Equity Markets Back off on Trade Stand Off

11/11/2019 11:20 am EST


Bill Baruch

President and Founder, Blue Line Futures

With no tariff-relief as part of a potential “Phase One” US-China Trade Deal, equity markets have given back some of their gains from last week, Bill Baruch notes.

E-mini S&P (ESZ)

Last week’s close: Settled at 3090.50, up 4.50 on Friday and up 27.25 on the week

Fundamentals: U.S benchmarks are set to open lower to start the week on this Veteran’s Day holiday. On Friday, President Trump addressed what we were already suspecting saying he does not want to rollback current tariffs in order to achieve the interim “Phase One” trade deal with China. While this threw a bit of cold water over sentiment, it was largely expected, and equities broadly took it in stride; the S&P 500 and Nasdaq 100 each closed at record levels.

White House Advisor and trade hawk Peter Navarro echoed the President’s comments over the weekend adding a more hard-lined stance saying there will be no rollbacks and furthermore the tariffs are needed as an insurance policy. Although the market is largely ignoring the lack of clarity surrounding an interim trade deal, strong earnings, solid ISM Non-Manufacturing and better Trade Balance data (China and Germany) last week helped set a soothing tone.

Today’s U.S economic calendar is bare as Veteran’s Day is a federal holiday. Headlines and footage of violence on the streets in Hong Kong has set a sour tone to start the week; the Hang Seng closed down 2.6%. The British Pound is up nearly a penny after Nigel Farage announced his Brexit Party won’t fight Prime Minister Boris Johnson’s conservatives in the upcoming election. This comes despite a slew of weak data from the U.K this morning including GDP and Manufacturing worse than expected. As the week develops, U.S CPI is in focus Wednesday morning followed by Fed Chair Powell’s two-day Congressional testimony.

Technicals: Price action is lower this morning but holding well against first key supports in each the S&P 500 and Nasdaq 100. If the market is able to consolidate above these levels and regain our momentum indictor picots, it will certainly give the bulls an edge into the close. However, the lower open pose strong overhead resistance given a gap from Friday’s settlement. This brings key resistance in the S&P at 3090.50 and aligns with multiple indicators in the NQ to create major three-star resistance at 8250-8261.50; close above these levels is very bullish and we would expect a tailwind of buying upon such. To the downside, strong major three-star support held extremely well last week and mounts as a line in sand to keep a floor under this latest elevated leg, however, a close below here will likely welcome a strong wave of selling.

Bias: Neutral/Bullish

Resistance: 3090.50**, 3100**, 3115***

Pivot: 3083

Support: 3075.50-3077**, 3063.25-3069.25***, 3055**, 3032.25-3035.75**, 3020.25-3025.75***

NQ (December)

Resistance: 8250-8261.50***, 8300***

Pivot: 8231

Support: 8207.25-8213**, 8150-8179.25***, 8090.25-8100**, 8050**, 8002.50-8020***

Crude Oil (CLZ)

Last week’s close: Settled at $57.24, up 9¢ on Friday and $1.04 on the week

Fundamentals: Crude oil is following the broader risk-environment lower and we find it more susceptible to a less enthusiastic at best U.S-China trade narrative when compared to U.S equities. Trade Balance data from China and Germany provided a little hope to finish out last week but poor data from Japan to the U.K Monday was the latest reminder of deteriorating growth due to the trade war. This will certainly be a closely watched topic as the week unfolds with U.S CPI, Fed Chair Powell and maybe most importantly a deluge of data from China Wednesday night. The Saudi Aramco IPO is also in the headlines this morning as the company published its prospectus. While there were few details on price, number of shares and valuation, it did detail a sharp drop in profit for the third quarter due to lower crude oil and the September attacks. Bloomberg also published an article over the weekend detailing how Iran discovered an oilfield containing 53 billion barrels of crude; how conveniently timed.

Technicals: We continued to find value in selling crude at these elevated levels and as it struggles to close out above the 200-day moving average, which comes in a bit higher today as major three-star resistance. Our momentum indicator comes in at $56.71 this morning and while below here, we believe the bears have a slight edge. Still, they must achieve a close below major three-star support at $56.20 in order to encourage additional buying and potential roll this thing over.

Bias: Neutral/Bearish

Resistance: 57.39-57.43***, 58.22-58.32**, 59.11***

Pivot: 56.71

Support: 56.01-56.20***, 55.72-55.90**, 54.61-54.94***

Gold (GCZ)

Last week’s close: Settled at $1,462.9, down $3.50 Friday and down $48.50 on the week

Fundamentals: Gold is lingering at the level since Aug. 5 as equity markets set fresh record closes Friday. With U.S benchmarks on their back foot to start the week and a bit less enthusiasm surrounding the U.S-China trade deal, the metal could easily see a consolidation higher ahead of U.S CPI and Fed Chair Powell Wednesday. This does not mean gold has bottomed but instead will emphasize the importance of such a pivotal session to come. The U.S economic calendar is bare but data from Japan and the U.K was weak and coupled with violence in Hong Kong, this helped create an early bid for gold which has since dissipated.

Technicals: Gold traded to a low of $1,457 on Friday and major three-star support at $1,450-$1,454 is working to create a near-term floor. Still, rallies have stalled to hold out above the previous low at $1,465 and resistance is developing at 1469.3-1473. While there is a decent probability Gold consolidates higher into Wednesday, make no mistake, the metal is still very vulnerable to see a further washout. This is fine though as we expect such to open the door to a seasonal buy opportunity.

Bias: Neutral

Resistance: 1469.3-1473**, 1484.5-1490.7***, 1495.9-1497**, 1503.6-1505**, 1511.6-1515.6***

Pivot: 1465

Support: 1450-1454***, 1413.2***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com

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