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This presentation is solely for informational purposes and not a solicitation to invest. Stonehenge Analytics offers and publishes forecasts of future likely price movements of various financial assets. These are opinions formulated from our cycles-based historical analytical research. They are not, nor are they represented to be investment advice. Individuals or institutions choosing to act on these opinions are doing so at their own risk. Stonehenge Analytics does not warrant or guarantee that acting upon its published opinions will produce financial gain. Past historical performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Individuals and institutions should consult a financial advisory professional before making any investment.Druitt’s Weekly Data ChartsWeek Ending March 27, 2020 The U.S. stock market staged a broadly-based “oversold bounce” rally this past week, with all four major indices closely tracked by the Weekly Data Charts newsletter putting into place their prior week’s March 20 weekly-close prices as at least short-term low inflection points. Since stock market history strongly suggests that these price level will likely be re-tested at some future point in time we will list them for our readers. The Dow Industrial Average March 20 weekly-close low was made at 19,173 and its companion Dow Transportation Average March 20 weekly-close low was recorded at 6,837. The S&P 500 March 20 weekly-close low was posted at 2,304 and that of the NASDAQ Composite Index was posted at 6,879. Weekly price gains recorded by all four major indices were quite impressive, lifting all four to within striking distance of their March 13 weekly-close prices. The Dow Industrial Average +2,462 points (+12.84%) to close at 21,636. Its companion Dow Transportation Stocks Average gained +861 points (+12.60%) to close at 7,699. The broadest-based S&P 500 Index gained +236.55 points (+10.26%) to close at 2,541.47 while the technology stock-heavy NASDAQ Composite Index gained +622.86 points (+9.05%) to close at 7,502.38. Despite these impressive weekly price gains the Dow Industrial Average ended the week down from its February 14 all-time weekly-close price high at 29,398 by -26.4%. The Dow Transports Average closed the week down from its January 17 52-week weekly-close high at 11,278 by -31.7%. The S&P 500 ended the week down from its February 14 all-time weekly-close price high at 3,380 by -24.8% and the NASDAQ Composite Index ended the week down from its all-time weekly-close high from February 14 at 9,731 by -22.9%.No one should expect that these losses will be recovered quickly or in price movements which go straight upward. Time will be required and a fair amount of upward and downward price action will take place. But, for the very near term it certainly appears that the high intensity, peak downward price momentum “crash phase” came to a close this past Monday when all four major indices posted their lowest daily-close price levels of the week. The major positive news for the major U.S. stock indices this past week was that all five 5-week through 40-week moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline data produced weekly rises. The NYSE weekly ratio produced this past week was an exceptionally large 86.1%. Weekly “percent of stocks rising” ratios of this order of magnitude have only very rarely been produced. The most recent time was in the weeks of December 31, 2018-January 4, 2019 and also the following week of January 7-11, 2019 when the NYSE produced back-to-back ratios of 85.9% and 85.7%. As is the case today, the NYSE was recovering from a rapid downward price collapse that produced a major intermediate-term price low inflection point on December 24, 2018 for all four major stock indices. The S&P 500 upward price trend initiated in those two weeks continued uninterrupted through March 1, 2019, raising the S&P by +16.0% on a weekly-close price basis. For the record, the shortest-term 5-week moving average of NYSE weekly “percent of stocks rising ratios” rose to 29.38% from 20.04%, setting the March 20 level firmly in place as a major long-term low inflection point, lower even than its “Lehman Brothers Crash” low from October 10, 2008 at 21.8%. New high and new low based data series continued to behave bearishly for the major stock indices across the board at all moving average time periods. Of particular note was the short-term 5-week moving average of NYSE weekly new high/new low ratios that fell to 5.3%. As recently as recently as February 28 this moving average was comfortably in bullish territory at 63.3%. It crossed below the critical 50.0% line in the week of March 9-13. At its current level of 5.3% it has undercut every intermediate-term low it has made since its March 13, 2009 weekly-close low at just 2.0%. This includes major intermediate-term lows made on October 7, 2011 at 11.4%, September 25, 2015 at 12.0% and January 4, 2019 at 6.8%. We cannot be entirely certain that the 5-week moving average might not fall again this upcoming week because the weekly ratio due to drop and be “replaced” in its calculation will be 12.0%, a figure that the NYSE has topped on a daily-close basis just once in the past three weeks. Yield spread data from the U.S. bond market produced mostly bullish weekly movements for the major stock indices. The Corporate Bond/Treasury Bond Yield Spread fell to +274 basis points from +316 on March 20, thus establishing the March 20 level as at least a short-term high inflection point. This large weekly drop was a product of a huge -59 basis point weekly decline in the Barron’s High-Grade Corporate Bond Index yield to 3.42% from 4.01% on March 20. The 10-year Treasury note yield also declined, but by only -17 basis points. The U.S. Federal Reserve’s commitment to purchase high-grade corporate bonds for its own account made on Monday, March 23 was directly responsible for the large weekly drop in the Barron’s High-Grade Corporate Bond Index yield. The “Merrill Lynch Confidence Index” fell on the week to 44.07 from 47.04 on March 20 but it did not undercut its low from March 13 at 43.40. The more important news was that