Stocks remain positive while crude and gold appear to have hit a top, reports Bill Baruch.
E-mini S&P (ESU)
Yesterday’s close: Settled at 2978.50, up 0.25
Fundamentals: U.S benchmarks are on the positive side of flat this morning with Thursday’s ECB interest rate decision and U.S CPI data looming. First, price action spiked late last night after China published a list of products that won’t be subject to the 25% tariff. Unfortunately, these exemptions do not include agricultural products and are limited to the likes of feed for livestock and fish, grease and lubricating oil, and a range of pharmaceuticals among other things. This will go into effect Sept. 17 and last for a year. The tape was broadly soft through the first half of yesterday’s session on reports European Central Bank President Mario Draghi won’t announce as heavy a dose of stimulus as anticipated. It is a foregone conclusion that the ECB will cut rates deeper into negative by 10 basis points to -0.50%, but there are odds showing we could see more.
Additionally, the ECB are expected to announce a fresh wave of Quantitative Easing. If the ECB underdelivers, investors may not feel it’s enough to stave off deteriorating conditions. Offsetting the weakness was National Security Advisor Bolton being pushed out of the White House. Bolton, a hawk, was the aggressive voice in President Trump’s ear towards both China and Iran. His exit has been received as favorable to stocks. All in all, the market is right where it finished Friday and traders await tomorrow’s news. The less closely watched PPI data is due at 7:30 am CDT and Wholesales Inventories are out at 9:00 am CDT.
Technicals: Price action in both the S&P 500 and Nasdaq 100 broke below our major three-star support levels that help define the immediacy of the current uptrend. However, neither index closed below there, which has allowed a technical wave higher for two reasons; shorts got trapped and were forced to cover and within the underlying uptrend there is a developing bull flag that bulls are now feasting their eyes on. The wave lower, though it broke major three-star support, did hold key support levels for both indices.
Crude Oil (CLV)
Yesterday’s close: Settled at $57.40, down 45¢
Fundamentals: Crude oil reversed early gains yesterday after it was announced National Security Advisor John Bolton was pushed out of the White House. Bolton was the hawkish voice in President Trump’s ear and had a large impact on that path taken with Iran. The news was quickly seen as slight de-escalation of tensions with Iran although market participants know Iran has recently taken steps outside of the scope impacted by Bolton’s dismissal.
The private API survey after the bell reinvigorated the bullish tape as they reported a draw of 7.227 million barrels of crude, -4.460 million barrels of gasoline and +0.618 million barrels of distillates. This is a very bullish report relative to analyst’s expectations of -2.686 million barrels crude, -0.847 million barrels of gasoline and +0.072 million barrels of distillates. The large draw reported by API was clearly a surprise and especially so given the storm that pushed through the southern states. It’s important to remember that it is just a private survey and furthermore there is now a bullish bar set for today’s report; something merely in line with the expectations or the slightest bit soft will be seen as bearish.
Technicals: It was no coincidence that crude oil sold off yesterday after achieving major three-star resistance at $58.45, our only major three-star resistance level for weeks.
Gold (GCZ)
Yesterday’s close: Settled at $1,499.2, down $11.90
Fundamentals: The pressure on gold continues as both Treasury yields and the dollar elevate. The latest to fuel the pair higher is U.S Core PPI data this morning coming in stronger than expected. Still, tomorrow’s ECB interest rates decision and U.S CPI are the highlight of the week and as we have noted, what’s key is for gold to hold a constructive fundamental and technical landscape ahead of these events. But furthermore, it must be understood that regardless of the landscape heading into it, the events still may not be favorable. However, holding construction will allow gold to not battle with an arm tied behind its back through the events. For instance, a less dovish ECB which rallies the euro can still help gold on a currency basis if the landscape remains constructive ahead of such.
Technicals: Yesterday was the lowest settlement in gold since the Aug. 7 surge. As we remain near-term cautious and long-term optimistic, our bias has been more neutral since trading below $1,430.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
