Our bias is neutral/bearish on S&P 500 and crude oil, and bullish gold, writes Bill Baruch, President of BlueLineFutures.com.
E-mini S&P (ESM)
Last week’s close: Settled at 2810.75 down 51.75 on Friday and down 19.00 on the week
Fundamentals: U.S benchmarks finished Friday under a bit of pressure after Flash PMIs came in below expectations. Ultimately, it would appear that economic conditions are worsening, and the yield curve is inverting; this begins to explain why central banks around the world have turned dovish. After the close Friday, Special Counsel Mueller submitted his report to Attorney General Barr on potential Russian interference in the 2016 election. Although the release of this report has been imminent for weeks, Friday’s release was not widely known ahead of time. Still, it could explain some of the weakness due to uncertainties ahead of the weekend. Attorney General Barr concluded there was no collusion with Russia and insufficient evidence to find President Trump obstructed justice.
arkets opened Sunday ticking up on a sigh of relief, but this quickly faded, and the S&P dipped back below 2800 for the first time in two weeks.
This week is jam-packed with Fed speak on the heels of last week’s meeting. Members enter a quiet period a week prior to meetings. This morning, Chicago Fed President Evans, a 2019 voter, said the yield curve inversion is “pretty narrow” and the fundamentals are still good. Former Fed Chair Yellen spoke at the same event and added that the yield curve may signal the need to cut rates but does not signal a recession. Philadelphia Fed President Harker, a 2020 voter, took a more hawkish route than other members saying he still sees one hike this year at most, but the Fed is still in a “wait-and-see mode”. This morning, The CME’s FedWatch Tool shows a 42.7% probability the Fed keeps rates unchanged this year with a 53.7% chance they hike.
On the data front, German Ifo Business Climate bettered expectations. Sentiment data in Europe, though overall poor, has been improving in recent months. The German DAX opened lower early this morning but has pared losses. Chicago Fed National Activity came in below expectations and the Treasury Department kicks off a heavy week of auctions with the now closely watched 3-month Bill along with the 6-month being auctioned at 10:30 am CT.
Technicals: After slipping overnight, price action is paring losses and back to unchanged this morning. There is clear damage from Friday’s tape and our line in the sand to repair such is major three-star resistance in the S&P and NQ at 2828.25-2828.50 and 7417.25-7422.50; a move out above here is bullish and should ramp higher. Friday’s close is our pivot in the S&P at 2810.75-2812.75, if price action stays suppressed below here, the bears will begin to carry what was a small edge on Friday into this new week. Last night’s low now brings support but there are some crucial levels not trekked intraday, these supports come in for the S&P and NQ at 2796.25-2797.25 and 7313.25-7323.50. For the S&, the 2790.25 low does align with our major three-star support at 2788.25; watch this level closely and a move below here intraday should cascade the selling. We continue to hold a slight Bearish Bias as we have preferred to sell the rips and capitalize on the pullbacks due to our belief this rally is overextended.
Bias: Neutral/Bearish
Resistance: 2818.50-2819.25**, 2828.25-2828.50***, 2837-2842.25**
Pivot: 2810.75-2812.75
Support: 2796.25-2797.25**, 2788.25***, 2780*, 2770-2775.75**, 2755-2757.25****
NQ (ESM)
Resistance: 7368**, 7387.25-7390.50**, 7417.25-7422.50***, 7441-7447.50**, 7534-7544.75**, 7664.75**, 7728.75***+
Support: 7313.25-7323.50***, 7290**, 7241-7255.25***, 7187-7192***, 7157**, 7100****, 6939-6965.75***
Crude Oil (CLK)
Last week’s close: Settled at $58.94, down 0.94 on Friday and up 0.22 on the week
Fundamentals: Crude Oil traded lower on Friday after Manufacturing PMIs from around the world echoed recessionary conditions. The risk-sentiment shriveled up ahead of the weekend and this dragged on crude and other commodities such as copper. However, Baker Hughes Rig Count posted the fifth straight weekly drop and U.S oil rigs are now at the lowest level since last April. Where slowing growth is a headwind for crude oil demand, Saudi Arabia has made it a clear objective to get out in front of such and that coupled with a potential top in U.S production will work to offset that headwind.
Technicals: We are seeing a bounce from major three-star support at $57.88-$58.26. Price action finished below the $59.63 pivot level and we said on Friday, “This is the 50% retracement from the fallout in October to the bottom in December. We are upping our bearish bias and must see a weekly close below here in order to remain such. We find the market vulnerable for a wave lower to test major three-star support at $57.88-$58.26.” We continue to hold this belief, but now must see a close below major three-star support today in order to hold such, otherwise, we will reduce our Bias ahead of inventory data.
Bias: Bearish/Neutral
Resistance: 60.92-61.28**, 61.94***
Pivot: 59.63
Support: 57.88-58.26***, 57.36**, 56.77**, 56.25***
Gold (GCJ)
Last week’s close: Settled at $1,312.3, up 5.0 on Friday and up 9.4 on the week
Fundamentals: Gold is trading higher this morning and although it nudged up late last week, dollar strength held it back. The dollar is softening just a bit after German Ifo Business Climate came in better than expected. This better data does not change the recessionary echoes from Friday’s PMIs. Yields around the world are lower than where they were one week ago, and this is supportive to Gold.
urthermore, the brief inversion of three-month and 10-year rates is bullish gold. You don’t need to look further than when the two-year and three-year inverted against the five-year in December and the tailwind it brought to the metal. We remain unequivocally bullish gold, but we must continue to see a technically constructive tape.
Technicals: Price action did not settle above $1,315.3 on Friday but it is out above there this morning. Major three-star resistance comes in at $1,323.4-$1,326 and move out above here is very bullish. We must see pullbacks hold $1,304.7-$1,307.2 support in order to remain technically constructive.
Bias: Bullish/Neutral
Resistance: 1315.3**, 1323.4-1326***, 1342-1350***
Support: 1304.7-1307.2***, 1298.1-1299.2**
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com
