S&P 500 On The Bull, Testing 62% COVID-19 Retracement

Posted Friday, May 8, 2020 by
Shain Vernier • 2 min read

The story of the day has been the record spike in U.S. Unemployment. As expected, this morning’s jobs report has brought doom and gloom to the news cycle. The markets are taking an optimistic view of the figures, thinking that the worst of the COVID-19 fallout may be over. Through the first half of the trading day, the DJIA DOW (+372), S&P 500 SPX (+42), and NASDAQ (+142) are trending higher.

In a Live Market Update from yesterday, I talked about the limited impact that today’s jobs numbers would have on sentiment. Thus far, it looks like market participants agree that the report brought no new information to the table. Just the same, here’s a quick look at the highlights:

Event                                                        Actual         Projected           Previous

NonFarm Payrolls (April)                       -20.5M            -22.0M                  -870K

Unemployment Rate (April)                    14.7%              14.0%                  4.4%

These figures are historically bad. And, they are likely to remain that way until the U.S. economy reopens in full and the enhanced COVID-19 unemployment benefits expire on 31 July.

The good thing about today’s jobs report is that we now have the benchmark for catastrophic unemployment. When you shut the economy down, the result is roughly 15.0% unemployment in one month’s time. Now, the key is to watch this number in the coming four months. It will likely decrease, albeit at a modest rate until late summer. Then, look for the largest monthly unemployment drop in history.

COVID-19 Unemployment Spike Can’t Stop U.S. Stocks

U.S. stocks are on the bull, led by broad sectoral strength. For the June E-mini S&P 500, values are once again on the doorstep of the 62% COVID-19 retracement (2930.00).

June E-mini S&P 500 Futures (ES), Daily Chart

Bottom Line: Until the closing bell, there is one level worth watching in the June E-mini S&Ps: 2930.00. If this number is tested, a short trading opportunity will come to pass.

Until elected, I will have sell orders in the queue from 2929.25. With an initial stop loss at 2967.25, this trade produces 100 ticks on a sub-1:1 risk vs reward ratio.

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