- This blog has a copy of all header posts that I publish anywhere, so that those interested in seeing what my thoughts are on the markets can find them easily.
- I will be answering questions and responding to comments, so feel free to respond to any posts and I will see your comment even if it is not on the most recent post.
- If you're interested in seeing any intraday charts I post, I do that on twitter, and my twitter handle is @shjackcharts.
- The charts in the posts are as large as I can practically make them. if you would like to look at one more closely, click on it, and the link will take you to a larger version at screencast. If you click on that again, you will get a full page version, and can use the resizing function on your browser to enlarge parts of interest further.

Friday, 28 February 2020

Falling Down The Steps

Well it has definitely been a week to remember, with the coronavirus outbreak taking position front and centre. I was expecting a strong reaction as and when this penny finally dropped, though not this fast I have to say. Let's review the bigger picture on SPX first.

On the bigger picture I was noting (notes on the chart) at the start of February the stats after the relatively small decline that we had just seen, and we saw the 20% odds reversal candle that sometimes follows such a decline. At that point there were even odds of resuming either the weekly upper band ride or the decline, and SPX has taken the second option, and is now (overnight) below the lower target at the weekly lower band in the 2950 area.

On the way SPX has broken the rising wedge support trendline from the Dec 2018 low and reached the minimum 38.2% retracement target at 2993 yesterday. The more usual target would be the 50% retracement in the 2880 area, and that area has been reached overnight. The possible weekly sell signals that I've been watching will fix at the close tonight and, depending on where that close is, the weekly RSI 5 sell signal will almost certainly reach target, and the RSI 14 signal may reach the possible near miss target.

How well is this setting up for the move to the 2500 main trendline support that I was talking about on Monday? Well I'm concerned that an H&S forming from a neckline in the 2800s would look for a full retracement of the rising wedge back to the 2346.59 low, and that would break my support trendline, but that would also be a strong target because it would also be an almost exact 38.2% retracement of the rising megaphone from the 2011 low. If that extended into a 50% retracement that would be in the 2025 area, and that's about as low as I could see this move going, though that is higher than the 1800 that Goldman Sachs have been suggesting this week as a target.

SPX weekly chart:
The daily chart has been interesting, with SPX falling down the obvious support levels day by day. On Monday the low was at the prior low and possible H&S neckline at 3214, then on Tuesday and Wednesday the lows were at tests of the rising wedge support trendline from the Dec 2018 low, which was breaking slightly at the close and then followed through downwards overnight. Yesterday SPX bounced at 3000 support and then fell through to close just above the annual pivot at 2974. If we don't see the strong rally that we should really be seeing soon today, or if that starts today after a retest of the overnight lows, then the next big level is a range between the 50% retracement level at 2870, and the previous lows and possible larger H&S neckline areas at 2856 and 2822. Looking at the overnight action those are very much potentially in range today. Both daily sell signals reached target with no current positive divergence as that would require a rally that would be large enough to show up on the daily chart.

SPX daily chart:
On the hourly chart positive divergence has been building for much of the week, with hourly buy signals fixing on both RSI 14 and RSI 5 on Tuesday I think. Further lower lows have been on increasing positive divergence and unless this move is going to accelerate lower, I'm expecting these to make target in a strong bear market rally starting either today or Monday. If that rally is from one of the possible H&S necklines at 2856 and 2822 then the obvious right shoulder high would be in the 3000-50 area, though I wouldn't be at all surprised to see it go a bit higher.

SPX 60min chart:
So what about the coronavirus news? Well that has been mixed this week. The good news has been that the virus looks containable in countries that are actively trying to contain it, with Singapore particularly having tested tens of thousands of people with only a few new cases in the last ten days. The bad news is that the US does not appear to be one of those countries, with the speech that Trump made on Wednesday to reassure markets that everything necessary was being done, instead seeming both to confirm that his administration has no idea of the serious risk of an outbreak in the US, and that the administration is not paying much or possibly any attention to the CDC, which is very aware of that risk. There's an interesting analysis of Trump's speech at CNN here. I'd been suggesting this appeared to be the case on Monday but it's not good news at all.

Friends in the US that I've been talking to this week have been telling me that the US news is reporting this mainly as a foreign problem, and a friend in Texas told me that he'd heard advice this week that anyone thinking that they might be suffering from the coronavirus should go to their doctor's office, which of course would be a good way to spread it further there. The advice here in the UK by contrast is to stay at home, call the dedicated helpline, and then if necessary be taken to one of the many dedicated coronavirus centres that have been set up nationwide to manage the problem. If there is a serious outbreak in the UK or elsewhere in Europe there seems a very good chance that it would be contained. Not so in the US so far at least.

In the US the CDC is saying that the spread of coronavirus in the US is inevitable, and that seems likely to be the case. As and when there is a significant outbreak, then I'm sure that the usual impressive US response that one would normally expect will get going, and the virus will be contained there too, but I'm concerned about the initial market reaction when that outbreak becomes obvious as that would seem likely to trigger further market declines. That is a big wild card over the next few days.

Subject to that big wild card, unless this is going to become an uncontrolled decline on markets now, I'm looking for support today at that very strong 2820-70 support range, and I'd expect to see a strong rally from there that will at least reach the 3000 area, ideally lasting at least two or three days and possibly reaching as high as the 3150-3200 area. We'll see if I'm right about that.

