D&D Note (10.26.2020) ~ Coronavirus Fears & SAP Warning Sends Markets Into A Selloff With the S&P 500 Breaking 200 Day Moving Average ~
Pandemic fears crept back into the markets today following a dire warning from SAP and rising Covid-19 virus cases in Europe and the USA.
SAP reported earnings and cut its revenue and profit forecast for 2020 saying that ‘coronavirus lockdowns‘ will affect demand through 2021. The usage of the word ‘lockdowns’ spooked global markets. Shares of SAP collapsed in trading falling over -23% its worse decline since 1999 and wiping out over $35 billion in market cap.
The USA is reporting record Covid-19 cases of more than 83,000 and over the last 7 days is averaging 68,767 cases per day.
White House Chief of Staff Mark Meadows essentially has said the administration has given up trying to do anything in regards to the virus, stating the U.S. will not get control of the pandemic.
Nancy Pelosi wrote to House Democrats saying, “The Republicans’ continued surrender to the virus – particularly amid the recent wave of cases – is official malfeasance.”
The key technical level on the S&P 500 is the 200 day moving average of 3407 (on a 10 day chart view). This had been our support line creating a floor and today we broke through that. Since we closed below the 200 day MA this now potentially makes the 200 day MA a resistance line to upside creating a ceiling.
Hopes of a stimulus bill getting passed before the election have almost completely faded.
Energy, Industrials, and Materials led the declines today but all sectors finished in the red.
Volume on the S&P 500 and DOW was up 20% today showing conviction in the selling.
As the Presidential election draws near more volatility is also coming back into the market with the VIX spiking today above a 30 handle.
While a Joe Biden win would be beneficial to Silicon Valley there is a fear that if Democrats also take the Senate there could be calls to breakup the Mega Cap Tech companies.
A possible scenario post election if there is a Democratic sweep would be a selloff in tech as investors lock in gains at lower capital gains tax rates and ahead of any potential new internet privacy laws along with a potential repeal of Section 230 of the Communications Decency Act.
GOP Governor Chris Sununu of New Hampshire said “fire them all” referring to the 435 House seats and 100 Senate seats. “No one in the Senate or Congress can say that they’ve shown leadership on the Covid crisis,” Sununu said.
Maine and Nebraska could be the kingmakers in a tight election. While most don’t think the election will come down to one or two electoral college votes, there are scenarios that do play out that way. Because both Maine and Nebraska split their votes a single electoral vote from say the Omaha Nebraska district could tilt the election.
Judge Amy Coney Barrett is expected to be confirmed by the Senate today to the lifetime term on the Supreme Court. The vote is expected around 7:25 pm EST.
180+ companies in the S&P 500 report earnings this week including many of the major tech companies this Thursday.
Tech stocks, particularly the stay at home stocks, in the final hour of trading attempted to gain back ground lost during the session but failed to be able to lift the overall markets.
DOW down -2.29%
S&P 500 down -1.86% (3400.97)
NASDAQ down -1.64%
VIX up 17.82% to 32.46
Oil down -3.24% to $38.56 a barrel.
Gold up 0.04% to $1902.80 an ounce.
Europe is already looking to have a dire winter with spiking Covid-19 cases and potentially having to go back into lockdowns.
In the U.S. daily cases, daily deaths, and hospitalizations are all ticking up.
VP Mike Pence tests negative for Coronavirus but will not quarantine after his chief of staff and other aides all test positive for the virus.
Global Virus cases: 43.33 million+
Global Virus deaths: 1.15 million+
U.S. Virus cases: 8.66 million+
U.S. Virus deaths: 225,434+
~ Dave James / Principal Trader and Market Strategist