Larry Kudlow positive spin on U.S. China trade talks helped equities rebound yesterday, says Bill Baruch, President of Blue Line Futures.
E-mini S&P (March)
Yesterday’s close: Settled at 2632, down 39.50
Fundamentals: U.S. benchmarks made a U-turn ahead of the close yesterday and have grinded higher into this morning. The S&P 500 was down as much as 2% when White House Chief Economic Advisor Larry Kudlow stopped the bleeding late in the session with positive comments on trade confirming next week’s fresh round of talks with China in Washington.
It was reported earlier that the White House rejected China’s preliminary offer from Friday to eliminate the trade balance over six years. The idea that the meeting itself was cancelled never gained traction. Although Kudlow provided absolutely nothing new, his upbeat comments reinvigorated the tape. The real boost came from the latest instance of false reporting minutes later. The New York Times essentially reported the imminence of a Senate funding bill being passed. Price action ripped 10 points into the close before it became clearer that the Senate will vote on two separate funding bills tomorrow, one from the Republicans and one from the Democrats, more or less as a formality with little or no hope of being passed. The reaction to headlines late last week and yesterday in both directions goes to show you how fickle this market is.
Earnings yesterday morning weighed on the tape into the afternoon but an initially negative reaction to IBM after the bell turned positive as the evening unfolded, it is up more than 6% this morning. Comcast (CMCSA), Procter & Gamble (PG) and United Technologies (UTX) reported this morning and are up 4%, 3.5% and 3.3% respectively. The headline flow followed by strong earnings has brought a positive wave of sentiment at the onset of U.S hours.
Technicals: The S&P finds itself right in the middle of the range from Friday’s high to yesterday’s low. First key resistance comes in at 2647.25, exactly the 50% retracement. Above here, we have two waves of major three-star resistance.
Crude Oil (March)
Yesterday’s close: Settled at 53.01, down 1.03
Fundamentals: Yesterday’s selling in Crude hit its pinnacle at 9:00 am CT and price action began consolidating higher before getting a boost from comments out of the White House on U.S.-China trade relations. The broader risk-appetite expanded and led crude oil about 3% from yesterday’s early low. Overnight, China announced it will increase fiscal spending in order to counter slowing growth. This provided the latest leg, which has stalled this morning after reports that Russia’s production has inched higher in the second half of the month from 11.38 million barrels-per-day to 11.39 million barrels-per-day. Remember, in the face of growing U.S inventories, crude has rallied with OPEC jawboning playing a big role. In 2018, Russian production averaged 11.16 million barrels-per-day, in November it stood at 11.37 million barrels-per-day and in December it jumped to 11.45 million. This is a slight pullback, but from what level? The pump-all-they-can level from December? At the very least, it will be interesting to see how this plays out amongst the OPEC and non-OPEC alliance over the coming weeks.
Technicals: Yesterday’s drop tested key support.
Gold (February)
Yesterday’s close: Settled at $1,283.40, up 80¢
Fundamentals: Gold continues to show vulnerability as the dollar holds ground and Treasury yields uptick on equity market strength and a more favorable global sentiment this morning. All things considered, Gold has overall held ground extremely well and this pullback was expected. The brightest spot was seen yesterday when gold did respond to unfavorable risk sentiment and equity market weakness; great to get a confirmation that the metal performs when it is supposed to. On another positive note, the Chinese yuan has strengthened this morning, which is seen as supportive to gold. We remain unequivocally bullish gold, however, prepared to see lower price action due to weak technicals.
Technicals: We have pounded the table on capitalizing on recent strength in order to welcome potential weakness. That weakness is beginning to arrive, and price action is battling key support.
Bill Baruch provides a more complete technical outlook at Blue Line Futures .
