We may sound like a broken record, but the Federal Reserve is in the driver’s seat, writes Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2990.50, down 9.75 on Friday and up 46.25 on the week.
Fundamentals: We may sound like a broken record, but the Federal Reserve is in the driver’s seat. Friday’s strong headline job growth was just enough to shift rate-cut expectations for the Fed’s July 31 meeting, pricing-out the probability of 50 basis points; a weaker tape ensued. Despite slowing economic growth domestically since arguably Q4, job growth was looked at as the cornerstone of an ever-expanding economy. When job growth slowed in February it raised some eyebrows, but the “glitch” was taken with a grain of salt. However, another sub-100k read in May coupled with revisions lower for previous months was enough to invigorate calls for an immediate rate-cut. There is a difference between slow inflation and an outright dissipating economy.
The feeling was, if this economy cannot grow jobs anymore and economic data is trickling closer to contraction territory it is surely doomed. Slowing manufacturing has been the key concern but Friday’s read showed a much larger increase in Manufacturing Payrolls at 17k versus 2k expected, it was the first beat since December. After a better Manufacturing PMI than feared on Monday, this could be the first signs of the economy turning a corner and with that is a less accommodative Federal Reserve.
Data from around the globe remains poor; Japan’s Core Machinery Orders missed largely last night, and German Industrial Production came in lower than expected this morning for the seventh time in nine months. There are no key reads from the U.S today but we will hear what Fed Chair Powell has to say about the U.S economy tomorrow and more broadly the globe.
Technicals: The S&P 500 achieved 3000 and the NQ set a fresh record high last week, but price action finished on a soft note. Overall, major three-star resistance in the S&P, the only one we had out above 2969.25, comes in at 3000-3002.75 and is still holding strong. We had several layers of three-star resistance in the NQ but ultimately our last that aligned with the front-month record at 7910.75-7930 held.
So far, we have a healthy pullback on our hands, and such could stretch until the gap from the June 28 close gets filled. The S&P settled at our key resistance 2990.25 and this is our pivot to start the week; below here the door is open for a retest to not only Friday’s low but strong support at 2961.25-2969.25 that traders stepped in front of Friday. For the NQ, major three-star support was previous resistance at 7803.50-7834.25, this was a sticky level price action could not get out above until July 1st; the tape is immediate-term bullish until this level gets taken out. Lastly, because of previous record highs on the front-month and September contracts, the NQ levels are fairly tight, but each has their own significance in favoring or rejecting momentum.
Bias: Neutral
Resistance: 3000-3002.75***, 3023.25-3023.75***, 3057.75**
Pivot: 2990.25-2990.50
Support: 2961.25-2969.25***, 2955.25**, 2941.25-2944.25***, 2931-2935.75**, 2914.75-2918***,
NQ (September)
Resistance: 7851.50-7879.50**, 7910.75-7930****
Support: 7803.50-7834.25***, 7759.50-7763**, 7693.75-7724.25***, 7609.50-7633.75***, 7550-7561.25***
Crude Oil (CLQ)
Last week’s close: Settled at $57.51, up 17¢ on Friday and down 96¢ on the week
Fundamentals: Crude oil is stable, grinding higher after more than achieving our downside target of $56.66 that we set on Tuesday. Now that OPEC+ 1 has confirmed their pact to extend production cuts through March 2019 and tensions in the Middle East have not escalated further, global growth and U.S supplies are front and center and neither narrative is favorable to price. Economic data to start the week has not been favorable with Japan Machinery Orders and German Industrial Production both whiffing on expectations. However, we will find the U.S at more of an inflection point coming out of the holiday week and on the heels of jobs data. Has manufacturing bottomed and thus signaling a more favorable demand landscape, something that would help offset U.S inventories 5% above the five-year average for this time of year?
Technicals: Price action is hugging the $57.43-$57.66 pivot, which aligns with our momentum indicator after recovering from a $56.04 low last week. While above this pivot, the bulls have the slightest edge but do not get too excited, first key resistance comes in at 58.16-58.20 and below here there is a potential bear flag in development. A close below 56.66-56.72 is bearish.
Bias: Neutral/Bearish
Resistance: 58.16-58.20**, 59.09-59.17**, 59.70-59.80**, 60.32-60.80***
Pivot: 57.42-57.66
Support: 56.66-56.72***, 56.04**, 55.63**, 54.53-54.99***
Gold (GCQ)
Last week’s close: Settled at $1,400.1, down 20.8 on Friday and down 13.6 on the week
Fundamentals: Gold is holding the psychological $1400 mark after the latest gut-shot Friday when job growth came in better than expected. As we discussed in the S&P section, the better headline number began pricing-out a 50-basis point cut by the Fed at their July 31 meeting. Still, they are fully expected to cut 25 basis points later this month and the odds sit at 50% that they cut 75 basis points this year. The biggest risk to gold is a strengthening dollar due to a less dovish Fed or a less bad economic landscape domestically but we continue to find the overall picture for the metal bullish unless the odds begin pricing-out the 25-basis point cut later this month. With volatility in gold at the highest since last February and the average five-week range at the highest since Q4 2016 when gold was selling off, we must lean on the technicals.
Technicals: Gold’s recovery last Tuesday after testing major three-star support at $1,377.5 exuded its overall bigger-picture resilience. The metal lost more than $50 from its high Wednesday through Friday, however, a higher low is constructive and price action is buoyed above first key support at $1,389. While we remain long-term bullish gold, support must hold in the near-term. Today’s high was $1,409.9 and we still find the $1,401.7 to $1,406.9 pocket crucial in developing a favorable landscape near-term; a close above here is Bullish.
Bias: Neutral/Bullish
Resistance: 1401.7-1406.9***, 1413.7-1418.2**, 1432.9***, 1484.5***
Support: 1389.3-1392.6**, 1377.5-1380.3***, 1361.5***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
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