All the major equities indexes are at or near record high as US-China trade outlook supports rally, writes Bill Baruch.
E-mini S&P (ESZ)
Last week’s close: Settled at 3063.25, up 27.50 on Friday and up 43.00 on the week.
Fundamentals: U.S benchmarks are poised to open higher and extend record levels. The Dow Jones Index joined the club overnight, achieving its first record high since July 15. Call it momentum, an upbeat trade narrative, strong earnings, an accommodative Fed or seasonal bullishness. Take your pick, the S&P 500 has its sights set on 3100. Friday’s nonfarm payroll report was just what the bulls ordered. Amid much better than expected job growth for October coupled with steady wage growth and the slightest tick up in unemployment, it was the strong revisions for September that truly added a bullish tailwind. Remember, September’s report initially showed flat wage growth and payrolls just below expectations; the revisions brought 0% to +0.4% and 136,000 to 180,000.
ISM Manufacturing was a disappointment, contracting more than expected. The unemployment rate rose because participation was lifted. Traders viewed this as keeping the Fed’s rhetoric a wash which is bullish although the odds of a cut in December have fallen to just 8%. In the end though, we need to see data such as manufacturing turn a corner in order to keep this market lifted.
It’s easy to ignore the poor manufacturing and write it off to the trade war. This is especially so when the trade narrative is seemingly improving and thus, so should the hard data. Despite hurdles on the U.S-China trade front early last week, things finished on a positive note and comments from U.S Commerce Secretary Wilbur Ross have brought additional bullish tailwinds to start the week. He imagines a “Phase One” deal being signed this month adding that the U.S may not need to impose auto tariffs on the EU and Japan. Auto tariffs have been a pandoras box over the last year.
Looking to the economic calendar, Manufacturing PMIs from Europe were less bad than expected across the board and this was uplifting to start the week. Factory Orders are in focus here in the U.S at 9:00 am CST. New ECB President Lagarde speaks at 1:30 pm CST. Tomorrow, ISM Non-Manufacturing brings a pivotal read; at the onset of a recession, it is believed the services sector is the last shoe to drop. Big movers premarket are McDonalds Corp. (MCD), -1.7% after firing the CEO and Under Armour Inc. (UA), -13.5%) amid earnings and revealing a federal accounting probe. Exxon (XOM) gained 3% on Friday after earnings. Energies, Industrials and Banks all posted strong sessions Friday.
Technicals: What is there to not be bullish about. The S&P 500 closed out above major three-star resistance on Friday at 3046.50-3057.75; this was our intermediate-term upside target, which was arguably achieved early in the week. The NQ settled right at major three-star resistance and our intermediate upside target at 8150-8179.25, this now brings major three-star support. The S&P finished below our next key resistance level at 3069.25 but quickly took that out overnight. These two levels now align to bring major three-star support at 3063.25-3069.25. Our next upside target in the S&P has extended to 3115 and aligns with a rising trend line from the May 1 highs. Similarly, this level brings our upside target in the NQ at 8240 which is nearly getting tested already. Our momentum indicators align more closely with supports so although the tape is very bullish, traders should not chase this action and instead wait for the first test to support to buy.
Bias: Neutral/Bullish
Resistance: 3100**, 3115***
Support: 3063.25-3069.25***, 3055**, 3032.25-3035.75**, 3020.25-3025.75***
NQ (December)
Resistance: 8240***, 8261.50**
Support: 8150-8179.25***, 8090.25-8100**, 8002.50-8020***
Crude Oil (CLZ)
Last week’s close: Settled at $56.20, up $2.02 on Friday and up down 46¢ on the week
Fundamentals: Crude oil is trading to the highest level since Sept. 24 and following the broader risk-environment; U.S equities at record highs and an upbeat trade narrative that would subsequently lift global growth. Now, in crude’s case you can add the Saudi Aramco IPO and the tailwinds directly or indirectly related to such. Saudi Arabia set the ship in motion to market and launch its IPO on the Riyadh stock exchange. With the valuation slipping to as low as $1.5 trillion, traders see this as an opening for Saudi Arabia to do what’s necessary to buoy the price of oil. Furthermore, Iran is lurking in the background. Today, saying they’ve doubled the number of advanced centrifuges in operation which allows them to enrich uranium 10 times faster. With Saudi Aramco making more headlines before yearend, we are likely to see Iran attempt the same. Lastly, coming out of maintenance season demand for crude is expected to rise, and just as inventories shrink against seasonally adjusted levels.
Technicals: Yes, we increased our bearish outlook on Friday after crude settled below major three-star support Thursday. Price action worked higher through the morning and sliced through major three-star resistance. A retest and rejection of this level at 11:30 at $54.94 lit a fire under the tape, boosting it another 2% into settlement. Price action is now out above all crucial levels, testing the continuous 200-day moving average at $57.19 and eyeing the December 200-day at $57.38. Our momentum indicator trails the market dramatically at $55.90 but will rise by the end of the session to align with Friday’s settlement at $56.20; only a close below here will begin to neutralize such strength.
Bias: Neutral
Resistance: 57.19-57.38***, 58.22-58.32**, 59.11***
Pivot: 56.80-56.82
Support: 56.20**, 55.72-55.90**, 54.61-54.94***
Gold (GCZ)
Last week’s close: Settled at $1,511.4, down $3.40
Fundamentals: Gold continues to hold ground despite a mixed landscape. Friday’s nonfarm payroll report was strong, European Manufacturing this morning was better than feared, stocks are at record highs and U.S and China are nearing a “Phase One” deal. Given all of this, the odds of a fourth cut in December have dissipated to 8% this morning. Still, ISM Manufacturing on Friday contracted worse than expectations and this helped gold hold ground in the second half of Friday’s session amid fresh comments on trade. Factory Orders are due at 9:00 am CT today and ISM Non-Manufacturing is tomorrow. We are unequivocally bullish Gold in the intermediate and long-term but if those two data points come in better than expected, we would imagine Gold slipping back below $1500 unless stocks make a U-turn.
Technicals: We took a very neutral approach into Friday given the gauntlet of an economic calendar. Price action was very favorable, and Gold again finds itself battling at a crucial level of technical resistance at 1509-1515.6. It could not achieve a close above here but continues to hold ground against the level. Given a more stagnant tape since the spike early Friday, our momentum indicator now closely aligns with this pocket which also brings Friday’s settlement. Gold has its work cut out for it, but the tape remains favorable and extremely constructive above 1505.
Bias: Neutral/Bullish
Resistance: 1511.6-1515.6***, 1527.5***, 1540-1543.3***
Support: 1505**, 1495.8-1496.8**, 1484.5-1490.7***, 1465**, 1450-1454***, 1413.2***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
