Treasuries Spur Bloodbath. Bullish Crude on Strong EIA? Gold, Yuan Up

10/11/2018 11:27 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, Forex 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 Midday Market Minute short video for Oct. 11 here.
We took a cautious approach today. Bearish. We think it's in long-term uptrend, but a buying opportunity. Crude support at $71 after EIA. Demand isn't there after hurricane. Gold moving.

Bill Baruch’s FX Rundown short video for Oct. 10, 11 here.

Currency markets did not have as much volatility as others Wednesday, but traders must get ready for CPI data due at 8:30 am EDT Thursday. Bill Baruch breaks down what to look for in USD, euro, yen, Aussie, CAD.

 

E-mini S&P (December)

Wednesday’s close: Settled at 2781, down 107.25.

Fundamentals: The S&P 500 (SPX) lost 3.7% yesterday and the NQ 5%; this was a bloodbath. When we began our Bearish Bias in mid-September, we remained adamant that the market was overvalued and due for a correction despite the countless gasps for air at and above 2937.50. Of course, we did not predict or call for the type of selloff that was incurred Wednesday. Those who were calling for such have been calling for it for the last 10%.

What we did say yesterday was that major three-star support at 2865-2869.50 can only absorb so much and a move below there would “accelerate the selling.”

The velocity of the rise in Treasury yields were a key catalyst in this selloff and we have been pounding the table on this narrative since last week’s melt-up. Furthermore, we have made countless comparisons to the selloff that began in January due to a such a rise in Treasury yields (we also pointed a similar trend line break in the S&P).

Ultimately, the chicken came home to roost this week with $74 billion worth of various expirations being auctioned by Treasury department. With the yield curve steepening (the long end gaining tremendous ground in yield versus the short end) over the last couple weeks, investments in the 10-year (auctioned Wednesday) and 30-year (auctioned today at noon) are more attractive than they have been in many years. We said earlier this week, the money to buy this government debt must come from somewhere; stocks are at all-time highs.

Fears of slowing growth due to policy tailwinds dissipating and a continued trade standoff between the U.S and China are also key components in this stew. Remember, last week China was on holiday and they were not in the news one bit. Sunday night, they devalued the Chinese yuan (CNY) by 1% and reminded the global economy that things are not copacetic.

So, what now? Is there support in sight? Of course, there is, and we will touch on that in the Technical section below. Fundamentally, today’s CPI data will be absolutely crucial to confirm the Federal Reserve’s recently hawkish rhetoric. In fact, President Trump has blamed Fed Chair Powell’s hawkish comments and aggressive tightening as the catalyst for this move. We watch Core CPI most closely, MoM is expected to come in at +0.2% and YoY at +2.3%. Both reads came in soft last month, for August, and this has made Powell’s comments that much more surprising. If CPI again comes in soft this morning, look for it to bring some footing to this selloff and we will tell you where to look for that footing below.

Technicals: We expect volatility to continue as it did in February until it proves otherwise. For this reason, we only have major three-star levels below. First and foremost, everyone knows where the 200-day moving average is; the December 200-day comes in at 2775 and the continuous 200-day comes in at 2767.25. These levels will serve as our pivot; below here, the bears are clearly in the driver’s seat. The bulls must achieve a close back above ...

 

Crude Oil (November)

Wednesday’s close: Settled at 73.19, down 1.79.

Fundamentals: Wednesday’s private API inventory data after the bell was unquestionably bearish. Crude Oil had already begun its retreat from another failed attempt on first key resistance at 75.27 and was dragged lower amidst global risk-off sentiment. We must say that our Bearish Bias in the S&P certainly played a role in Neutralizing our Bullish Bias in Crude Oil.

Given Wednesday’s bloodbath in equity markets coupled with the bearish API report upon Crude retreating from a “buy the rumor” in to Hurricane Michael, Crude Oil has held tremendously well.
We will discuss some of the massive levels traders must know in the Technical section below. Yesterday, API printed +9.75 mb Crude, +3.4 mb Gasoline, -3.5 mb Distillates and +2.3 mb at Cushing.

s we said above, this was a bearish report. Traders must focus on the headline read for EIA today but also want to look at the data as a composite. Expectations for EIA are +2.62 mb Crude, -0.042 mb Gasoline and -2.005 Distillates. If this EIA report produces only a slightly larger build than headline expectations, that would be bullish.

Technicals: Wednesday we said a failure to hold our pivot at 74.43 and furthermore a move below minor support at 74.00-74.17 would encourage profit taking down to major three-star support at 72.74-72.99 and this is exactly what happened. In fact, major three-star support held perfectly despite what was happening in the equity market until the API report. The overnight low was 71.63 and held key support at 71.75 held. This is in front of our rare major four-star support level at ... 

 

Gold (December)

Yesterday’s close: Settled at 1193.4, up 1.9.

Fundamentals: It’s alive! Gold has bounced back from major three-star support with a vengeance this morning. Safe-haven buyers began trickling in ever so slowly late Wednesday as selling accelerated in equity markets and the U.S. dollar (USD) lost ground from Tuesday’s highs.

Also, it is arguable that with a net-short position in Gold, shorts covered to meet margin calls in stocks. Asia found Gold attractive overnight as the risk-off sentiment carried into their hours. The dollar has seen continued pressure on the heels of President Trump pointing blame for the stock selloff on the Federal Reserve for tightening policy too fast. His comments continued to weaken the dollar and more importantly, we have seen life in the Chinese yuan which has gained about 0.5% against the dollar today. Gold spiked at 8:30 am EDT after CPI came in soft for the second month in a row.

ountering the Federal Reserve’s recent hawkish comments; where is the inflation?

Technicals: Gold remains in what we consider to be an extremely constructive technical picture. This latest attempt at the bears to regain the clear upper hand was denied with major three-star support at 1184.3-1187.6 holding tremendously. Once price action got out above first key resistance at 1196, the bulls were less shy. Still, the metal has its work cut out for it with strong resistance at ... 

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Bill Baruch's FX Rundown for Oct. 2-3: Euro bottoms. Yen listless. Aussie subdued. CAD eyes rally.

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

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

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