Markets remain near highs but are still being driven for hopes of a US-China trade deal reports Bill Baruch.
E-mini S&P (ESU)
Last week’s close: Settled at 2980.75, up 8.75 on Friday and up 56.00 on the week
Fundamentals: U.S benchmarks are holding at the highest levels in more than a month. Friday’s Nonfarm Payroll report was mixed and despite heightened anticipation as usual, stronger than expected wage growth did not sour the week’s strength. Traders and investors alike continue to hold high hopes for U.S.-China trade talks in October. Additional tailwinds last week were found through unprecedented easing measures announced by the People’s Bank of China on Friday.
They plan to cut the Reserve Requirement Ratio to the lowest level since 2007 beginning Sept. 16 in stages. This move will release 900 billion yuan of liquidity. The Shanghai Composite gained 3.93% last week and in hindsight maybe the broader global strength was due to clues of these measures coming down the pipeline rather than just another undefined U.S.-China meeting on trade after the Oct. 1 tariffs are expected to be announced. Weak Chinese trade balance data over the weekend that showed Exports slipped has acted as a headwind for further gains and traders should keep a close eye on this benchmark as it nears the 200-day moving average and July 1st peak.
Make no mistake, Central Banks are in the driver’s seat. Whether it be the moves by the PBOC or expectations for the ECB to cut their Deposit Rate by 10 basis points and deeper into negative territory to -0.50% on Thursday. The Federal Reserve is set to meet next Wednesday and the odds for a 25-basis point cut hold at 91.2% with the rest of the pie being the probability they leave rates unchanged. Although Average Hourly Earnings beat expectations coming in at 0.4% on Friday and Core CPI has been stronger than anticipated as of late, inflation is not running away and given the deteriorating Manufacturing data, the Federal Reserve has the gunpowder to justify a cut. However, is it in their best interest to use what little powder they have instead of taking a more patient approach?
Technicals: We are not one to fight momentum and the tape has clearly found a path of least resistance higher. We noted here last week that continued constructive closes will pave a path of least resistance in the S&P and NQ to 3004 and 7960.25-7963.25 respectively. We have first waves of support in each aligning with Friday’s settlement for the S&P 500 and a little bit of a wider range that also aligns with such for the NQ. The bulls are in the driver’s seat out above these levels and traders can look to buy the first test to each. Markets extended gains on the bell last Thursday and Friday’s price action held that 8:30 am CT spike in a very constructive manner. Those lows, although not precise, do align closely with major three-star support at 2969.75-2975.25 in the S&P and 7789.50-7808 in the NQ; a close below here will take the wind out of the bull’s sails in the near term. Furthermore, as with any highly volatile elevation, there will be room for a sharp swing lower upon such.
Bias: Neutral/Bullish
Resistance: 3004***
Support: 2980.75**, 2969.75-2975.25***, 2952-2958**, 2938.50-2946.50***
NQ (September)
Resistance: 7960.25-7963.25***, 8014.50***
Support: 7856.50-7866.75*, 7789.50-7808***, 7751.50**, 7690.75-7722.75***, 7599.25-7617.75***
Crude Oil (CLV)
Last week’s close: Settled at $56.52, up 0.22 on Friday and up $1.42 on the week
Fundamentals: The big news over the weekend was the continued ousting of Khalid al-Falih. The now ex-Saudi Energy Minister led the countries policy since 2016, a position which will now be held by Prince Abdulaziz bin Salman, son of the King and half-brother to the Crown Prince MBS. Last week, he was also replaced as chair of Saudi Aramco by banker Yasir al-Rumayyan who is now set to lead the world’s largest oil producer into its IPO. Crude oil has gained as much as 2% to start the week on sentiment believing Saudi Arabia is not happy with the price of Oil merely at $60 while additional tailwinds have been provided by Iran’s departure from the UN agreement limiting uranium enrichment. Lost in last week’s noise was another bullish EIA inventory report. All in all, the bulls have the fundamental catalysts in their favor but the technicals are still playing as a headwind.
Technicals: Despite another failure to chew through and hold out above $57 Thursday, early weakness into Friday was abated before a positive close. Major three-star support at $55.10 battled to win yet another test and price action settled out above the $55.88 pivot ultimately leaving the bulls with a slight edge into the weekend. Our momentum indicator this morning aligns with the session low and this will act as a benchmark in order for the bulls to hold the driver’s seat, however, a close out above $56.95-57.13 resistance would mark the highest close since Aug. 1 fallout and is favorable.+
Bias: Neutral
Resistance: 57.76**, 58.45-58.86***
Pivot: 56.95-57.13
Support: 56.58-56.60**, 55.88*, 55.10-55.34***, 54.39**, 53.77-53.95***
Gold (GCZ)
Last week’s close: Settled at $1,515.5, down 10 on Friday and down 13.9 on the week.
Fundamentals: Gold is holding ground today and ignoring the sharp 3% increase in 30-year U.S. Treasury bond yields. The Dollar Index is down slightly again today buoying gold. The DX has incurred more than a 1% reversal from last Tuesday’s new high ahead of ISM Manufacturing. Better ISM Non-Manufacturing and Factory Orders Thursday pressured gold and the technicals added selling. Nonfarm Payroll was mixed on Friday; wage growth beat but job growth missed. The economic calendar is more or less quiet in the first half of the week, but Thursday will be the highlight; the ECB is expected to announce a rate decision at 6:45 am CDT, they are expected to cut 10 basis points and U.S CPI is due at 7:30 am CDT. If gold can hold ground in a fundamentally and technically constructive manner ahead of this, Thursday will be a defining momentum in the near and intermediate-term for Gold as it leads into next week’s Fed meeting.
Technicals: There are two trendlines that can be drawn for gold defining support and resistance. The first is from July 3 and gold traded out above here Aug. 6, it connects with the Aug.13 low; it is now support at $1,511. The second is from the Aug.13 and Aug. 22 low; it was violated last week and now brings resistance at session highs. A close outside of this range will provide a slight directional move, likely into Thursday. However, the larger range is defined by major three-star resistance at $1,531.9 and a close above here is needed to neutralize last week’s weakness. To the downside $1,500 has become a line in the sand with support at 1484.5-1487.2 also bringing significance.
Bias: Neutral/Bullish
Resistance: 1523**, 1531.9***, 1542.4-1546.4**, 1565**, 1588.2***
Support: 1510.7**, 1498.6-1500***, 1484.5-1487.2***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