the “BB”-rated Bond Index yield fell to 7.51% from 8.27% on March 20. This weekly decline establishes the March 20 yield as at least a short-term high yield inflection point which if it holds will definitely be good news for the major stock indices. Our long-term chart of the S&P 500 Index that uses only its weekly-close prices also compares that index with the short-term 5-week moving average of NYSE weekly new 52-week lows. The 5-week moving average line has been multiplied by a factor of 2 on the chart for scaling purposes. Levels shown for specific dates noted are actual, unscaled levels. There is an excellent prospect that the March 27 level at 1,618 weekly new lows for the 5-week moving average of NYSE weekly new lows will be its peak high extreme for the “Coronavirus Crash” of 2020. We have placed a dashed green horizontal line at the previous all-time high made by the 5-week moving average in the “Lehman Brothers Crash” week that ended on October 10, 2008 at 1,367 weekly new lows. Measured by the size of the NYSE weekly “New Low” list the economic consequences threatened by the global coronavirus pandemic were judged by global investors as being potentially far worse than those threatened by the collapse of the U.S. commercial and investment banking industry that was threatened by the Lehman Brothers bankruptcy. We should bear in mind that in any given week there are approximately 3,100 issues traded on the NYSE. The 5-week moving average of weekly new 52-week lows therefore has grown to include slightly more than 50% of all issues listed and traded on the NYSE. At the height of the Lehman Brothers panic the 5-week moving average of weekly new 52-week lows included only about 44% of all NYSE listed issues. In the upcoming week the 5-week moving average calculation must “replace” a figure of 1,139 weekly new lows that will drop from its calculation. By historical standards this is an extraordinarily high figure which the NYSE will likely fail to match or exceed. We can therefore be reasonably confident that the 5-week moving average will fall this upcoming week and establish its March 27 level as its all-time weekly-close high. The chart history below shows that to date there have never been any gradual declines by the 5-week moving average from previous major intermediate to long-term highs it made on December 28, 2018, February 12, 2016 or October 10, 2008. We can also be reasonably confident that once again the decline by the 5-week moving average of NYSE weekly new lows will be of the straight-down variety. However, it also might not last longer than five weeks. We therefore cannot count upon the associated S&P 500 “relief rally” which appears to have started this past week will last beyond mid-April. A vigorous “bounce” rally likely to last for three to four weeks is reasonably assured for the S&P 500 at this point. What cannot be ruled out however is a swift collapse of that rally in mid-April followed by an S&P 500 price decline which re-tests the just-made weekly-close low from March 20 at 2,304 and possibly breaks it. On the S&P 500 portion of the chart we have placed a solid horizontal technical resistance line at its August 23, 2019 short-term weekly-close price low at 2,847. Our opinion is that the S&P will have a difficult time rising above this technical resistance line during its “bounce” rally. Only rarely does a “bunce” rarely retrace more than 50% of the preceding price loss. The S&P 500 price loss during the “Coronavirus Crash” was -1,076 points from its February 14 weekly-close high at 3,380 to its March 20 weekly-close low at 2,304. The S&P would recover 50% of that loss by rising +538 points to 2,842. This price level is very nearly exactly identical to its August 23, 2019 short-term weekly-close price low at 2,847. We will also note and emphasize that the S&P 500 all-time high that concluded its long rising trend from its February 12, 2016 major intermediate-term price low was made on January 26, 2018 at 2,872, a price level which will also stand in the way of further S&P upward progress as a major technical resistance obstacle. The Weekly Data Charts newsletter simply does not believe that bullish upward price momentum can be generated between today and mid-April which would be sufficient to push the S&P 500 upward through both very formidable technical resistance barriers on its first attempt. Our next chart compares the short-term 5-week and short intermediate-term 10-week moving averages of NYSE weekly new high/new low ratios since August 15, 2008. This chart shows that at its current level of just 5.3% the 5-week moving average of NYSE weekly new high/new low ratios has taken out to the downside every previous major intermediate-term low since March 13, 2009. While upcoming weekly ratios due to drop and be “replaced” in its calculation for the next five weeks will be historically extremely low figures we cannot be certain that in the upcoming week the NYSE will produce a higher ratio that the 12.0% weekly ratio due to be “replaced”. As we mentioned earlier, the NYSE has produced just one daily new high/new low ratio above this figure in the past three weeks. We cannot assume that it will now produce five consecutive days of new high/new low ratios that will exceed 12.0%. It might or it might not. However, starting in the week of April113-17 the weekly ratios due to be “replaced” will average just 1.2%/week through Friday, May 1. We can therefore be reasonably assured that the 5-week moving average will not fall past Friday, April 10. The next-longer short intermediate-term 10-week moving average of NYSE weekly new high/new low ratios ended this past week at 41.9% and falling. This moving average calculation still has five more weeks of historically high weekly ratios that will average 78.4%/week due to drop and be “replaced” through Friday, May 1. We can be reasonably certain that the 10-week moving average will continue to fall for several more weeks. At the previous very deep lows made by the 5-week moving average the next-longer 10-week moving average has posted its own deep low either exactly simultaneously with the short-term 5-week moving average or just one week before or