Bear Market Support Levels: Where Are They?

Mish

A look at the technical picture shows support levels and possible bounce points to watch on each of the indexes.

S&P 500

The S&P 500 is right on support.

Technically, one would expect a bounce here. But to where is hard to say. This is a severely stressed chart and a recession is here.

Also, the bond market is still dislocated. Today the Fed announced more Repos and stocks decline 12%.

Dow

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The DOW crashed right through support. The next level of support would take away all gains since Trump was elected.

Nasdaq 100 Index

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The Nasdaq is the strongest of the three chart. It is still well above the first level of support, unlike the first two charts.

High Yield Spreads

Spreads are blowing out and if that continues, there either will not be a stock market bounce or any bounce will be short-lived.

Run On the Banks?

I was asked about that earlier today. I do not believe it is an issue, at least in any meaningful way.

There is $1.6 trillion in excess reserves at banks.

Might there be a shortage of physical $100 bills caused by panic? Yes, but that is not the same as a capitalization issue right now.

Might we have a problem later? Yes, but this is not 2008.

Unemployment Claims

Unemployment claims are one thing to keep an eye on as Danielle DiMartino Booth accurately pointed out.

Question of the Day

That what everyone wants to know but it is not knowable, now or ever, I as I responded.

We can say that stocks are still way overvalued and earnings will crash. Some may dispute that but stocks were priced for perfection waiting for a needle to prick the bubble and the coronavirus obliged.

The key chart is not any of those I posed but rather the credit spreads charts that Bianco posted.

Troubled Sectors

The airline industry, travel businesses, and oil sectors are in miserable shape, All of them want bailouts.

And what about the workers in those industries?

In Emergency Meeting, Fed Fires All Its Bullets in a Single Shot

I commented on Sunday, In Emergency Meeting, Fed Fires All Its Bullets in a Single Shot

The Fed can provide liquidity, but this is not a liquidity issue.

With so many living paycheck to paycheck, and much of the rest with only a 2-month cushion for emergency expenses, any recovery is likely to be a feeble one.

There will be no remedy from the Fed for lost wages. Loans to businesses will not help consumers at all.

We have had a 12% down day and a 10% down day over these concerns. A 10% up day was sandwiched in between.

The Emergency repos and rate cuts by the Fed are not going to do much. As we have seen already.

All in all, expect more downside, even if there is another short term bounce.

Mike "Mish" Shedlock

Comments (36)
No. 1-11
zurtkz
zurtkz

I wouldn't discount governments closing markets in this unprecedented environment if the rout continues. Yet still long a few spce puts.

tokidoki
tokidoki

The coronavirus called America's bluff and that's all there is to it.

Closing markets would be to admit that yeah, the US is indeed a banana republic with MSNBC as cheerleaders. The next time the market opens, people would just SELL.

phatmaster
phatmaster

Mish, how do gold and silver hold up in a deflationary recession? Are they just protection from the coming inflation?

bradw2k
bradw2k

Mish, what's your odds that none of these will hold over the next 5 years? I believe Hussman was projecting 60+% down from the top, which breaks through every line you drew. ... Five years is a long time to swear off equities, but that probably beats dancing with a bear.

Carl_R
Carl_R

At this point i think the market drops 20% tomorrow, and then more on Wednesday morning before finally rallying. So, I'll call it S&P to 1700 before a bounce, Dow to 14,500, and Nasdaq to 5000.

I'll also predict a complete National Quarantine by Tuesday of next week. By then the hospitals in New York and Seattle will be over capacity, and the situation will be ugly in other places. There will be no other choice. The only question is when.

crazyworld
crazyworld

The interest rates have been so low this last 12 years that it was more advantageous (dividend costlier than interest payments) for the US companies to buy back their own stock and convert share capital into a debt liability. This turned into a casino play at the border of swindling.
Most CEO made fortunes trough their stock options as this wide processus helped blow the bubble in the US stock markets. That was a legal way to pump indirectly huge amounts of money from the company in addition to the already huge wages received.
In Europe though this practice was done on a smaller scale and this could explain why European the stock markets increase after 2008 were at a far lower percentage than the US ones.

QE2Infinity
QE2Infinity

The US has huge structural issues in its economy. Manufacturing was offshored, mass immigration drove blue collar wages down and many are sucking at the teat of the government. Borrow and spend works for a while, but, it's no way to have a prosperous country with a strong middle class.

lol
lol

Fed printing trillions to prop up everything to maintain the illusion of "recovery" for over a decade,that strategy is rapidly petering out,why?Because the underlying economy is in permanent collapse and until you can get growth in the black for real,not just pretend, inevitably the US will end up like Zimbabwe,you live by the printing press ...you'll die by the printing press.

mkestrel
mkestrel

Mish, Do you have an opinion on the direction for the single family home market? Thanks

hhabana
hhabana

Mish, thanks a lot for these charts. Please do this on a regular basis. It's nice to see support and resistance lines to get a feel for things. It would help too if you can provide gold and silver.

BaronAsh
BaronAsh

good succinct analysis.
Here's my Weekly Chart of the ES.

I have added in long-term Fibonaccis. The 38% hit on the nose this week, so they are in play. The green and blue 50-61.8 are below. Also I have Volume Profile which is the only thing I use in day-trading (plus Vwap). The jagged red line in between the green Value Area Bands represents the price at which the most volume of trades happened during the time of this chart ("Point of Control" or POC). As you can see, it is way down there around the 1300 level. Unlikely to get down there of course.

But first stop is the high VA (green dotted line) which is getting very close to the 50% Fib level at 2027, so I suspect that's where the second leg down will go to. If we look at the past two weeks of action on a shorter term chart, we find the POC is way up there at around 3050, however it is about to flip down to current levels any day now at which point there will probably be a rally to flush out the balance of new shorts taking new positions after the roll-over. But after a nice rally for a week or two - and especially if it fails to make convincing new lifetime highs - then probably a second leg down to around that 50% 2000 level. (If you look left, you see the second-largest histogram volume bulge also around this level. If the market retraces there and churns for a while, the POC will move up there, and then there will probably be an attempt to get to the old highs again (unless we are in long-term secular bear, see below).

Probably a bounce soon. Last week was futures roll-over.

The over-arching issue is are we sliding down the early slopes of a secular bear now, or is this a crisis-driven correction? Most likely given the economy was pretty strong until recently, even with trade friction headwinds, it's the latter. But we are now in a geopolitical war. The Globalist wing is trying to checkmate the US Republic and Nation State Democratic Republic types into going into totalitarian command-and-control mode whilst simultaneously undermining their manufacturing and trading base. Expect that trade deal to be thrown out the window any day now, esp. if China refuses to keep supplying medicines and masks etc. On the other hand, it could strengthen the hands of the Nationalists who will use the crisis to bring more industries back home. Main battlefield day to day is mainstream media where the narrative is crafted, all now filtered through the all-pervasive, invisible but deadly Blitz of the corona virus pandemic.

Early days.
But almost certainly: we are now at war. Just on asymmetric fronts - like the top brass in China and Russia have been promising us for years now.

And of course never forget the old saw:
"The markets always go where they can inflict the most pain!"

So probably a stiff rally to flush out recent massive volume of shorts, then a further crash down to wipe out all the massive volume of recent longs, get the pension and other longer term (baby boomer) funds to liquidate, pocket the other-side profits, load up, and then back to slow rally with most of the boomer generation having lost 50% of their savings.

That's the globalist/bankster plan probably. But there's another side fighting, and we'll see how it plays out.


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