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A Looming Recession?

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The $ES and $NQ are simultaneously approaching support levels from where I expect them to bounce on Friday, February 28th.  Media pundits are expecting Friday's session to close on a bad note, similar to Thursday's.  Maybe.  But as the $ES closes in on its 2019 VPOC (largest volume bar) during the overnight session, the $NQ is a stone's throw away from its 200-dma.  I expect the two contracts to reach their respective milestones simultaneously by tomorrow morning, spurring a short-covering reaction in light of the extreme oversold condition.  Hence, I wouldn't be surprised to see the $ES back to 2980-3000, maybe even 3030, tomorrow. 


The 'fair value' for the S&P 500 is somewhere in the 2700-2760 range.  The 2019 VAL is at 2760, and that's where I expect this current leg to ultimately end.  

When?  How?  Why?

The coronavirus is a potential recessionary event, especially if it degenerates into a pandemic.  As Goldman Sachs just said this morning, should a pandemic occur, we can kiss corporate earnings goodbye in 2020.

As far as recessions are concerned, history shows that every recession is usually preceded by maximum employment.  Should unemployment tick up in the coming month or two, it would signal a potential trough in unemployment that raises the odds of a recession.  That's what the stock market will probably want to find out as soon as next Friday when the NFP is due.  In the meantime, I expect the $ES and $NQ to bounce off the aforementioned levels very soon and await the NFP as they work out the technical oversold condition.  My guess is that we'll see a tick-up in unemployment, spurring the final installment of this down leg from ~3,000 to 2,760 on the $ES.

That's my thesis for now. We'll see how it goes.

Peter

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