to the 2007 high of 1586.75. Of course, there are strong levels of support between here and there. First up is 2191.50-2198.75, this was the high before the 2016 election and Friday’s settlement on election week. Unfortunately, we believe continued price action below 2316.75 to be so bearish that we imagine a high probability of a move to the 50% retracement from the high one month ago to the 2009 low at 2031.50. Below there was the February 2016 low at 1802.50. As we have said for at least a week now 1698.75-1709.25 is certainly in play; this .618 retracement from 2009 to 2020 aligns with a total 50% loss from that high. As for the NQ, it sliced through strong major three-star support at 6812.50 on last night’s open. Below here, support has been created against limit down but ultimately, the near-term path of least resistance while below Friday’s settlement at 6969 and below the round 7000 is to 6422.25. Remember, the NQ is still 1000 points or 15% from the December 2018 low of 5820.50. The other budding negative factor is the Death Cross. For the Dow, the 50-day moving average crossed below the 200-dma on Friday. This should take place in the S&P through the week and would ignite waves of selling. Arguably, weakness into Friday’s close was due to this technical trigger in the Dow.
Resistance: 2262-2288.50***, 2316.75***, 2361**, 2386.50-2394**, 2442.50***, 2499**, 2536.75-2555.50***
Support: 2191.50-2198.75***, 2031.50***, 1802.50***, 1698.75-1709.25***
Resistance: 6874-6906**, 6969***, 7040**, 7273.50-7288.25***, 7477-7500**, 7629***
Support: 6628.75**, 6422.25***, 6030***, 5820.50***