Markets buoyed by talk of trade progress, but economic numbers disappoint, notes Bill Baruch.
E-mini (ESZ)
Yesterday’s close: Settled at 3097, up 1.50
Fundamentals: Major U.S benchmarks surged to fresh records early last night on comments from White House Chief Economic Advisor Larry Kudlow. Price action has been extremely stable this week amid questions arising in trade with China and drama in Washington. This stable picture is the result of earnings and loose monetary policy while the market exudes the recent momentum and seasonally bullish time of year. Given this landscape, minor jawboning from Kudlow last night insisting an interim “Phase One” trade deal is much closer than headlines indicated this week resulted in a sharp jump and new records across the board. This is nothing new though, “the deal is in the final stage” and “both sides are in close contact”. His comments don’t change the divide on the issues of substance such as intellectual property rights. The market is less worried about a good deal and instead more concerned that no new tariffs are implemented and the potential to see current tariffs rolled back. The question today is whether or not the overnight excitement can stick through the weekly close.
The economic data certainly has not helped. Going back to Wednesday night, our favorite trio of China’s Industrial Production, Fixed Asset Investment and Retail Sales all missed. Amid a deluge of very poor indicators from the U.K all week long, Eurozone GDP data did squeak out a beat by one tenth. However, U.S inflation data this week was firming, not great if it becomes a trend. What we are referencing more than anything in the first sentence is that today Retail Sales (when stripping out automobiles), NY Empire State Manufacturing and Industrial Production all missed expectations. Although we do believe the economic data has been trying to turn a corner (we’ve been saying this for three months), this is the third miss in a row from core Retail Sales, the second out of three for NY Manufacturing and the fourth out of five for Industrial Production. Furthermore, this was the worst drop in Industrial Production in a year and a half. Earnings have been great and are fueling this market, but when the earnings headlines die down, a trade deal may bring a short-term boost, but the economic data must become the lifeblood driving this market.
Technicals: Price action is lifting, and we consider our upside target of 3115 in the S&P 500 to be achieved. Momentum is strong and we are certainly not going to argue with it; the trend is your friend. However, considering what has now become a bit of an exacerbated move coupled with the upside target being hit, we believe there are a couple great options strategies to implement in order to take advantage of a potential reprieve over the intermediate term; please call us at 312-278-0500 in order to discuss. The market has not closed below the 10-day moving average since Oct. 9; a minor reversion is well overdue. As for our more typical market description, the bulls are handedly in the near and intermediate-term driver’s seat
Crude Oil (CLZ)
Yesterday’s close: Settled at $56.77, down 35¢
Fundamentals: With yesterday’s EIA data in focus, crude oil slipped after a larger headline build than expected; 2.219 million barrels vs. 1.649. Gasoline was also a surprise build at 1.861 million barrels vs. an expected draw of 1.167 million barrels and was leading the way lower. Despite a steady move lower through the evening, strong major three-star support held in Crude, the round 1.60 level in RBOB and the broader risk-environment turned sharply better on positive jawboning on U.S-China trade. Still, economic data this morning was atrocious with core Retail Sales, NY Fed Manufacturing and Industrial Production all missing. Industrial Production by far the biggest laggard of the trio.
Technicals: Our technical levels remain the same. Line in the sand major three-star support comes in at $56.01-$56.20 and the 200-day moving average remains a ceiling at $57.34-$57.46. Price action remains confined, ping-ponging between these levels.
Gold (GCZ)
Yesterday’s close: Settled at $1,473.4, up $10.10
Fundamentals: Gold rallied into settlement yesterday, but price action began dissipating and incurred continued pressure after White House Chief Economic Advisor Kudlow’s upbeat comments on trade last night. The economic data today from Retail Sales, NY Fed Empire State Manufacturing and Industrial Production, especially Industrial Production was all poor. Although the metal has failed to respond, we expect it to bring a bid, even if slight, as the session unfolds.
Technicals: Gold rallied right it first key resistance for settlement yesterday, but the level has so far rejected the tape.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.
