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Stock Market Strikes Back at Fed’s Illusion of a Market

Stock Market Trading Setup for Monday, April 20, 2020

The Fed has created the illusion of functioning markets, but today futures traders are striking back. The Fed, with all its trillions, may not have the control that it wants, and Wall Street wishes. Today looks pivotal in that regard.

S&P Futures Daily Chart 

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Friday’s post.

The futures have been trading in a between 2808 and 2875 overnight and in the pre market, down 58 at 282814 at 8:00 AM in New York.

This is exactly on the trendline of the uptrend channel from the March low. Two previous tests of this trendline have held and generated rallies. Will the third time be the charm for bears?

Friday’s rally high, and last night’s high were right at important resistance levels. It’s been all downhill since. If the trendline around 2815 doesn’t hold there may be a second trendline around 2780 that will act as support. It that were to fail, then we’d be looking at 2705 for the next target.

S&P 500 ES Futures Chart

Rate of Change and MACD tuned to an 8 week cycle are looking a little toppy. Sell signals are typically on the first hard down day. This decline would need to go further for them to trigger today. If the indicators hold and the ES stays above 2810, then the uptrend would still be intact.

If this is still a bear market, we’re getting to the point that that needs to be proven by a real downturn.  The benefit of the doubt still goes to the bools here. But the bears at least seem to have a shot here. 

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.

Hourly ES S&P 500 Futures Chart

This chart is a mess, but one thing is clear. If it doesn’t bounce from the 2810 area, then the next stop would be 2800. And if that failed, then 2787. And if that failed, then 2750.

If 2810 holds, then we’d look for resistance at 2830 and then 2845.

There’s no 5 day cycle projection but just a little more weakness here would set it at 2765 initially.

Hourly indicators tuned to a 5 day cycle frequency are still bearish as of 8:15 AM. They are not oversold. But the key is whether support at 2810 continues to hold or not. If not, the gates of hell should open. If it holds, the question of who’s in charge would remain open until either 2810 breaks, or they get back above 2845-50.

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 Cash Index Hourly Chart 

The red bar at the far right shows where the futures traded overnight. It’s between 2808 and 2875. Resistance at 2875 held. Trend support was at 2835. So far, it looks like a goner this morning. However, if they rebound above that in the first hour, the bulls will be firmly in charge.

If they don’t, then the next level to watch will be 2760. That’s approximately where the trendline from the March low comes in. If that breaks, look out below. The next support levle would be 2720.

S&P 500 Hourly Chart

Join me on the Capitalstool.com 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, Monday, April 20, 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. 

The Illusion of a Stock Market

Short term cycles are due for tops and little pullbacks at least. If it doesn’t happen, it would be another sign that the long term cycles are back in up phases. But are these cycles, or just the manifestation of the power of the Fed to create the illusion of a market?

How do you trade it? With one eye on the ground and the other to the sky. Walk this way.

Technical Trader subscribers, click here to download the report.

Not a subscriber? Try Lee Adler’s Technical Trader risk free for 90 days!  

What Happens When Fed Makes Moral Hazard Permanent and Structural

The Fed’s massive bailout of Primary Dealers and its alphabet soup loan programs for all other big financial players, have now made moral hazard permanent and structural. Why worry about risk when you know that the Fed will always take you off the hook when the shit hits the fan?

How can we know how this will play out? How can we know if these loans can ever be repaid? Will they be repaid through inflation, perhaps hyperinflation? Or will the borrowers simply default if the markets and economy recover too slowly?

Then who will be on the hook for the Fed’s guarantees when the Fed must assume the losses? Who pays? Taxpayers? Depositors? Everyone, again through massive inflation?

Of course, there’s always a chance that everything turns out just fine. The world returns to normal in a few months. The economy bounces back, and all the trillions lent by the Fed gets repaid timely, with no financial price to be paid.

We don’t know, but there will be telltale signs in the weeks ahead that will give us a heads up.

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Expecting The Worst and Getting It

We expected the worst, and we’ve gotten it. But that does not mean that things will get better. The revenue trends had been strong. Now they’re awful, and spending is unimaginable. How can this be sustained? In this report, I’ll show you the data, and discuss how to handle what’s to come.

Subscribers, click here to download the report.

Get this report and access to past reports.  Read Lee Adler’s Liquidity Trader risk free for 90 days!

 

 

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, 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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