Bullish Equities. Taking Crude Profits. Losing Dollar Supports Gold

09/13/2018 10:41 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

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 and short Midday Markets video.

Bill Baruch’s FX Rundown for Sept. 12-13 short video here.
USD lost ground Wednesday as safe-haven winds came out of its sails with positive trade news. Policy meetings Thursday from BOE, ECB & U.S CPI. What this means for USD, euro, yen, Aussie & CAD.

Bill Baruch’s Midday Market Minute short video for Sept. 13 here.
Oil retreats while stocks gain. Stocks have momentum, with bulls in driver seat. Euro stronger, USD weaker. Crude tests 3-star support, you don't want to go all in here, says Bill Baruch of Blue Line Futures. Gold shorts defend.

E-mini S&P (September)

Wednesday’s close: Settled at 2888.50, down 1.25.

Fundamentals: Today’s central bank extravaganza could be overshadowed by a pivotal read on U.S inflation. First up was the Bank of England who held rates steady at 0.75% as expected at 7:00 am EDT. After hiking in August, they cited uncertainty from Brexit but plan to hike at a very gradual pace going forward.

Turkey also grabbed headlines hiking rates 625 bp to 24% in order to stabilize the lira (TRY) and outflows from the country.

Next up is the ECB at 7:45 am EDT. They are not expected to hike rates but as we discussed in last night’s FX Rundown, it is all about their projections on growth, inflation, international trade and any comments on unwinding QE which is set to begin next month.

ECB President Mario Draghi holds his usual follow-up press conference at 8:30 am EDT.

This brings us to U.S CPI at 8:30 am EDT, the Core read is what we follow most closely and its expected hold steady at +0.2% MoM and +2.4% YoY. Stronger than expected wage growth on last Friday’s Nonfarm Payroll report truly upped the ante here. Despite a miss across the board on PPI yesterday, a stronger than expected CPI today will raise some eyebrows ahead of the Federal Reserve’s meeting in two weeks where they are all but assured to hike rates.

Right now, there is about an 80% probability that the Fed will hike in December and a strong number would not only increase expectations for December but in the first quarter of next year. This is critically important because as we have said here before, the Federal Reserve is in the driver’s seat and it would not be favorable for equity markets.

Fed Chair Powell has done a terrific job in managing these expectations, emphasizing that their models do not show inflation running away. We are of the same camp and we do not imagine today’s CPI will come in hot and this adds to our longer-term bullish these in U.S equity markets.

Central banks and inflation are only part of the stew. Global equity markets are higher this morning and began to see very firm price action after both China and the U.S confirmed another round of trade talks. Asia is broadly higher this morning with the Hang Seng digging out of bear market territory +2.5%. This was reported at 11:00 am EDT yesterday and the S&P (SPX) ripped 10 points off our first key support providing exactly the type of trade we detailed here yesterday.

While we have remained adamant that we believe the international trade conflict will be figured out, we have been cautious as we maintain the implementation of the third wave of tariffs worth $200 billion on Chinese goods is the official start of a trade war. This new round of talks was likely in the plan the whole time as President Trump has had the green light to implement this wave since the comment period closed last Thursday at midnight.

In addition to China, there are positive reports on both trade talks with Canada and the EU and this has also brought a supportive hand to equity markets. When it comes to trade talks, traders must keep their head on a swivel.

Technicals: While we have remained unequivocally Bullish in the long-term, yes, we have exuded caution in the near term.  Wednesday, we said in this fickle environment traders must look for the next 10 points. Typically, we hold a Bias in the direction we expect the next 1-3% for Financials.

Who can blame us? Our long-term upside target in the S&P of 2924.50 has been achieved and headlines risks are running rampant. Still, this strategy provided a perfect opportunity yesterday as we said look to buy the first test to first key support at 2880.25-2881.25. From here, traders had an opportunity to quickly take 10 points. This morning, our momentum indicators remain closely tethered to ...

 

Today’s economic calendar

Weekly Jobless Claims here.

Fed Governor Quarles speaks at 10 am EDT. 

Atlanta Fed President Bostic speaks at 12:30 pm EDT.

Federal Budget data is expected at 2 pm EDT.

Tonight, China releases data on Industrial Production, Fixed Asset Investment, Retail Sales and Employment at 9:00 pm CT.

 

Crude Oil (October)

Wednesday’s close: Settled at 70.37, up 1.12

Fundamentals: We in yesterday’s Midday Market Minute that the EIA report was not bullish, and we furthermore said that up at $70.90 is not where you want to be buying, it is where you want to be taking profits or protecting profits. Wednesday’s settlement of 70.37 another failure to close out above major three-star resistance and it is no coincidence that Crude Oil has traded more than a dollar from this level on today’s session.

Outside of yesterday’s composite EIA inventory read being a bigger build that composite expectations, Hurricane Florence was downgraded to a Category 2 and a pair of weather disturbances threatening the Gulf have dissipated a bit.

As for Florence, the true threat was the uncertainty of the impact. However, it is important to remember that these types of storms are ultimately bearish for price as demand is impacted; power plants and other facilities who are the largest end users are shut down, floods and evacuations also reduce demand. On the onset of a storm like Florence that has a largescale evacuation, demand for Gasoline increases and this can knee-jerk prices along with the aforementioned uncertainty.

The three things we will be watching most closely today; damage from a fresh technical failure, the Dollar with central banks and CPI and of course the further development of these storms.

Technicals: Once again, price action ran into the resistance at the May highs and the highest level in the October contract since December 2014 before failing to settle above major three-star resistance at 70.50-70.92.

Crude Oil still remains in a very strong long-term uptrend but there is a wall of resistance keeping a lid on things for now and that is why we reminded traders in the Midday Market Minute yesterday that 70.90 is where you need to be taking profits, not buying. However, on a monthly October chart, Crude Oil is building a very bullish pennant formation and the same can be seen in the next month November contract. Price action pulled back to a low of 69.06 today and this aligns exactly with the 50% retracement from the recent range.

Traders do want to tread cautiously because there is quite a bit of damage to the chart after this 24-hour reversal. We now have major three-star support at ... 

 

Gold (December)

Wednesday’s close: Settled at 1210.9, up 8.7.

Fundamentals: Safe-haven winds came out of the U.S. dollar’s (USD) sails yesterday upon positive news on the trade front. Both the U.S and China confirmed a new round of trade talks to start soon. This comes on the heels of positive reports on trade talks with both Canada and the EU.

The dollar lost ground against all major currencies yesterday and this brought tremendous support to Gold. The Chinese yuan (CNY) which has lost as much 0.57% from its recent swing high. Still, Gold faces tremendous resistance overhead in order to spark a short covering rally.

Furthermore, today’s U.S CPI data will prove to be critical for dollar, rates and Gold. Additionally, after holding policy unchanged this morning, ECB President Mario Draghi has a press conference that begins at the same time.

Technicals: Gold ripped through the 1204 mark yesterday which we said would garner minor momentum. However, it has struggled to chew through first key resistance at 1210.9-1214.9. This level and then major three-star resistance at ... 

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View a short video: Bill Baruch: Trading Futures. Gold, USD, yuan.

Recorded: TradersExpo Chicago July 24, 2018.
Duration: 4:34.

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