Bearish Equities Today on Rate Watch. Crude a Dog Form. Gold Bullish

12/18/2018 11:13 am EST


Bill Baruch

President and Founder, Blue Line Futures

Monday was the latest bloodbath in a down market. By our view, it is the one that broke a nearly two-year long bull market. Gold finds strength from weak USD. Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude and Forex.


Bill Baruch’s FX Rundown Dec. 18-19 here.


Wednesday is Fed Day and they are expected to hike rates. What to know about the probabilities and levels for the USD, Dollar Index (DXY) as well as the euro, yen, Aussie and Canadian.

E-mini S&P (March)

Monday’s close: Settled at 2555.75, down 46.25.

Fundamentals: U.S. benchmarks are marginally higher after sharp selling Monday pinned the S&P (SPX) at the lowest close since October 2017. Our narrative has been that seasonal tailwinds, a less hawkish Fed and market pessimism should prove that daily dips are a buying opportunity up until the last week of the year.

Nothing has changed with this view. In fact, each reason is arguably more valid today than any prior. Through this year, we turned bearish at the end of January, called for a correction in June and held a strongly bearish view through September and the first half of October.

We also had a Bearish Bias here calling the post G-20 Summit rally overdone. We remind you this because we are not simply buyers of every dip in this market. Doubling down, we have also reiterated a view for months now that once the calendar year turns, this market could be in store for even more volatility and potentially a much deeper correction.

German Ifo Business Climate fell short of expectations this morning. U.S Building Permits and Housing Starts are dout.

Lastly, the Federal Reserve begins their two-day policy meeting today and the probability of a rate hike tomorrow is now at 71.5%. We still hold the view that the Federal Reserve will be less hawkish or even dovish in their policy statement, economic projections and dot plot to bubble wrap their hike of 25 basis points. We also still feel that considering the current state of market pessimism at this level, the market is undervalued over the coming days.

Technicals: Monday was the latest bloodbath in a down market. By our view, it is the one that broke a nearly two-year long bull market. We must take this time to reiterate our view that the market is undervalued through this week on a technical and fundamental basis. However, the S&P incurred the death cross on December 7, the NQ (NDX) on November 29 and the Russell 2000 (RUT) all the way back on November 12. The last piece to this puzzle has been the Dow (IXIC) and it is about to see the death cross any day now.

Furthermore, our technical indicator line in the sand was tied to the Dow and stood at 23,980. Monday was the first close below here while Friday’s close was the first below an uptrend line created from the February low. With all of this considered, it is highly like this market has lower to go. Still, we again reiterate that it is undervalued below 2600 in the very near-term.

Monday’s early recovery failed at the exact point in which it was supposed to: Friday’s closing gap. Rallies in this down market have failed each time at first and second resistance since the death cross has been incurred. Today, our momentum indicators bring resistance at ...


Crude Oil (February)

Monday’s close: Settled at 50.20, down 1.27

Fundamentals: Crude has been a dog form two months now and Monday’s risk-off move in global markets made Crude an easy casualty. Headlines this morning point to the fear of record supply from the U.S. and Russia and concerns over the OPEC deal. This is a great example of headlines creating a story in order to cater to a move. There was no new news, this was all just as known as it was last week and the one prior.

Traders simply looked to this dog upon a sharply directional risk-off move. In fact, estimated production in the U.S. fell by 100,000 bpd in last week’s EIA report and on Friday Baker Hughes reported the lowest rig count in two months. As this week unfolds, comments from OPEC will certainly be held in a high regard. Inventory data will be just as crucial as expectations begin trickling out. Lastly, the U.S. dollar (USD) not only is a weaker dollar supportive to commodities but a weaker dollar this week will signal a slower Fed and one that could boost hopes of Oil demand in 2019.

Technicals: Monday’s move below the psychological $50 mark was the one that broke the camel’s back. Any potential constructive over recent weeks is now damaged and the only support level we are looking at is major three-star support at ... 


Gold (February)

Monday’s close: Settled at 1251.8, up 10.4.

Fundamentals: Gold is holding strongly and finding support from dollar weakness amidst equity market turmoil. In fact, the two are intertwined and rather than the dollar being a safe-haven, heightened equity market volatility is furthering speculation that the Fed will be less hawkish or even dovish which is very supportive to the metal. This aligns perfectly with such a seasonally bullish time of year for Gold in the back half of December and through January.

Also providing a tailwind is falling Treasury yields and the inversion of the 5-year and 2-year yield. The Fed begins their two-day policy meeting today and there is a probability of 71.5% that they hike tomorrow. More importantly, traders should keep an eye on the dissipating March odds for a second hike; currently at 17.8%, down from 36.2% one month ago and 25.8% one week ago. Today, Building Permits and Housing Starts came in better than expected.

Technicals: We have been and remain unequivocally Bullish in Bias Gold. Price action is holding strongly at major three-star resistance at ... 

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