Stocks are looking to be fed more bullish juice from the Fed as the extend gains with plenty of reports and earnings to follow, reports Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled 3035.75, down 0.50
Fundamentals: It’s a jam-packed Fed Day and U.S benchmarks are flat looking to the open. Earnings remain in the spotlight, but the economic calendar and growth outlook are front and center until 3:00 pm CDT when Facebook (FB) and Apple (AAPL) report. Starting with Europe, French GDP beat although Consumer Spending slipped by a wide margin. German Unemployment and Eurozone Sentiment reads largely underwhelmed. U.S ADP Payrolls are due at 7:15 am CDT and come ahead of the first look at U.S Q3 GDP. These numbers will certainly set a tone as we look to the Federal Reserve to cut rates by 25 basis points at 1:00 pm CDT. Although there is a 98% probability, they cut rates to 150-175 basis points today, the future path is what’s most important. Fed Chair Powell holds a press conference after each meeting at 1:30 pm CDT. The odds of a fourth 25 basis point cut in December are only 22.5% this morning. For this exact reason, we have held a narrative that this market must make a transition from Fed easing dependence to stronger data dependence; better data means higher stocks.
Outside of those two factors, we noted back in September that a strong earnings season could be the catalyst fueling this market to record highs. Earnings have overall been better than expected although Amazon (AMZN) and Alphabet (GOOGL) have underwhelmed. The banks have shown strong leadership, JPMorgan (JPM) is a favorite of ours, and healthcare has been strong, Pfizer and Merck gained 2.5% and 3.5% respectively yesterday after reporting.
Semiconductors are in a full-on breakout being led by Intel’s strong report last week. AMD reported strong earnings after the bell yesterday, but their forecast left something to be desired. The stock is down 1.6% premarket but barring any macro factors, this should prove to be a buy into $28 for the longer run. Apple lost 2.3% yesterday but is also in a full-on breakout and a buy down to $230. Has the company further shifted dependence from iPhone sales and how is subscriber growth playing out? Investors have fairly low enthusiasm for beleaguered Facebook, we know we do. This could open the door to a nice surprise, but we are certainly waiting to see the results first.
Technicals: We remain cautiously bullish, but it is important to understand that after setting a fresh record again yesterday the S&P 500 has hit our intermediate-term upside target at 3046.50-3057.75. We noted here yesterday that on Monday the S&P and NQ came close enough to these targets and shorter-term momentum traders should not be greedy. Today’s pivot levels align our momentum indicators with previous record highs for the December contracts; continued price action out above here is bullish in the near, intermediate and long-term. Traders should be prepared though for pullbacks to strong levels of support given the calendar.
Crude Oil (CLZ)
Yesterday’s close: Settled at $55.54, down 27¢
Fundamentals: Crude oil is waffling around near unchanged this morning amid conflicting drivers. Risk-sentiment is certainly upbeat as equity markets remain near record levels, earnings have broadly been strong, U.S Q3 GDP came in better than feared and the Federal Reserve is going to loosen policy further later today. All is well right? Not so much, the true global growth picture is a murky one and that’s why central banks around the world have moved to loosen policy. Needless to say, Manufacturing PMI from China tonight will be crucial, it is expected to contract for the sixth month in a row.
EIA inventory data is due at 9:30 am CT, expectations are for +0.494 mb of Crude, -2.185 mb Gasoline and -2.35 mb of Distillates. API last night reported Crude in line with expectations but builds in both products. As we move out of maintenance season, the bulls pound the table for rising Crude demand. Only problem is, it’s expected like clockwork each season and thus largely priced in.
Technicals: Price action slipped sharply early yesterday and achieved our major three-star support perfectly. More specifically, Crude traded to a low of $54.61 and this was the .382 retracement from Monday’s high to Oct. 3 low. As we noted here yesterday, a close below this level is very bearish.
Gold (GCZ)
Yesterday’s close: Settled at $1,490.7, down $5.10
Fundamentals: Gold is hanging tough ahead of today’s priced-in rate-cut and after U.S Q3 GDP came in better than expected. What matters for gold today is the Fed’s emphasis on future policy. As of this morning, there is only a 22.5% probability the Fed cuts rates for a fourth time in December. Typically, mid-cycle adjustments have only lasted for three rounds of 25 basis point cuts. If the committee solidifies this approach, gold is likely to see waves of pressure lower. In the end, the data domestically and aboard has been poor and there is no light at the end of the tunnel yet. China Manufacturing PMI is expected to contract for the sixth straight month tonight and Friday brings Nonfarm Payroll and ISM Manufacturing.
Technicals: We remain neutral on gold, however, are unequivocally long-term bullish.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