We'd normally do our monthly free public Chart Chat at theartofchart.net in a week, but given that markets are looking so fragile right now we are bringing that forward to 4pm EST on Sunday. Once that has been arranged I'll post the link on my twitter. As ever, all are welcome and we'll be covering the usual forty to fifty instruments over the main equity index, forex, and commodity markets.

Monday, 24 February 2020

Some Genuine Coronavirus Numbers Coming Through

Following on from my post last week about the coronavirus COVID-19 here, we are now seeing some genuine coronavirus numbers coming through, and the numbers at the weekend weren't great so equity markets are down this morning in response. How bad was the news? Here are this morning's numbers:
Honestly these numbers are not too bad so far in my opinion. There are serious outbreaks now in South Korea and Italy, but excluding the very dubious quality China numbers, not many deaths so far and there is not much to say as yet that the virus is likely to become a global pandemic like the Spanish Flu pandemic in 1918/9  that wiped out between 2% to 5% of the world population at the time. You can read about that here. If this does happen then obviously markets worldwide will be seriously affected, and this morning's gap down would likely just be a taste of what is to come, but if the virus is contained over the next few weeks then we should see a significant decline here and very possibly drop the 20% required to qualify as a bear market, but at that point there would likely be a buy opportunity and much or all of that decline might then be recovered over the rest of 2020. We'll see

One thing that I have found very strange watching all this though is the general cluelessness and lack of preparation of governments worldwide in response to this outbreak, which if it does break out to become a global pandemic will be perhaps the most predictable natural disaster in human history. I was reading back in the 1980s, in The Economist I think, about Spanish flu as just one of a series of superflu pandemics that have broken out over the course of human history, and about the likelihood that it was just a matter of time before the next one broke out, most likely having originated in China, into a worldwide pandemic that could kill 2%+ of the world population, and possibly more than 10%. I've been reading about this likelihood regularly since. I had perhaps naively assumed that the US particularly would have wargamed this scenario extensively, and that steps would have been taken to try to avoid a worldwide pandemic in the event that a strong superflu candidate emerged. It seems that was not the case.

In the US I was reading at the weekend, and I hope that it wasn't true, that only two US states have any COVID-19 testing kits, which are in any case rather hit and miss with a lot of false negatives, and that the only people tested so far have been those in contact with recent arrivals from China. If true, that means that the US have no real idea whether they have a problem yet, and the first confirmation of an outbreak might be a lot of dead and dying Americans. This is, to say the least, somewhat disappointing, and suggests that if COVID-19 doesn't become a worldwide pandemic, that will only be because it wasn't virulent enough, and that when there is another that is virulent enough, years or decades from now, then it will follow a natural progress unimpeded by any kind of planned intervention by governments:
That said, on to the markets and I'll start by posting the premarket video that I recorded this morning looking at the declines so far and important levels to watch. If you're just interested in equity markets then those are at the start and if you haven't seen one of these before, the instruments covered in the video are SPX, ES, NDX, NQ, INDU, YM, RTH, DAX, ESTX50, CL, NQ, GC, SI, HG, ZB, DX, EURUSD, USDJPY, USDCAD, AUDUSD, KC, SB, CC, ZW, ZC, ZS and LH. Mostly futures and forex with a look at the RTH index charts and TNX for bond yields:
In the short term the rising wedge on the SPX 15min chart has an obvious target at a retest of the  early Feb low at 3214.36. That is a possible H&S neckline so would be a decent candidate for a strong bounce from there.

SPX 15min chart:
On the SPX 60min chart the hourly sell signals have reached target and there is no current positive divergence. SPX gapped down through the rising megaphone support from the October low and that opens the next obvious big rising support trendline target currently in the 3110 area. That is the rising support trendline from the December 2018 low, and is a solid target for this move if SPX goes through the 3124 area with confidence. If we do see a bounce in the (roughly) 3214 area to make an H&S right shoulder, then that ideal right shoulder high would be in the 3337 area. SPX 60min chart:
If SPX was to deliver that strong right shoulder rally then the likely target area would be the daily middle band area, with the daily middle band closing in the 3325 area on Friday and still rising for the moment. With a strong gap below the daily middle band at the open this morning that is now important resistance that may well get a test on a decent rally. The daily RSI 5 sell signal has reached target but the daily RSI 14 sell signal still has some way to go yet. SPX daily chart:
So where might this be going on the bigger picture? Well the last high gave SPX possible weekly sell signals brewing and if we close the week in this area those would fix. A break below trendline support in the 3100 area would then open a possible test of the very decent quality rising megaphone support from the 2011 low, currently in the 2500 area. That would be an ideal target to reach and find support and, if seen, could deliver a major buying opportunity later this year. We shall see. SPX weekly chart:
In summary the coronavirus news so far isn't too bad so far, but will likely get worse before it gets better. Equity markets too will likely go lower before there is any decent buy opportunity here, but we'll have to see how this develops in terms of reversal patterns particularly to give form to this decline, and give us clues as to where this is likely to be headed. We'll see how that develops. If you'd like to hear Stan and I analysing this increasingly interesting market on a daily basis you could sign up for a 30 day free trial at theartofchart.net on this page here. That gives you access to most of our analysis and particularly our subscriber only twitter feed where we post our intraday updates and targets. The trial is free for 30 days, at the end of which you can either cancel with no obligation or subscribe to one of our services.