Yesterday’s strong rebound in equities suggest market is more focused on US-China Trade than Impeachment, writes Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 2986.25, up 16.00
Fundamentals: U.S benchmarks snapped back yesterday, even as the impeachment “inquiry” on President Trump heats up. This would confirm the market is more dependent in the near-term on the U.S.-China trade narrative. With investors eyeing high-level trade talks in two weeks, President Trump said yesterday a deal could happen sooner than people expect. These comments helped solidify a bottom in what was a weaker tape for exactly 24 hours. Of course, the bulls are not in the clear yet, we will discuss that in more detail in the ‘Technical’ section below. Lastly, although the impeachment inquiry is a serious issue, it is difficult to imagine the Senate moving forward with such proceedings. During his Presidency, Donald Trump has used positive headlines to distract from the negative ones and this means traders could prepare for a more upbeat narrative on U.S.-China trade as we head into those talks. China is also trying to add a tailwind as Reuters reported their Commerce Ministry this morning as saying “the two sides are in close communication in order to ensure progress in two weeks”.
On today’s economic calendar, we look to final Q2 GDP numbers which are expected to stay steady at 2.0%. Traders want to keep an eye on Real Consumer Spending to stay elevated; this fueled much of the quarter’s gains. Yesterday, Kansas City Fed President Esther George, who dissented on the more hawkish side last week, did not make any notable comments on monetary policy. Chicago Fed President Evans, a known dove, did say yesterday that expanding the Fed’s balance sheet again may be the answer. This comes at a time when the Fed is increasing liquidity levels to stabilize the overnight lending rate, which hit a high of 10% last week. ECB President Mario Draghi speaks at 8:30 am CDT.
Dallas Fed President Kaplan, a 2020 voter, also speaks, then. St. Louis Fed President James Bullard, who also dissented last week but in the opposite (more dovish) direction, favoring a 50-basis point cut speaks today at 9:00 am CDT. Fed Vice Chair Clarida speaks at 10:45 am CDT and is arguably the highlight of today’s calendar.
On Tuesday, the selling kicked in at 9:00 am CDT. Yes, this was when President Trump slammed China and Iran at the UN General Assembly and when the impeachment talk picked up, however, it was also when Consumer Confidence whiffed, and Richmond Fed Manufacturing data contracted sharply. Our narrative remains one where this market is not only attempting to but slowly and surely will need to make a transition from Fed easing dependence to stronger data dependence.
Technicals: Into yesterday afternoon, price action stayed contained below strong resistance levels in each the S&P 500 and Nasdaq 100, highlighted by 2977.75-2980.75. The problem was, as the lunch hour turned into the final two hours, neither index was retreating. We always talk about buying or selling the first test, but once you are in a shorter-term trade and it’s not performing there is no need to stick with it just because you have a position on. Without a pullback, price action shredded through these resistance levels around 1:00 pm CT, surging into the close. Previous resistance is now support; each index has pulled back overnight, the S&P 500 tested and held support at 2978.50-2980.75 and the NQ at 7774. For you shorter-term traders, these are the swings to look for whether you were fading or looking to buy a pullback. This morning, our momentum indicators align with these supports. While we will stop short of saying the tape is near-term bullish above here, the bulls do appear to be attempting to hold the driver’s seat with such and furthermore do hold it while above our pivot in the S&P 500 at 2986.25-2989.75 and in the NQ at 7820,25-7830.50. This certainly does not mean they are in the clear but a move through first key resistances at 2997.50-2998.25 and 7855 is again bullish.
Bias: Neutral
Resistance: 2997.50-2998.25**, 3008.50-3013.75***, 3025.75-3029.50***, 3044-3057.75***
Pivot: 2986.25-2989.75
Support: 2978.50-2980.75**, 2964.25*, 2953.75-2958.75**, 2938.50-2943.75***
NQ (December)
Resistance: 7855**, 7904.75-7918***
Pivot: 7820.25-7830.50
Support: 7774-7778**, 7727.25-7731.50*, 7663-7687**, 7580.75-7612.50***, 7520-7520.50**
Crude Oil (CLX)
Yesterday’s close: Settled at $56.49, down 80¢
Fundamentals: The immediate reaction to a headline EIA build of 2.412 million barrels of crude and an uptick in estimated U.S production back to 12.5 million barrels-per-day sent crude oil lower. Wait a second, not only was price action at this point driving into a crucial level of technical support, this was not more bearish than the private API survey the day before. Furthermore, the geopolitical picture is certainly not any better. The bulls took advantage of lower prices but still were not able to dig out of losses on neither the session nor the week. This is so even as the White House pressures Chinese firms with sanctions for importing Iranian oil, which makes both sides of the geopolitical coin murkier and theoretically more bullish given the broadly positive jawboning on U.S.-China trade. Fundamentally, we remain longer-term bearish but near-term very Neutral at these price levels.
Technicals: The key takeaway from our technical levels listed below; there is a lot of resistance between $57 and $58 and none of these are major three-star levels. Even after chewing through here, the market will face massive hurdles at $58.74 and again at $60; we see these areas as good intermediate to longer-term sell opportunities. In our minds, a move through here would need a strong fundamental catalyst such as U.S and Saudi retaliation on Iran or another attack by Iran. Price action has not been able to extend gains overnight and remains tethered to the upside of our pivot and this is very neutral. To the downside, let’s not forget there are many crucial levels of technical support, most importantly $54.70 to $55.00, which aligns multiple indicators and two separately drawn trend lines from the Aug. 7 low. Below, here we have major three-star support at $52.50 and this also aligns multiple technical indicators and arguably most important a trend line from the December low.
Bias: Neutral/Bearish
Resistance: 57.01-57.05**, 57.47-57.52**, 57.92-57.98**, 58.74-58.91***, 59.99-60.45***
Pivot: 56.28-56.45
Support: 55.60**, 54.70-55.00***, 53.64**, 52.50-52.84***
Gold (GCZ)
Yesterday’s close: Settled at $1,512.3, down $27.90
Fundamentals: Yesterday was a bloodbath in the metals and the selling kicked-in just ahead of options expiration, spoiling the plans of greedy bulls holding calls that expired at 12:30 pm CDT. Upon President Trump’s positive jawboning on U.S.-China trade and a realization the impeachment “inquiry” is likely to fizzle out in the Senate, safe-haven assets quickly lost their bid. Above all else, do not underestimate the impact of options expiration here. With Treasury yields weakening into yesterday, the 10-year Treasury note approached support at 1.6% in the 30-year Treasury bond at 2.0%; these have held so far with yields bouncing back. On the flip side, prices failed at the resistance level of 163-00 in the bonds we spoke of Monday. Lastly, equity markets surged into the back-half of the session which added the last, kick’em while they’re down. All in all, the odds for a Fed cut next month remain just better than a coin flip. Please reference the S&P 500 section to get clued in on today’s busy economic calendar.
Technicals: Gold failed to hold out above our crucial resistance level, which became a pivot yesterday at $1,529.10. Furthermore, the metal settled below major three-star support at $1,517.1, trading to a low of $1,507.4, which guess what, was exactly our second layer of support. While the longer-term trend remains very positive, the near-term trend is damaged and needs repair; this can only be done upon consolidation above $1,500. A close above $1,521.1 will neutralize yesterday’s damage.
Bias: Neutral/Bullish
Resistance: 1521.1***, 1529.6-1531.5**, 1540.2***, 1546-1548.7**, 1565**, 1588.2***
Pivot: 1515.9-1517.7
Support: 1507.4**, 1498.6-1500***, 1484.5-1487.2****
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
