Expect Two-Way Volatility to Persist as Fear and Uncertainty Remain in Equity and Credit Markets - Chaikin Analytics

Expect Two-Way Volatility to Persist as Fear and Uncertainty Remain in Equity and Credit Markets

The SPDR S&P 500 ETF (SPY) has a Neutral + Chaikin Power Gauge ETF Rating. The fund is oversold based on the OB / OS Indicator but Chaikin Money Flow is bearish. The fund is now back in the consolidation range that was established last summer. What jumps out at us is the fact that for the first time in over a year, the long-term trend line is now declining. Generally speaking, oversold conditions in the context of an uptrend present opportunities to become aggressive on the long side of the portfolio. However, with the SPY trading below a declining long-term trend line, this is not the case currently. The market is now oversold in a downtrend.         

In the near-term, there is price-based support in the $280 – $290 range which holds the low from February 28th. A break of this level opens the door to a move to the area between $260 and $270. On the upside, there is resistance in the area between $310 and $320. 

Market Commentary / Looking Ahead

US equities ended down in Friday trading, with all sectors closing lower. Energy (crude) and Financials (rates) were the biggest decliners. Healthcare and Consumer Staples outperformed. Treasuries were stronger. The dollar was down on the major crosses. Gold finished up 0.3%. WTI Crude settled down 10.1% after the collapse of the OPEC production-cut agreement.

All eyes will be on the high-yield market today given the collapse in the price of Crude Oil in the overnight session. The iShares Iboxx High Yield Corporate Bond ETF (HYG) is trading below the declining long-term trend line and is likely to break one-year support this morning. Energy makes up ~10% of the holdings in the fund and the deep dive in the price of crude has the potential to have a negative impact on the highly leveraged companies in the space.

S&P futures have traded limit-down for most of the session, off nearly 5%. Asian markets were lower overnight with Japan down over 5%, Hong Kong down more than 4% and China down over 3%. European markets are weaker as well. Treasuries are extending their rally with the 10-year yield below 0.5% and the 30-year yields below 1%. The dollar is weaker on the major crosses. Gold is up 0.3%. WTI Crude is off more than 20%.

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