Risk assets are declining again this week

S&P 500, U.S. Stocks Pull Back From Monthly Highs

Posted Thursday, May 21, 2020 by
Shain Vernier • 2 min read

During this post-FOMC Minutes session, the U.S. indices have pulled back from monthly highs. Through the first half of the trading day, the DJIA DOW (-45), S&P 500 SPX (-15), and NASDAQ (-50) are all in the red. The primary drivers of the retracement are record-breaking U.S. jobless claims, a fading American real estate market, and slumping Philly FED Survey.

Here’s a quick look at this morning’s U.S. jobs and manufacturing numbers:

Event                                                         Actual                Projected         Previous

Continuing Jobless Claims (May 8)       25.073M             24.765M            22.548M  

Initial Jobless Claims (May 15)                2.438M               2.400M              2.687M

Philadelphia FED Survey (May)               -43.1                       -41.5                   -56.6

The key takeaway from these three reports is that each underperformed expectations. Although they are improvements over previous figures, the numbers still lag. In the case of labor data, this may be the trend for weeks to come. Until the robust unemployment COVID-19 aid packages begin to expire, the number of recipients is likely to remain staggeringly large.

On the U.S. real estate front, Existing Home Sales (April) fell by 17.8% from March levels. This is the worst news yet for the American housing market and will be a key metric to watch moving forward.

Today’s economic data has brought a moderate risk-off approach to the S&P 500. Nonetheless, prices are still closing in on the vaunted 3000.00 psyche level.

S&P 500 Slumps Following Dismal Data

Although off for the day, this week’s gains have been strong for the June E-mini S&P 500. Prices have broken above the 62% COVID-19 retracement and positioned to extend further north.

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

Here are two key support and resistance levels to watch for the June E-mini S&Ps:

  • Resistance(1): Weekly SMA, 3071.25
  • Support(1): 62% COVID-19 Sell-Off, 2930.00

Bottom Line: Barring the second wave of COVID-19 forcing another global shutdown, the S&P 500 appears destined to regain its swagger above 3000.00. If the grind north continues, a shorting opportunity from the Weekly SMA will come into play.

Until elected, I’ll have sell orders in the June E-mini S&Ps from 3069.25. With an initial stop at 3076.25, this trade produces 35 ticks on a slightly-better-than-1:1 risk vs reward management plan.

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