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Geopolitical Risk Rising

05/13/2019 12:16 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

Increased U.S.-China trade tensions and threats to crude oil supply are adding volatility to markets, says Bill Baruch, President of BlueLineFutures.com.

E-mini S&P (ESM)

Last week’s close: Settled at 2887, up 14.50 on Friday and down 60.50 on the week

Fundamentals: U.S benchmarks opened lower last night and remain under pressure to the tune of 1.5% to 3%. Although the White House raised tariffs from 10% to 25% on $200 billion worth of Chinese goods Friday, there was still an ounce of hope talks would take a positive turn after rather upbeat comments from U.S Treasury Secretary Mnuchin and Chinese Vice Premier Liu He. Instead, both sides hardened their stance over the weekend. The U.S is expected to announce a plan to raise tariffs on all remaining Chinese goods and just now China announced retaliations.

They are said to raise tariffs on $60 billion worth of U.S goods June 1, but the real fear pertains to dumping U.S Treasury holdings, which would send rates higher. The Chinese yuan lost 0.78% today and the Shanghai Composite 1.2%. The risk-landscape has taken a sharp U-turn and this week will certainly be headline driven. There has been a trend where the White House ramps pressure through comments during Asian hours and takes a slightly more favorable approach through media outlets during U.S hours. While this would stop the bleeding and help encourage a recovery, overhead resistance is strengthening just as this strategy could face the law of diminishing returns. One positive would be a fresh round of trade talks. Look for the U.S to firm up an invitation to meet in Beijing this week to help buoy the tape.

Technicals: Price action has turned sharply lower this morning with the fundamental landscape heating up. On Friday, the S&P 500 took out its gap close from March 29. While this level at 2837.75 remains crucial, the NQ has yet to take out its same gap close at 7400.50. A close below these levels today is bearish and signals immediate downside. There are additional levels of support but after Friday closed bullish on textbook technical (lower volume on lows and a bullish engulfing daily), a failure today below these support levels will encourage additional selling. This would also secure the first close for each index below their 50-day moving average on this correction. The S&P 500 has a better landscape of support below here, but we do not see anything in the NQ for nearly 2%. In the wake of a bounce, first key resistance levels will be sticky but a failure to recover above here will open the door to a fresh wave of weakness ahead of the close.

Bias: Neutral

Resistance: 2852.50*, 2862.50-2869.25***, 2887***, 2897.50-2901***

Pivot: 2837.75

Support: 2826**, 2810-2816.15***, 2789***

NQ (NQM)

Resistance: 7524.25-7551.50**, 7610.25***, 7681-7698***

Pivot: 7480

Support: 7400.50***, 7241-7276***, 7093***

Crude Oil (CLM)

Last week’s close: Settled at $61.66, down 0.04 Friday and down 0.28 on the week

Fundamentals: Crude oil is surging more than 2% after two Saudi Arabian tankers were attacked in the Persian Gulf. This is certainly thought to be Iran as tensions surrounding the country are escalating due to the U.S lifting waivers for importing their oil. These tensions in the Middle East have been quietly heating up, serving as a reason for our slight bullish bias last week. However, U.S.-China trade has stolen the headlines and crude’s gains today come despite U.S equity markets losing 2% as the trade war escalates to arguably its worse level yet. If losses in the Chinese yuan and U.S equity markets don’t worsen over the next 24 hours, we expect crude to extend gains.

Technicals: Last week, crude could not close out above major three-star resistance at $62.55 but despite its failure to achieve such a feat, it ultimately did nothing wrong. Each close held ground at first key support and the 200-day moving average were not violated but the one bullish reversal day Monday. There is a very constructive technical landscape here as the 50-day moving average crossed out above the 200-day last week. Given this coupled with today’s tailwind and last week’s hold at support, we see the possibility for significant upside. Just make sure to keep aware of geopolitical threats as the news flow will not dissipate anytime soon.

Bias: Neutral/Bullish

Resistance: 63.32-63.60**, 64.44-64.75***, 66.27-66.60***

Pivot: 62.55***

Support: 61.45-61.49**, 60.72-60.78**, 60.00***

Gold (GCM)

Last week’s close: Settled at $1,287.4, up 2.2 Friday and up 6.1 on the week

Fundamentals: Gold is ripping higher this morning and finally shaking off a weaker Chinese yuan. Excluding the yuan, the dollar is broadly losing ground to other major currencies as the odds for a Fed rate-cut this year have risen to 70.8%. Treasuries are gaining ground and gold has achieved the $1,300 mark for the first time since sharply slipping through it on April 11. Fed Governor Clarida pointed to inflation near the Fed’s 2% target this morning but Boston Fed President Rosengren didn’t really comment on monetary policy.

Technicals: Gold is out above trendline resistance from its February high and attempting a bullish breakout. What matters most today is the close, and it must, must, must close above 1295 at a bare minimum. In fact, simply a close above 1295 would not be that exciting given today’s rip, we want to see a close above 1301.5 and anything less will keep us skeptical due to lingering fundamental uncertainties (Chinese yuan).

Bias: Bullish/Neutral

Resistance: 1301.5**, 1308.5-1311.6**, 1318.3**

Pivot: 1291.3-1295***

Support: 1279.1-1280.8**, 1264-1267.9***, 1255.8-1258.5***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com

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