While no major deal was struck, the truce between U.S. President Trump and Chinese President Xi is being received well by markets, writes Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2944.25, up 13.25 on Friday and down 6.25 on the week
Fundamentals: Risk-sentiment is broadly better after avoiding a fresh round of tariffs on $300 billion of Chinese goods. President Trump and President Xi reached a ‘trade truce’ Saturday on the sidelines of the G-20 Summit that eased restrictions on Huawei but did little else to show progress between the world’s two largest economies. Avoiding the tariffs is a win for the market at a meeting that promised to bring little else. Although the two leaders were never going make progress on the issues of substance, it paves the way for high-level negotiators to begin making headlines again. The two sides remain at a distance on intellectual property, forced technology transfers and opening China’s borders to foreign investment.
China’s state news said they expect further disagreements ahead. This morning, with the S&P 500 up 1% at new record high and the NQ gaining nearly 2% the biggest winners are bullish Fed-doves; a rate cut later this month is still fully priced-in and the probability of 50 basis point cut still sits at 23.5%. All-time highs coupled with these odds and the latest deluge of poor economic data are a stark reminder that the central banks are in the driver’s seat. China’s June Manufacturing PMI gauge contracted last night when a flat 50.0 was expected. Final June Manufacturing PMIs for Italy, Germany, the Eurozone and U.K this morning all contracted worse than their preliminary reads from a couple weeks back. U.S June ISM Manufacturing is on deck at 9:00 am CT. May’s read was the worst since October 2016 and expectations for June’s growth are at the lowest since August 2016. Overall, this is not a macro environment that makes you want to chase price action out above fresh record highs so let’s look at the technicals.
Technicals: Price action in the S&P is out to a new all-time high but we still must see this on a closing basis. Momentum is bullish, and although there could be a selling opportunity, there is nothing signaling such this morning. We have our next key resistance level at 2990.25 while previous highs at 2961.25-2969.25 bring support, a close above here paints a path of least resistance to 3000. First true support is the gap from Friday’s close; traders can look to buy pullbacks that cover the gap but we would be more cautious upon sharp selling through the gap similar to what we witnessed after the Dec.3 reversal from a Trump-Xi meeting; traders must lookout below in that case.
The NQ is up almost 2%, leading the way and testing major three-star resistance this morning. Although we do have a new swing high, this was our unadjusted level that proved to be sticky from June 20-25. The same goes for the NQ, if we begin to see price action trade to new session lows, it is very likely we see it move to cover the gap from Friday’s close. However, for the NQ, we would be more concerned once it takes out the floor from last week at major three-star support at 7609.50-7633.75. We have been bullish for much of June’s leg but took a more neutral approach last week saying that the tape was exhausted and could be traded from both sides; after this rip higher, we certainly do not plan to fight the tape but maintain a belief this is tradable.
Bias: Neutral/Bullish
Resistance: 2990.25**, 3000-3002.75***, 3023.25-3023.75***, 3057.75**
Pivot: 2961.25-2969.25
Support: 2955.25**, 2944.25***, 2931-2935.75**, 2914.75-2918***
NQ (September)
Resistance: 7803.50-7834.25***, 7879.50***, 7910.75-7930****
Support: 7772.75**, 7693.75-7725.25***, 7609.50-7633.75***, 7544.25-7561.25***, 7495.25***
Crude Oil (CLQ)
Last week’s close: Settled at 58.47, down 0.96 on Friday and up 1.04 on the week
Fundamentals: After slipping sharply in the second half Friday, crude oil has reversed all losses, now trading to a new swing high. The combination of an expected extension to the OPEC+ production pact and a ‘trade truce’ has boosted price action by about 3%. Russian President Putin and the Saudi Crown Price both confirmed they agreed to extend the 1.2 million barrels production cuts.
dditionally, risk-sentiment is broadly better after President Trump eased restrictions on Huawei and agreed to not implement a fresh round of tariffs on $300 billion of Chinese goods. The path of least resistance looks to be higher, but the question is whether too much is priced-in too quickly in the face of deteriorating growth, something confirmed by worse than expected Manufacturing PMI data from around the globe and most importantly China last night. However, sanctions on Iran and Venezuela have stripped away additional production since this pact was originally put into place. With OPEC’s meeting now underway, we await an official announcement to how long the production cuts are extended; either six or nine months. Six months may be enough to hold these gains if EIA data continues to be favorable. Whereas nine months would signal additional gains.
Technicals: Price action is out above the $59.70 key resistance level, something that was a barrier through last week’s rally. Still, we have major three-star resistance at $60.32 to $60.80 and the tape is running into this brick wall early in the session. Originally, this was our upside target upon the breakout above $55. Look for this level to keep price action contained until we get further developments. While we must see a close out above $59.70 in order to confirm this early action and a close below there would certainly be disappointing, it’s a close below what is now major three-star support at 59.00-59.28 that would signal a failure.
Bias: Neutral/Bullish
Resistance: 60.32-60.80***
Pivot: 59.70-59.80
Support: 59.00-59.28**, 58.22-58.50**, 57.82**, 56.51***
Gold (GCQ)
Last week’s close: Settled at $1,413.7, up 1.6 on Friday and up 13.6 on the week
Fundamentals: Gold took a quick punch to the gut on the open last night after positive headlines on the U.S and China trade front boosted the risk-environment. This news deflated safe-haven demand as expected, but as mentioned last week, it’s very plausible to believe this is merely a knee-jerk reaction. Denting the potential for a recovery into this morning was a deluge of worse than expected contractions on the final June Manufacturing PMI data out of China and Europe. While the bad data helps offset a short-term bounce in yields due to the U.S-China news, it has also sent the dollar higher. Overall, we see the more intermediate to long-term landscape still very favorable. Price action in the near-term must work through the gyrating risk-environment (truly new no progress on the U.S-China front) and currency story. A potential quick fix comes today at 9:00 am CT when ISM Manufacturing data is due. May data showed the worst growth since October 2016 and today’s read is expected even slower.
Technicals: Gold slipped sharply to a low of $1,384.7 on the open last night but held our next major three-star level at $1,377.5. Price action has since found a ceiling at previous support, a crucial level, at $1,396.9; this will act as our pivot until gold closes below here and such will confirm that a consolidation lower due to the technical damage is due. Holding above $1,392.6 through today would help favor a potentially constructive close.
Bias: Bullish/Neutral
Resistance: 1413.7-1418.2**, 1432.9***, 1484.5**
Pivot: 1396.9-1400.1***
Support: 1392.6**, 1377.5-1380.3***, 1361.5***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
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