Markets are expecting to be relative quiet until they hear from Fed Chair Powell on Friday, reports Bill Baruch.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2898.25, down 25.50
Fundamentals: U.S benchmarks are bouncing back from yesterday’s dull session. Price action achieved a strong wave of technical resistance Monday on the heels of three straight days of sharp gains, this has encouraged us to take a more cautious approach. Additionally, the first half of the week was expected to be quieter; there was no anticipated catalyst to drive equity markets through resistance or slap them back down to the depths of last Thursday. Thus, we have a healthy consolidation on our hands. Today, the Federal Reserve releases the minutes from their July rate-cut meeting at 1:00 pm CDT but given developments since and barring any surprises, markets are likely to keep their focus on Fed Chair Powell’s keynote address at the Jackson Hole symposium Friday. His speech will be a follow-up to calling the July 31 rate-cut a “mid-cycle adjustment”, something equity markets did not find very favorable. In fact, a September rate cut is now not 100% priced-in for the first time since that Fed meeting. There is a 2% probability the Fed leaves rates unchanged next month. A less-dovish Federal Reserve will initially act as a headwind to equity markets but if the data shows up, we may not realize that a transition to a data-dependent market instead of a Fed-driven market is already underway.
Technicals: After closing on the lows, the tape is sharply higher today. Both the S&P 500 and Nasdaq 100 pinged our first waves of major three-star support overnight at 2888.50-2891.50 and 7611.75-7636.25 and have steadily recovered since. Although we remain cautiously optimistic, this reinvigorated momentum only leaves the bulls in the immediate-term driver’s seat out above first key supports.
Crude Oil (CLV)
Yesterday’s close: Settled at $56.13, down 0.01
Fundamentals: Yesterday was a fundamentally and technically constructive session for crude oil before API reported a larger draw than expected. Price action slipped early but was quick to recover with Iran remaining in the headlines. An Iranian tanker left Gibraltar Sunday and is now moving through the Mediterranean and despite a reported destination of Greece, is expected to be headed to Syria. U.S Secretary of State Pompeo said the U.S would do everything in its power to prevent this delivery. The API data added a tailwind to this move after reporting a draw of 3.45 million barrels of crude. Today’s EIA expectations are for -1.89 million barrels of crude, +0.169 million barrels of gasoline and +0.314 million barrels of distillates.
Technicals: Price action fell through yesterday morning after dipping below $55.90 and then $55.62 as noted here. The ensuing recovery was just as sharp after crude rejected the psychological $55 mark and support below at $54.76 upon a slight lower low on a 30-minute chart. Price action is now out above a trend line from the July 15 high and our momentum indicator, this has become support.
Gold GCZ
Yesterday’s close: Settled at $1,515.7, up $4.10
Fundamentals: Gold has again battled to hold the psychological $1,500 mark, recovering into this morning despite a better risk-environment with equity markets higher. The metal is also shaking off a lower Treasury complex. Germany auctioned a 30-year Bond at a negative yield, increasing the world’s negative yielding debt to above $17 trillion; a supportive factor for gold. Existing Home Sales is due at 9:00 am CDT. The Federal Reserve releases the minute from there July rate-cut meeting at 1:00 pm CDT. We expect the focus for the most part to be Flash PMIs tomorrow and Fed Chair Powell at Jackson Hole Friday.
Technicals: We remain bullish gold on an intermediate and long-term basis as long as it stays above major three-star support at $1,484.5. This week’s dip held strong support at $1,500 on three occasions and has recovered in an extremely constructive manner after each test.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
