Equities Stabilize After Rally

03/22/2019 12:45 pm EST


Bill Baruch

President and Founder, Blue Line Futures

Fundamental outlook on major markets by Bill Baruch President of  BlueLineFutures.com.

E-mini S&P (ESM)

Yesterday’s close: Settled at 2862.50, up 35.50

Fundamentals: The opening bell rang yesterday, and lower price action turned higher sharply. Apple led the way after an analyst upgrades and took no prisoners gaining 3.68% on the day. Big tech followed suit and overnight the NQ traded to the highest level since it shed 2% on Oct. 4. The tables have begun to turn just a bit this morning after Eurozone Flash Manufacturing PMI whiffed with the German read coming in at 44.7, the worst since October 2012 (above or below 50.0 defines expansion or contraction). This is the fifth contraction in a row and German 10-year Bund yields went into negative territory for the first time since October 2016. This data begins to explain how scared the ECB and Federal Reserve are in order to make such sharp policy U-turns over the last three months. Equity markets continue to love the accommodative Fed, but global economic data is clearly slowing, and first quarter earnings are expected to contract. This morning, we look to U.S Flash PMIs at 8:45 am CT. Yesterday’s Philly Fed Manufacturing beat helped lift sentiment and contributed to the favorable tape, but this was the only beat in a string of U.S Manufacturing misses.

Technicals: Yesterday was a rip your face off rally and once the bell rang, the market never looked back. Both the S&P 500 and Nasdaq 100 traded to higher highs, but price action has come in a bit this morning. That higher high in the S&P 500, if it holds, displays a neat head and shoulders topping pattern.

Crude Oil (CLK)

Yesterday’s close: Settled at $59.98, down 0.25

Fundamentals: Crude began slipping this morning when French Flash PMIs whiffed and saw further pressure on an abysmal German Manufacturing read, the worst since September 2012. This echoes slower global growth and begins to highlight those oversupply fears that the Saudi Oil Minister pointed to on Monday. Furthermore, it certainly highlights why Saudi Arabia is still trimming exports and production. Yes, on the surface they are buoying price action while there is a bullish seasonal tailwind, but they are clearly concerned growth continues to slow while the market is still oversupplied. The weak global data has also boosted the U.S Dollar.  The Dollar Index is more than 1% off Wednesday’s post-Fed low which has added further pressure to commodities. Baker Hughes rig data is due at noon CT.

Technicals: Yesterday, we said, “Given a soft tape early in equity markets and copper trading nearly 4¢ from the overnight high, both of which we find technically overvalued, we will again find value in fading the $60 region in Crude.” 

Gold (GCJ)

Yesterday’s close: Settled at $1,307.3, up $5.60

Fundamentals: Gold is holding ground terrifically given the dollar strength. The U.S Dollar Index is more than 1% from its post-Fed low. However, we have called for lower sovereign debt yields around the world and this is our base case from being long Gold over the long-term. The German 10-year Bund is now negative for the first time since October 2016 after German Manufacturing PMI came in at 44.7, the worst since September 2012. U.S Flash PMIs are due at 8:45 am CT and Existing Home Sales at 9:00. If these economic data points miss, Gold should gain $10 on the day and finish at a technically significant resistance. A better than expected read though will pressure Gold in the near-term as the Dollar gains further ground. Lastly, the Dollar is gaining against the Chinese Yuan and Gold traders must keep a close eye on this, it is the wild card that can offset lower yields in the near-term.

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