afterward. Since the NYSE will be most unlikely to match or exceed the weekly new high/new low ratios due to drop and be “replaced” in the 10-week moving average calculation for the next two weeks the historical statistical odds will favor that the short-term 5-week moving average will continue to fall or remain unchanged through Friday, April 10. The implication here is that this past week’s “bounce” rallies by the major stock indices will stand a strong prospect of failing quickly and be followed by price declines which will re-test the weekly-close price lows made on March 20. Finally, we wish to point out that in 2008-09 and again in 2018 the 5-week moving average experienced brief rises which never pushed that moving average above the 20.0% mark and failed on January 2, 2009 and on December 7, 2018. In both instances these failures by the 5-week moving average to rise above 20.0% signaled that at least one more downward price leg remained in already-established bearish price trends that had prevailed during the initial collapse of the 5-week moving average to its very deep intermediate-term low. Longer-term investment-oriented accounts would do will to be especially alert for another such failure by the 5-week moving average to rise above the 20.0% mark in April. As we have done for the previous two weeks we will show the next two “stand alone” charts of the short-term 5-week and short intermediate-term 10-week moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics together. The 5-week moving average chart is the top chart, the 10-week moving chart is directly beneath it. The top chart of the short-term 5-week moving average shows its spring upward “bounce” this past week from its March 20 long-term and very deep low at 20.04%. The 5-week moving average rose to 29.38% with the help of a monster weekly ratio of 86.1%. While this strong weekly rise halted the downward acceleration in NYSE price momentum it did not generate upward price momentum on anything other than a very short-term 4-day basis. Unless and until the 5-week moving average crosses back above the critical 50.0% line all that will be taking place is that downward price momentum will be in process of being relieved. While this will be necessary in order to reestablish upward price momentum it will not produce a rally by the major stock indices capable of being sustained for longer than three to five weeks. On the chart below we have drawn an up-trend line connecting the 5-week moving average low from December 21, 2018 with its very brief and short-term low from February 28, 2020 at 41.84%. In our opinion it was the failure by the 5-week moving average to produce a vigorous upward rise from this low which generated the massive downward price momentum which followed in March. It therefore will be critical that the 5-week moving average succeed in crossing back above this broken up-trend line. This potential technical resistance line is currently at approximately 46.0%. Upcoming weekly ratios due to drop and be “replaced” in the 5-week moving average calculation will be 3.8% and 48.4% for the next two weeks through April 10. It can rise up to the former up-trend line this coming week if the NYSE produces another monster weekly ratio of 86.1%. But, in order avoid failing at this technical resistance line the NYSE must then produce another weekly ratio in the week of April 6-10 that is at least equal to the 48.4% ratio due to be “replaced” in the 5-week moving average calculation that week. This is a tough order for the NYSE to fill over the next two weeks and it is not likely to succeed. The lower chart of the next-longer 10-week moving average of NYSE weekly “percent of stocks rising” ratios shows that this past week’s monster weekly ratio also produced a weekly rise for it. But, it was a much less dramatic increase to 38.84% from 37.21% because the 10-week moving average calculation was “replacing” a very large weekly ratio of 69.8%. Over the next two weeks the weekly ratios due to drop and be “replaced” in the 10-week moving average calculation will average just 33.2%/week. This is such a low two-week average that the NYSE should rather easily produce higher weekly ratios. But, in the weeks of April 13-17 and April 20-24 the 10-week moving average calculation must “replace” weekly ratios that will average 67.9%/week. This is an extremely high two-week average that the NYSE will likely fail to match and could very well undercut by a substantial amount, causing the 10-week moving average to fall by possibly a large amount. If the 10-week moving average of NYSE weekly “percent of stocks rising” ratios is going to duplicate the feat of the short-term 5-week moving average by matching its deep long-term low from November 21, 2008 at 30.75% then it must fall during these two weeks. In our opinion this makes the major stock indices highly susceptible to a resumption of rapid price decline in the weeks of April 13-17 and April 20-24. If the major stock indices are to suffer “bounce” rally failure in April and decline to re-test their March 20 weekly-close price lows it will be in these two weeks in which they will do so. This week’s chart package presents historical evidence which favors that the major U.S. stock indices will very likely continue this past week’s recovery rally this upcoming week. However, the S&P 500 Index will face very tough technical resistance when it has risen to the vicinity of its August 23, 2019 weekly-close low at 2,842 and its January 26, 2018 weekly-close high at 2,872. The Weekly Data Charts newsletter is extremely skeptical that the S&P 500 can rise above these dual technical resistances during its initial “bounce” recovery rally. We also present evidence which shows that a resumption of rapid price decline by the major stock indices will be possible and even likely in the week of April 13-17 with the downside price objective being re-tests of weekly-close price lows made by all four major stock indices on March 20. For the S&P 500 this is at its March 20 closing level of 2,304. Thomas J. DruittFinancial Markets Research and AnalysisStonehenge Analytics ................
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