Morning Notes — Retest Scenario

From a market stability perspective, the most important piece of last week’s fiscal bill was the $400B Treasury ESF that becomes ~$4T in liquidity with Fed leverage. From an economic perspective, the most important piece will be the $350B small business coronavirus loan program that starts Friday. The program is designed to cover 8 weeks of payroll and payroll-related expenses and allocated by banks and other SBA lenders on a first-come, first serve basis. The 0.5% interest rate loans are due in 2 years, but forgiven if companies keep employees on their payroll for two months. It’s the right mechanism, but there’s concern $350B may not be sufficient and help for small businesses would be the biggest priority for any ‘phase 4’ stimulus package.

US data: The March manufacturing ISM came in well-ahead at 49.1 vs consensus for 46, but still down from 50.1 last month. And ADP employment (precedes official BLS Jobs Report by two days) only posted a loss of -27,000 vs consensus for -200,000. However, most economists lately have based their forecast on weekly jobless claims data, released tomorrow with consensus looking for a 3 million-3.5 million increase. Note that number looks similar to last week’s 3.283 million claims figure that was ~5x the previous record from 1982 of 695,000. March Non-farm Payrolls data will be released Friday morning.

Chartist: The S&P 500 is now in the ‘retest’ phase after reaching our resistance zone of 2630-2660 over the last 4 sessions. Please be aware that many successful retests from the past included a slightly lower, intraday low. In this case, a slightly lower low would imply a level below 2200. And successful retests can end anywhere in between. What’s common to almost all successful retests are any or all of the following: 1) decelerating price trend momentum; 2) seller exhaustion; 3) narrowing market breadth (fewer number of new lows) and; 4) sector dispersion favoring cyclical groups. On this last point, it’s important to acknowledge the relative outperformance of semiconductors (SOX) since the 2/19 high. It’s also important to acknowledge today’s ~3.8% rally in the price of Copper and its textbook technical reversal on 3/19, which was two days prior to the bounce in the SPX.