Equity markets reverse Friday’s sell-off on encouraging trade news, reports Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2855.50, down 66.75
Fundamentals: U.S benchmarks are snapping back from Friday’s bludgeoning after President Trump said China called him to restart trade talks and work towards a resolution. Although China has denied such a call, lead negotiator Vice Premier Liu He said he wanted to resolve this escalation through “consultation and cooperation with a calm attitude.” It would seem the fresh round of talks scheduled for early September in Washington are back on and markets have once again responded to open-ended hope. China announced Friday it will levy tariffs on $75 billion of U.S goods ranging from 5% to 10%t and set to start Sept. 1 and Dec. 15. President Trump responded by looking into a national emergency that could stop U.S companies from doing business with China. Furthermore, he raised tariffs on $300 billion worth of Chinese goods set to go in effect Sept.1st to 15% from 10% and tariffs on $250 billion set for Oct. 1 to 30% from 25%. The high trade of the morning was 2888.50; you’re telling us the S&P is back to the bottom-end of last week’s range like nothing happened?
German Business Climate this morning matched the lowest level since November 2012 and the report read “there are more indications of a recession in Germany and the last time industrial companies demonstrated such pessimism was in the crisis of 2009.” U.S Durable Goods are due at 7:30 am CDT and we maintain the belief that this market is not thriving on bad news, in fact recessionary data will encourage selling.
Technicals: Volatility is high and living on every headline; traders must manage risk properly. The overnight move in the S&P 500 bled through major three-star support at 2817.25-2823.25, a previous level, but did hold the 200-day moving average which comes in at 2811.75. The NQ did not reach its 200-day moving average but also bled through a crucial level of major three-star support at 7385.25-7396.75. Neither the S&P nor NQ has closed below its 200-day moving average since the first couple days of June. We now have a major three-star support level between here and those areas aligning with Friday’s settlements. As we discussed in the fundamental section, a lot has changed on the trade war landscape and the market is retesting the low-end of last week’s range and resistance at 2888.50-2891.50 was pinged. Given the premium to Friday’s settlement, it is likely we see a test covering what is now a gap. There is a lot of technical damage and holding those gaps at 2851.50-2855.50 in the S&P and 7490-7504.50 would start repairing such. However, a continued close below 2861.50-2866.75 in the S&P leaves the tape very vulnerable.
Bias: Neutral/Bearish
Resistance: 2888.50-2891.50***, 2904.25-2905**, 2914.75**, 2932-2944.25***
Pivot: 2861.50-2866.75***
Support: 2851.50-2855.50***, 2831-2834*, 2817.75-2823.25**, 2810.25-2811.75***, 2775.75**, 2757.25***, 2722-2732.25***
NQ (September)
Resistance: 7618.25-7628***, 7668.50-7681**, 7731.75--7748**, 7789.50-7808***
Pivot: 7544.50
Support: 7490-7504.50***, 7442*, 7385.25-7396.75***, 7353.25**, 7302.50**, 7199.50-7224.50***, 6936.25-6941.25****
Crude Oil (CLV)
Last week’s close: Settled at $54.17, down $1.18 on Friday and down 64¢ on the week
Fundamentals: Crude oil tumbled to two-week lows on Friday after China announced fresh tariffs on $75 billion worth of U.S goods targeted crude oil imports. President Trump, early this morning, said the two sides spoke and plan to begin trade talks in order to find a resolution. His comments reversed the risk-appetite sending crude oil as much as 4% from the overnight low and also turning equity markets green. Although the tape is exuding a positive wave of sentiment, the economic data is no better. German Business Climate reached a sever year low and headline U.S Durable Goods fell by 0.4%.
Technicals: The technical damage last week was more on the failure against resistance. To the downside, crude did manage to settle above major three-star support at 53.77-53.95 and although it traded lower overnight, the tape is handedly back above here today. Given the failure to extend gains, and our lack of belief in this recovery we are still bearish until crude can close out above its first key resistance at $54.85. However, we must see a close below $53.77 by tomorrow.
Bias: Neutral/Bearish
Resistance: 54.85-55.05**, 55.54-55.71**, 56.46*, 56.95-57.13**, 58.45-58.86***
Support: 53.77-53.95***, 52.96**, 51.61**, 50.38-50.52***, 48.80**
Gold (GCZ)
Last week’s close: Settled at $1,537.6, up $29.10 on Friday and up $14 on the week
Fundamentals: Last week was a flagship week for gold, it laid strong fundamental and technical groundwork and fully capitalized on it before the Friday close. Price action roared higher last night as risk-sentiment deteriorated further and gold hit $1,565.0, a fresh six-year high. President Trump has done his best to strengthen hopes U.S and China will continue trade talks despite the two sides upping the ante by increasing tariffs Friday. The headlines are driving the market but let’s not forget about the internals that have boosted gold all year; worsening global growth. German Ifo Business Climate matched the lowest level since November 2012 and highlighted recessionary conditions. Durable Goods also missed headline expectations falling 0.4%. These anecdotes, if they persist, will continue to keep Gold in a fundamental bull market.
Technicals: The bulls could not ask for anything more from gold last week. The battle was won at $1,498.6 to $1,500 upon a test each day of the week and once price action gained out above $1,513.5 and extended through $1,520.8 it did not look back. The tape must hold out above $1,530 in order to keep this wave alive and drowned out the disappointing reversal from last night’s highs.
Bias: Bullish/Neutral
Resistance: 1588.2***
Pivot: 1546.1
Support: 1530-1531.2***, 1525**, 1516.7-1518.8**, 1498.6-1500**, 1484.5-1487.2***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
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