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Is This A Bottoming Process

Shallow Thoughts

Bear market bottoms usually have some things in common. If there’s a V bottom, such as we had a couple weeks ago, then there’s usually a test in 6 weeks or 3 months. 2009 was an exception.

So the decline of the past few days, as awful as it looks and feels, falls within the normal bottoming pattern of a bear market.

Liquidity moves markets!

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Unfortunately, it also looks just like the usual first failed rally from the top. How can we tell the difference? We depend on technical indicators tuned to the frequencies of different cycles. Intermediate and longer term indicators need to confirm the turn if it’s a big cycle. Or shorter term indicators need to confirm during a time window where a bigger cycle is likely to be turning. Then we start nibbling.

This is such a time window, but indicators aren’t confirming.

I think that it’s better to be late than early here. There’s just too much risk trying to catch falling knives in this chaos. A 4 year cycle low might be forming. But if it’s not, this will get much, much worse, for much, much longer. So I’d keep my powder dry for the time being.

Today’s trading setup is below. Follow my Deeper Thoughts, with tips on how to preserve, protect, and defend your investment and trading capital, at Liquidity Trader.

Market Trading Setup for Thursday, April 2, 2020

Yesterday’s post.

Hourly ES S&P 500 Futures Chart

The futures mounted a recovery overnight. But they ran into resistance at 2500, which was certainly no surprise. We had drawn the red line there last week.

They’re getting dumped hard now, at 8:37 AM in New York. Was there some news? Oh. 6.6 million jobless claims. Holy fuck. They fell to support at 2453,stat. That held. If that breaks, then the target would be 2433, then 2400. 

If there’s a rebound, look for resistance at 2474 and 2490. They’d need to clear both those trendlines to restart the rally. Otherwise, the path of least resistance will be down.

Hourly oscillators are on the cusp. They had risen through the night and pre-market. There’s no clear downturn yet, but if the market doesn’t rebound in the next hour, sell signals will trigger.

ES Futures Hourly Chart

Reminder- I’m only talking patterns for a day here. This is not the big picture. If you want that story, you must subscribe. Risk free trial and all.

S&P Futures Daily Chart

The daily chart gives a broader perspective. Overnight and pre market trading has been in a narrow range 2450 to 2500. The ES is still in the crash channel dating from February 20.

There’s also a minor range channel with a lower bound at 2430. If that breaks, the next target would be minor support at 2390. There may be minor support at 2350 also, but I think that if the market gets into this range it will go all the way back to the low on the futures, which was 2174.

The rally from that low failed exactly at the 38.2% fiber nacho ratio. The pullback is still holding at the 23.6. Again, if that breaks, the likelihood is that the market will test the low. And that will probably happen fast.

S&P 500 ES Futures Chart

The ES would need to clear 2575 to cleanly break out of the crash channel. The channel line is around 2525, but we need to allow for a lot of play around that line. There’s already been one false breakout that extended 50 points beyond the trendline.

Rate of Change and MACD tuned to an 8 week cycle frequency are mixed. The MACD is still bullish but losing momentum. At this frequency and with shortened up phases, this indicator is liable to lag a downturn. RoC should be more timely. It’s in a holding pattern in deeply negative territory. Both the pattern and the absolute level matter. A downturn from this level would signal resumption of the crash. 

Again, this is for the perspective of one day only. The purpose of these reports is not to divine the longer term. If you want longer horizons, join me at Liquidity Trader.

S&P Cash Index Hourly Chart 

The red bar at the far right shows where the futures traded overnight. It’s between 2450 and 2500. There’s a downtrend channel with support starting at 2440 at the open, dropping to 2400 at the close.

The 5 day cycle projection as of the close yesterday was 2360. There’s also support at that level. But if they take out the lower line of the current hourly downtrend channel, the decline is likely to accelerate through support.

The upper channel line and multiple resistance lines are at 2536. They need to clear that to get anything material going to the upside.

I reported yesterday that the “downturn in the 5 day cycle oscillator came from a horrendous negative divergence. That is a powerful sell signal.” It’s still on a sell signal. S&P 500 Hourly Chart

Join me on the message board today and I will update you there occasionally during the day. Feel free to join the “fun.”

“And that’s the way it is, Thursday, April 2, 2020.” 

From coronavirus locked-in Zagreb, Croatia, good morning!  

Where have you gone Walter Cronkite? Our nation turns its lonely eyes to you.

Meanwhile, here are the latest reports from Liquidity Trader. 


Why Instability Is The New Normal

$321 Billion

That’s how much cash the Fed will pump into Primary Dealer accounts this week. Guess how much new Treasury issuance there will be over the same period. If you guessed $321 billion, you would be all but correct. It’s $328 billion.

That’s right. The Fed is buying all of the COVID19 rescue financing. It’s inventing imaginary money to pay Primary Dealers for that new supply. The Fed is printing the money to pay for the economic bailout.

And it’s not stabilizing the financial markets. Here’s why, and what it means.

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Gold’s Selloff That Wasn’t

When the margin man came collecting on other stuff, gold got dumped. Once he left, gold came right back. What does it mean for the long haul?

Plus a few mining picks with low risk entries and good upside potential.

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Try Lee Adler’s Gold Trader risk free for 90 days!  


The Charge of the Light Brigade

The Fed injected around $600 billion into the markets and the banking system last week. That’s about $2,000 for every American, and it was just one weekly installment. All in the valley of Death rode the 600. We are the 600 and the Fed is leading us into the valley of Death.

Meanwhile banking indicators suggest that the sickness is getting worse, not better.

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Was That A 4 Year Cycle Low?

Massive Fed intervention turned the market, although cyclicality was favorable. The 6 month cycle low was overdue. But is it something more than that?

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Fed Hyperinflates Its Balance Sheet But It’s Only A Holding Action

On March 3, the Fed converted Not QE into Panic QE. Since then it has pumped $766 billion in cash into Primary Dealer accounts. At the same time the US Treasury issued “only” $147 billion in new debt. So in essence, the Fed issued $619 billion in excess cash.

Other than the hyperinflationary implications, what good has it done? What does it mean for us looking ahead.

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Already Soaring Federal Outlays are About to Explode and Boy Is That A Problem

Even before COVID-19 the trend was clear that the Treasury would need to keep borrowing money hand over fist. Now the deficit will explode. This is a hideous problem for financial markets in this condition.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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