Stock Markets Trading Off Technicals, Fighting the Coronavirus

New York, N.Y. (PPD) — Stocks did close to a 2% round trip Thursday from their highs at 10:45 AM EDT to their lows, on the close at 4:00 pm. Just over a week ago, we laid out the coronavirus (COVID-19) trading reality that investors are writing off data on the macro economy and corporate earnings as largely irrelevant.

Stocks are trading off 1) technicals, 2) progress on fighting the virus, and 3) eco-political factors of which Oil is a major component. The first 2 weighed heavily on the market reversal Thursday.

The Dow Jones Industrial Average (^DJI) has a stubborn resistance level at 24000 that has turned beck rallies on 4 occasions over the last 2 weeks. Sure, it closed above 24000 a week ago today, but that was very short lived with the Dow losing 1200 points the following 2 days. Note the 50-day moving average (MA) at 24090.

The S&P 500 (^SPX) has serious resistance between 2850 and 2900. Note that the intraday high Thursday was 2844. This resistance level actually goes back to early March. While the 50 day MA is at 2818, that’s 45 points lower than a week ago when it was 2863.

The S&P 500 has been toggling that descending 50 day MA line 3 of the last 5 days. Going into next week we may very likely have an intriguing pattern where the S&P has support at the 50 day MA and resistance at the 2850 – 2900 level.

While the market rally Thursday was already stalled at these key resistance levels, it was a negative report on fighting the virus that kicked the headline reading algos into gear on the downside.

Gilead Sciences, Inc. (GILD) has a very promising drug called Remdesivir, that along with a few dozen other drugs is being tested by clinical labs and health agencies for a possible breakthrough as treatment for Covid-19.

Early afternoon Thursday, reports hit the wire that Remdesivir had failed badly in a test with over 350 Covid-19 patients. That caused an immediate plunge in stocks, 90% of which came from High Frequency Trading strategies, mindlessly reacting to their headline reading algorithms. Yes, Financial Market Structure in the U.S. is not only completely dysfunctional, but a total embarrassment.

The financial media of course went wild with the story, which blunted every rally attempt during the afternoon. The reality is that A) it was not a clinical trial, B) 90% of the patients were already on respirators, and/or with multiple comorbidities, and C) This was a “test” done in China!!….No, I’m not making this up!!