Thursday, October 1, 2020

SPX S&P 500 2-Hour Chart; Channels; Markets Await Mnuchin/Pelosi Fiscal Stimulus Package and US Monthly Jobs Report; President Trump and First Lady Melania Test Positive for COVID-19



This trading week remains a crapshoot. Stocks are jumpy after the US presidential debate which was two corrupt silver-haired white guys arguing for a couple hours. S&P futures were down -45 and more overnight after the debate but recovered and finished up +28 points a big turnaround. The republican and democrat tribal candidates for the presidency, Trump and Biden, both appear unwilling to accept the results if they are the loser. This creates huge uncertainty and fear that the election result may not be known for days, weeks or maybe months after the election so futures tank. Trump keeps calling the US mail-in voting fraudulent, even though he comically votes this way in Florida, creating concern that the entire republic is at stake. The crony capitalism system is crumbling and in a year or two people will understand.

Treasury Secretary Mnuchin and democrat House Leader Pelosi are discussing the stimulus package this week. The democrat tribe is at $2.2 trillion in fiscal stimulus and the republican tribe is at $1.5 trillion. The hopes for a package sends stocks higher off the overnight bottom due to the presidential squabble, er, debate. This morning, Thursday morning, Japan's Tokyo Stock Exchange goes down for the day and some of those traders look elsewhere and help create buoyancy in US futures. S&P futures are up +24 with the VIX down to 25.74 about 4-1/2 hours before the opening bell on Wall Street. Mnuchin proclaims that a deal can be reached somewhere between $1.5 and $2.2 trillion. Neither side cares about common Americans. Right now, it is all about political gamesmanship. Each tribe weighs the political advantages and disadvantages.

King Donnie would like a fiscal stimulus deal since it would likely give him a last minute lift in the polls into the election on 11/3/20 only a month away. The democrat tribe is not anxious to give the president that win before the election but they need to help people so as to not alienate these voters. If the two corrupt parties come together somewhere between $1.5 and $2.2 trillion that could give democrats cover to say the republicans buckled and had to increase their original stimulus offer three-fold while at the same time conceding that President Trump will brag that he is helping Americans by providing more relief money. If both tribes decide to walk away without a deal, they both will proclaim that they fought tooth and nail, and crawled over hot coals, to try and reach an agreement, but the big bad (insert republicans or democrats) ruined the deal. Isn't the crony capitalism system nauseating?

The bullish back currents this week help boost stocks after the possie d kicked in as predicted in the previous SPX 2-hour chart (green lines). New money typically enters the market to begin a new month, especially a new quarter (Q4; Oct, Nov, Dec), creating buoyancy in stocks. September was a down month so it finished with buoyancy in stocks as would be expected. The full moon peaks at 5 PM EST today and stocks are typically bullish moving through the full moon. October is a rare double full moon month. A full moon also occurs on Halloween, 10/31/20, the last day of this month, a Saturday. At least that would be good for the kiddies trick or treating the bright full moon lighting the way in the dark. Today is a Harvest Moon as the corn, wheat, apples and other crops are harvested for the season.

The Mnuchin/Pelosi sideshow will determine the path of stocks today and tomorrow. The US Monthly Jobs Report hits tomorrow morning at 8:30 AM EST so stocks may idle sideways today awaiting that data. This is the last jobs report before the presidential election so the stakes are high. The next jobs report (November) is 11/6/20 three days after the election.

The chart eked out negative divergence when the top printed yesterday afternoon creating the spankdown during the last candlestick. You can see there was bullish sentiment since the candle shows a long tail shadow; the bears sent prices lower but the bulls recovered ending the day with the price about halfway or better above the midpoint. If the bears had juice, price would have closed in the lower half of that candlestick.

The red lines show the neggie d spankdown but the MACD is cheesy and flatter than a newlywed's soufflé. S&P futures are up +27 as this missive rambles on which would bring the SPX cash index up to the 3390+ area which is a matching high compared to the last two candlesticks. Since price will likely make another matching or higher high, the indicators can be assessed for potential negative divergence. As long as the indicators all stay below the thin red lines in the right margin, the bears will likely roll stocks over to the downside. Again, as stated above, the Mnuchin/Pelosi show and Jobs Circus can send stocks in one wild direction or the other and the charts would have to adjust. If the SPX receives a pop on fiscal stimulus hopes or a deal, price may want to target that 3400 print which is the top rail of the maroon downward-sloping channel and the top rail of the blue sideways channel. Stimulus hype may take price to 3400-3425 but that would be expected to be another top forming.

