Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, and Treasury markets and today’s economic report calendar. Follow his reports Monday-Friday on MoneyShow.com. Join his presentation at TradersExpo Chicago July 24 on Risk Management.
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What to look for in the markets ahead of the weekend
E-mini S&P (September)
Thursday’s close: Settled at 2805.25, down 10.75
Fundamentals: Volatility picked up last night after the People’s Bank of China cut a key interest rate and sent the Chinese yuan (CNY) to the weakest level against the dollar since June 27, 2017. Equity markets and commodities took a swift hit but battled back in the overnight hours.
The S&P 500 (SPX) traded right into key support at 2789.75-2792 with a low of 2793.50 before recovering to 2806; what a beautifully technical move, we will discuss more in that section below.
In a CNBC interview President Trump Thursday said he was “not thrilled” by the Federal Reserve’s path of hiking interest rates, emphasizing that it is offsetting the work that his administration is putting into the economy.
These comments have been criticized as he broke an unwritten rule that the president and the bank remain independent.
This also subdued the dollar from roughly 12-month highs against all major currencies and theoretically was supportive to equity markets in the second half of Thursday’s session. This conversation has gained and will continue to gain traction in headlines for days to come. There was more, at 6:00 am EDT, CNBC released a clip from the interview where President Trump said he is ready to implement $500 billion worth of tariffs on China if necessary, this would mean every Chinese-made product entering the U.S.
This slapped U.S equity markets back to session lows and the S&P to 2793. Most importantly though, the tape has held in extremely well given the broad uncertainty on the geopolitical landscape developing before the weekend; the S&P is back at 2800 and the NQ is in the green.
Resilience is nothing new though as this market continues to focus on growth, earnings and of course buybacks. Equity markets have reached this level also finding support in the fact real rates have failed to rise despite the Federal Reserve signaling four hikes this year and three next year.
Overall, we see no reason why traders should fight this resilience and expect equity markets to notch another solid session.
Technicals: The technicals continue to deliver a path for traders and key support at 2789.75-2792 has again proven to be a buy opportunity. Now, we may not see this retested today, but it brings a strong support level for traders to lean on. However, if this breaks and we see a close below ...
Crude Oil (September)
Thursday’s close: Settled at 68.24, up 0.49
Fundamentals: Crude’s volatility amidst last night’s yuan weakening was subdued and we believe this to be a great sign for the near, intermediate and longer-term given the bath that the metals complex has taken in the face of such; China is exporting deflation, but Oil prices remain stable.
In fact, the returns were developing immediately as it traded to the highest level since Monday. However, President Trump’s comments that he is ready to impose $500 billion more in tariffs on China did shake the tree. Though Crude quickly slipped a dollar on this news at 6:00 am EDT, it remains stable into this morning. Supporting price action was comments early Thursday from Saudi’s oil officials that July exports will only marginally increase.
This comes after comments in mid-June that they plan to add 1.8 mbpd. We believe the market has not completely digested this and it presents a clear and present bullish factor. Given the reaction upon the U.S and China tariff comments, this becomes the biggest wildcard, outside of that we see bullish fundamentals and technicals (discussed below).
Technicals: Given the firm price action against our major three-star support at 66.57-66.80, we turned Bullish Thursday as which could be seen in our Midday Market Minute. Still, headwind does come in at ...
Gold (August)
Thursday’s close: Settled at 1224, down 3.9
Fundamentals: Gold formed a tremendous technical reversal Thursday, one in which allows us to believe a bottom has been reached, at least in the near-term; we will discuss more in the technical section below. Gold lifted further Thursday after President Trump said he is “not thrilled” with the Federal Reserve’s path of hiking rates and they have offset the work his administration has done to build the economy. The dollar was higher against all major currencies and the Dollar Index (DXY) was forming a technical breakout. His comments reversed this, and the Dollar Index is nearly 1% from Thursday’s high; an important technical move to watch closely.
As for the yuan, the People’s Bank of China cut a key interest rate and sent the yuan again to the weakest level in more than a year against the dollar. Gold again did not take this likely, trading down to 1215.3 and 1% from Thursday’s spike high.
The yuan has shed as much as 1.6% against the dollar in the last three days and it now sits below Thursday’s high; if there were ever to be a capitulation for this trade along with the drop in Gold, this is it.
Additionally, sooner or later, market participants will understand that the Federal Reserve has essentially set their most hawkish path since December 2016 and the Dollar Index is at 95 now compared to 103 then. The Fed’s interest rate hike cycle will peak next year. They can almost only get less hawkish from here.
Technicals: Thursday’s calculated move to exactly 1210.7 was absolutely tremendous for forming a bottom in Gold. This cannot be ignored. This morning’s drop battled at the pivotal 1216.1 level and has now recovered firmly into this morning. First key resistance comes in at 1226-1227.9 but we must see a close back above ...
