SP500 defies news flow

Overnight the stream of bad news around COVID-19 continued, as testing confirmed the virus has now infected 1million globally and killed more than 51,000 people.

Compounding the negative news flow, jobless claims in the U.S. rose to 6.65 million, taking the two week total to almost 10 million, a number that just weeks ago seemed unimaginable, prompting Cleveland Fed President Mester to comment that the unemployment rate could exceed 15%.

Highlighting the disconnect between stocks and news flow, the benchmark U.S. equity index, the S&P500 finished the session over 2% higher. Admittedly, part of the rally was attributable to a sharp rally in crude oil on talk of production cuts and news that China would buy oil for its reserves.

However, it is evidence the market for now has become immune to bad news. Or put another way, after suffering a sequence of blows in March, the market has reached a state of numbness. Evidence of this, volatility according to the VIX Index has now dropped almost 40% from March highs and daily FX volumes after a big spike higher in March, have dropped back to levels seen in Mid-February.

From a positioning sense, those with faith in the measures announced by central banks and governments to heal the markets have probably already bought into the market in varying degrees. Likely to be balanced  by those who feel the worst is still to come and are waiting to sell bounces.

COVID-19 is unique presenting challenges on both an economic and humanitarian level. However history reveals selling into bounces after big declines and after central banks have stepped in is as risky, as trying to pick bottoms.

With that in mind, we are pleased that our call for a turning point in markets two weeks ago has largely panned out. Providing the S&P 500 can hold above near term support 2400/2350ish, a break above recent highs and the 38.2% Fibonacci retracement, 2640/50 area would be confirmation that the next higher has commenced towards 2785/2850ish. Conversely, while below 2640/50, downside risks remain, including a retest of recent lows.

Source Tradingview. The figures stated areas of the 3rd of April 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation