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Bring Out Your Dead and Buy! Fed QE and Daily Stock Market Setup – May 5, 2020

The Fed bought only $4 billion in Treasuries from Primary Dealers yesterday. Those purchases settle today. Today the Fed says it will buy $13 billion of Treasuries, settling tomorrow. For the week, it said it will buy $40 billion.

The Fed will deposit the cash into the dealers’ accounts at the Fed in payment.

Liquidity moves markets!

Follow the money. Find the profits! 

The Fed bought another $6 billion in MBS, but that doesn’t count because they are forward contracts and the dealers won’t get the cash until May 13 and June 22. Just be aware of the huge windfall the dealers will get the week of May 13. I cover that at Liquidity Trader.

One thing is sure. Where a month ago the Fed was buying all new Treasury issuance and then some, now it’s nowhere close. In recent days the Fed has been absorbing only around a fifth of new Treasury issuance. This week is a light week issuance wise. So far the Treasury has scheduled issance of “just” $154 billion. The Fed will buy only $40 billion of that.

Is that enough? Well, last month the US Government issued nearly $1.4 trillion in new paper, and the Treasury said yesterday that in May and June it will plunk another $1.6 trillion on the market. We’ll know the distribution of that on Wednesday when the TBAC issues its updated estimate for the quarter. I’ll cover that at Liquidity Trader.

So is the Fed doing enough to keep the short term bull trend going? Below is how it looks today.

Stock Market Trading Setup for Tuesday, May 5, 2020

S&P Futures Daily Chart 

Yesterday’s post.

Rogue elements of the Trump Regime, known as “doctors and epidemiologists,” are estimating a doubling of the COVID19 death toll in the weeks ahead as states try to reopen their economies. Stock futures are cheering on the predicted rise in the death toll.

Buy Death, the traders say!

The ES futures are up 36 at 2862 at 8:25 AM in New York. Resistance is suggested around 2864 and 2880. If those are cleared, then the next target would be the trendline around 2900. And above that, 2966. 

The bottom of the current daily uptrend channel is at approximately 2790. The next support level would be at 2750 if that breaks. 

S&P 500 ES Futures Chart

The daily oscillators tuned to an 8 week cycle are slightly bearish, or slightly bullish, depending on your point of view and what happens in the early going today.

Rate of Change has turned down from a negative divergence. Those are usually good sell signals. However, the absolute level is still bullish. If the current level holds, then the trend is still bullish. Only if there’s a downturn with a support break would this be bearish. In fact it would be very bearish. “Would,” not “is.”

MACD tuned to the same cycle has edged lower from above the level reached in the Q4-Q1 advance. Note that it stayed up there for 3 months before the market topped out. Ugly. I wouldn’t get bearish until this heads down and price breaks support.  As long as this indicator stays flat up here, it signals trending. Bullish. 

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

We have two things going here. An uptrend and a double top. Something for every persuasion. Ah, ambiguity.

The 5 day cycle projection is 2895. Definitely possible, but not a given. Because, yes Virginia, Georgia, and Tennessee, 2864 is resistance. If they get through there, 2875 is easy, 2895 doable. If 2864 holds, then bears need to retake 2850, and that’s just for starters.

I give the bullish trend the benefit of the doubt on this chart down to 2840. Then we can start to wonder if maybe this sucker isn’t turning back down.

ES Futures Hourly Chart

Momentum, True Strength and MACD tuned to a 5 day cycle seem to be in trending mode, going sideways in positive territory. A developing negative divergence could resolve positively if they clear 2864. But if they do turn down from here, the negative divergence suggests it could grow teeth.

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.

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, Tuesday, May 5, 2020.” 

Meanwhile, here are the latest reports from Liquidity Trader. 

Here’s Where You Should Start To Worry About Gold

Gold is consolidating. The uptrend will be safe as long as a key support level holds. This report looks at where to start worrying, and where the upside targets are if all goes well.

Subscribers, click here to download report.

Try Lee Adler’s Gold 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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