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The Opening Salvo in the Renewed Stock Downswing

Stock-Markets / Stock Markets 2020 Apr 04, 2020 - 06:52 PM GMT

By: P_Radomski_CFA

Stock-Markets

As expected, the S&P 500 had a down session yesterday. Opening with a sizable gap, the bears continued their push to move prices lower. Since the futures have been pointing higher before the unemployment claims came in, does it mark a tradable turnaround?

In short, that’s unlikely. Let’s start though with the daily chart examination (charts courtesy of http://stockcharts.com).


The days of inside candles are over as stocks indeed rolled over to the downside. These were our yesterday’s observations:

(…) Stocks closed near the daily lows on Tuesday, and did so on higher volume than was the case on Monday. Another point speaking for the bears is that yesterday’s upswing attempt was again soundly rejected. And still, the daily indicators are increasingly and tellingly curling lower.

The above holds true also today, and perhaps even more so as the daily indicators’ examination reveals. Yesterday’s bearish gap continues to support the bears, and we certainly expect the downside move to continue over the coming days.

Let’s check again the high-yield corporate debt chart (HYG ETF). It should confirm the move lower in stocks, shouldn’t it?

It does confirm it. That’s what we noted about HYG yesterday:

(…) The relentless yet decelerating climb higher has stopped, and there’s a good chance that we’ll see its way lower prices ahead, which would confirm the developing downswing in stocks.

But does that mean stocks would move in a straight line lower now? Let’s check the perspectives of both the stock and bond market, in order to check their relative dynamics.

The above charts overlays the corporate debt ETF’s candles with the stock index line. Comparing the magnitude of yesterday’s downswing shows that stocks are a bit ahead in the sliding game. Unless HYG declines more meaningfully today, stocks are likely to take a short-term pause as they have declined more profoundly yesterday. The emphasis here goes to short-term (which implies that any potential upswing certainly isn’t going to be a tradable opportunity) – unless we see a turnaround in the debt market, any potential stock upswing doesn’t really have legs.

As stocks plunged to 2450 on another record high in the unemployment claims, our open profits have grown substantially – and keep growing on. What will tomorrow’s non-farm payrolls look like? What a rhetorical question…

Summing up, the bears enjoy the upper hand as can be seen on both the weekly and daily charts. The renewed downswing is underway, and lower S&P 500 (and SPY ETF) values are ahead. The daily indicators, high-yield corporate debt market and fundamental prospects of more coronavirus pain and its reflection in market prices mean that our open and increasingly profitable short position remains justified.

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Thank you.

Monica Kingsley

Stock & Oil Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

Monica Kingsley is a trader and financial markets analyst. Apart from diving into the charts on a daily basis, she is very much into economics, marketing and writing as well. Naturally, she has found home at Sunshine Profits - a leading company that has been publishing quality analysis for more than a decade. Sunshine Profits has been founded by Przemyslaw Radomski, CFA - a renowned precious metals investor and analyst.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


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