S&Ps Rally of Positive Trade News & Technicals

09/05/2019 11:26 am EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

The recent S&P strength is supported by technicals and trade news but may not be sustainable, notes Bill Baruch.

E-mini S&P (ESU)

Yesterday’s close: Settled at 2938.50, up 32.50

Fundamentals: U.S benchmarks are roaring higher on news the United States and China will meet in early October. With a firm tape in the front half of the week, we don’t believe this sole piece of news is the ultimate catalyst for the rip. Do not misinterpret that statement though; a bullish breakout is developing. However, we find the move much more technical in nature. Although the likeliness of a meeting in and of itself sparked the last leg of this rally, it occurred during low liquidity hours which can easily exacerbate a reaction. Furthermore, there has been a ceiling of resistance at 2932-2946.50 and clearly stops were triggered above here during those hours fueling such an exacerbation.

As for the meeting itself, both sides are reportedly rolling out the red carpet for the verbiage by agreeing to take “actual actions”. Adding that low-level representatives will work diligently to lay groundwork ahead of this early October meeting. What has changed from two weeks ago? Fresh tariffs were levied by both sides on Sept.1, planned to be levied by the U.S on Oct. 1 and again by both sides in December. Additionally, there is no longer a meeting in September. Instead there is a tentative meeting early in October, but China is asking for U.S concessions. What are the odds this meeting truly takes place if fresh tariffs are in fact levied on Oct. 1? Oh yeah, and the S&P is about 2% higher over those two weeks and we are seeing further signs of economic deterioration in the data.

Ahead of a crucial Nonfarm Payroll report tomorrow morning we have a deluge of data through today. German Factory Orders slipped more sharply than anticipated at -2.7%. ADP Payrolls are released at 7:15 am CDT. Weekly Jobless Claims and Nonfarm Productivity are due at 7:30 am CDT. Services and Composite PMI reads are at 8:45 am CDT. At 9:00 am CDT there is a slew of data including Durable Goods, Factory Orders and the closely watched ISM Non-Manufacturing. We still hold the belief that bad data will weigh on market sentiment due to budding recession fears while better data will help lift the tape. However, if the data is overall good today followed by a hot read on wage growth in tomorrow’s Nonfarm Payroll, we are likely to see the odds of even a 25-basis point hike become not fully priced-in. Combine that with a questionable timeline for trade talks and the S&P 500 may not secure a bullish weekly close.

Technicals: You cannot fight this tape in the near-term. Might there be quick swing trade opportunities to the downside? Absolutely, but there is nothing technical saying this rally must be faded other than the fact it has not secured a breakout upon a closing basis. 

Crude Oil (CLV)

Yesterday’s close: Settled at $56.26, up $2.32

Fundamentals: On the back of a tremendous Wednesday in which crude gained 4.3%, today’s session started on its back foot after the private API survey reported a surprise build. Strong technical support, positive news out of Hong Kong and revised reports pointing to less exports from Saudi Arabia in August fueled a strong rally. News last night that the U.S.-China trade talks may resume in October added a tailwind to what had already become a better risk-environment on the week. Although there are still mounting concerns on trade and its impact on the world economy, the news is paving a path of least resistance, higher for the time being. API yesterday reported a build of 401,000 barrels of crude, underwhelming the market’s expectations. This has encouraged analysts to revise their estimates lower for the official EIA report today at 10:00 am CDT; -2.488 million barrels of Crude, -1.523 million barrels of Gasoline and +0.484 million barrels of Distillates. Last week, estimated production reached a new record at 12.5 million barrels-per-day, this number will also be watched very closely today.

Technicals: Price action in crude oil is range bound, testing the upper band of what we have seen for the last 30 days. 

Gold (GCZ)

Yesterday’s close: Settled at $1,560.4, up 4.5

Fundamentals: Gold is seeing selling pressures this morning with equity markets ripping higher on positive U.S.-China trade news. Although the U.S. Dollar Index is lower and this is supportive, safe-havens are getting broadly hit this morning due to the better risk-environment. The 30-year bond is at nearly two-week lows and the Japanese yen is at one-month lows. Adding pressure was a better ADP Payroll number and stronger Nonfarm Productivity. We look to a deluge of data at 9:00 am CDT. The next 24 hours will be crucial for gold on several fronts. Does the risk-sentiment stay strong? Does the data support or reject price action in gold?

Technicals: Gold set a new swing high of $1,566.2 yesterday. With strong resistance overhead at $1,588.2, the buyers are seemingly dissipating as price action nears this crucial long-term level.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.

Related Articles on MARKETS