The S&P sold off when Fed Chair Powell failed to deliver what bulls wanted, a clear signal of multiple rates cuts, notes Bill Baruch.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2982.25, down 30.00
Fundamentals: Expectations mounted for dovish rhetoric from the Federal Reserve yesterday and realistically those expectations became nearly impossible to meet. Fed Chair Powell and his committee cut rates by 25 basis points, but it was comments during his press conference that soured U.S benchmarks. When referring to the cut, he said, “This is a mid-cycle adjustment not the start of a lengthy cutting cycle.” He went on further to describe a strong U.S economy where this is a precautionary measure due to uncertainties on the horizon. Probabilities for a follow-up cut in September rose from 67% to 75% before his presser. This morning, the odds for a 25-basis point cut in September have tapered back to 51.9%.
Yesterday, we witnessed that black box reaction upon his comments; the S&P sunk to a low of 2958 before quickly bouncing back. With a deluge of key economic indicators upon us, the data will either force the market to make a transition or elevate the odds of future hikes. We do hold the belief that the U.S economy is attempting to turn a corner and today we look to ISM Manufacturing at 9:00 am CDT before Nonfarm Payroll tomorrow. We believe that in the end, better data but not stronger than expected wage growth would ultimately lift sentiment in what should prove to be a volatile two sessions.
Technicals: In the near-term, equity markets did not finish constructively yesterday. The long-term landscape is a different story; this market is still in a strong uptrend. In fact, there are two critical levels of support in the S&P well below yesterday’s low and both can arguably define this uptrend.
Crude Oil (CLU)
Yesterday’s close: Settled at $58.58, up 53¢
Fundamentals: Yesterday’s EIA inventory report was bullish and supportive to crude oil, but a lot was already priced-in due to API’s read the night before. Estimated U.S production bounced right back from Hurricane Barry, recovering to 12.2 million barrels-per-day just below the record of 12.4 million barrels-per-day. What hurt the tape was a gut shot to risk-sentiment after Fed Chair Powell fell short of signaling a follow-up rate cut in September. With less enthusiasm from Powell, crude finds itself nearly 3% from yesterday’s high and even news that OPEC produced 130,000 barrels-per-day less in July has not buoyed the tape. Today the technicals coupled with broader risk-sentiment will be the key drivers.
Technicals: Crude failed at major three-star resistance yesterday at $58.66 and after falling sharply, price action is now facing major three-star support.
Gold (GCZ)
Yesterday’s close: Settled at $1,437.8, down 4.0
Fundamentals: Gold settled before the Fed released their policy decision yesterday as it does on each FOMC Meeting. The metal is down sharply from settlement and trading below $1,420 this morning. As we noted here Monday, Gold faces a gauntlet of news this week from start to finish and given the heightened expectations for future cuts, merely finishing the week unchanged was a win for the bulls. Yesterday, Fed Chair Powell was less dovish as we feared and said the “cut was a mid-cycle adjustment”. The odds of a follow up cut in September have sunk to 51.9% from 75% and the U.S. Dollar Index has broken out to new highs on the year. The week is not over though, and ISM Manufacturing is due at 9:00 am CDT today and Nonfarm Payrolls will be absolutely crucial tomorrow.
Technicals: Price action is handedly below the $1,423.9 support level and this will act as our pivot today; a close above here, at this point is constructive. Lucky for the bulls, there are two strong waves of major three-star support below the market.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