Price has violated the upper band so the middle band at 3317 and rising is on the table as well as the lower band at 3219. The Aroon green line is pegged at one hundo with nowhere to go but down and the red line is oversold likely to move higher at some point so watch for the potential negative cross. There are lots of moving parts remaining in play. Tomorrow provides clarity. If a fiscal stimulus deal does not occur by tomorrow, forget it, the package will not happen until after the election so the stock market will not receive a lift from this event. Tomorrow also provides clarity on the jobs picture. Jobless Claims are on tap this morning. The beat goes on. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 7:40 AM EST: S&P +33. Dow +253. Nasdaq +151. Russel +14. VIX 25.94. Gold 1900. Silver 23.84. Copper -0.7%. Treasury yields are; 2-year 0.13%, 5-year 0.28%, 10-year 0.70%, 30-year 1.48%. The 2-10 spread (yield curve) is 57 bips. The SPX begins at 3363. The stock market participants remains uber complacent and fearless as evidenced by the subdued CPC and CPCE put/call ratios. Pundits are parading across internet and television screens one more bullish than the next. One strategist says the melt-up into year-end is beginning. Others say the fiscal stimulus deal will occur at sometime over the next couple months so it will pump stocks higher. Others are drunk on moral hazard never worrying about stocks dropping since the Fed will always save the day; these drunkards buy the dips religiously expecting stocks to go up forever. Bears need VIX above 27.18 or they got nothing. The wheels will fall off the stock market bus if VIX moves above 29.51. Bulls are fine as long as VIX remains below 27.18. VIX is at 25.92. Jobless Claims are on deck.

Note Added 10:02 AM EST: SPX is up 20 points, +0.6%, to 3383. VIX 26.22. Gold 1909. 10-year yield 0.71%. Copper tanks -4.1%. If you bring up the SPX 2-hour, you can see the first candlestick today takes out the high from hump day afternoon. The current candle, the 10 AM EST candlestick that just started, is in play showing sogginess. The chart is called a 2-hour chart but the candlesticks actually print at 9:30 AM EST, 10 AM, 12 noon, 2 PM and 4 PM each day. So the next candlestick will appear at munch time. Remember the pesky MACD line mentioned above? It was flattish but on the opening pop in equities squeezes out a higher high as price makes the new high with the first candlestick today. The other indicators remain neggie d, thus, price will likely perform a jog move, down-up, to provide time for the MACD to go neggie d. This candlestick from 10 AM to noon starts soggy, but then price will likely come back up to today's HOD at 3397. When this occurs, say in 2 to 4 hours, stocks should top out again and begin rolling over lower. There will likely not be much time this afternoon for much of a retreat and many traders will be on hold until the jobs number is known in the morning, but, nonetheless, the expectation would be for price to top out on the 2-hour today. The top is in when the MACD goes neggie d and keep an eye on the RSI to make sure it does not come up for a higher high, if so, then another jog move would be in order and a delay of the top by a candlestick or two (2 to 4 hours). The MACD is playing coy now flattish again so stocks may top out right away and become soggy going forward in this 2-hour time frame. As this windbag stuff is typed, the SPX is now up only 10 points at 3373. VIX 26.41. Mnuchin probably just spilled coffee on Pelosi's lap. Mnuchin spilled hot coffee on his own lap an hour ago when he looked to see what time it was on his wrist watch.

Note Added Friday Morning, 10/2/20, at 3:27 AM EST: President Trump and First Lady Melania test positive for COVID-19. S&P futures tank -60 points but are now down -40. Stocks chopped along on Thursday awaiting the Jobs Report and news on the stimulus bill but the bombshell news about the POTUS blows it all out of the water. The political campaigns will be impacted. The SPX 2-hour chart continues to show the MACD line moving a hair upwards which means there are some fumes left in the stock market tank. The Trump news, however, will likely override any further upside in equities. Remember, the uber low put/call ratios have not been resolved. Traders and investors have been uber complacent and fearless; perhaps today is the day that panic and fear will arrive?.

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