Can Chinese comments on a “Phase One” trade deal boost the markets again, asks Bill Baruch.
E-mini S&P (ESZ)
Yesterday’s close: Settled at 3104, down 5.00
Fundamentals: U.S benchmarks continue their healthy consolidation and we have not seen a fresh record high in 72 hours, but it is Friday and Chinese President Xi is doing his part saying he wants to work towards an interim “Phase One” trade deal. Despite Xi’s comments, ‘cautious optimism’ and an invitation for high-level U.S delegates to visit Beijing for talks the market still faces two overarching questions. Will President Trump sign the Hong Kong Human Rights and Democracy Act and will tariffs on Dec. 15 get delayed?
The odds of a Fed cut in December have completely dissipated and there is now a 5% probability they hike rates. Although we do not expect the Fed to hike in December, the odds have shifted gears from a cut to a hike and this could prove to be an inflection point if the data starts beating expectations. Today’s economic calendar brings Flash PMIs. It certainly was not good in Europe, but Manufacturing from all three (France, Germany and the Eurozone read) came in better than expected. However, the Services mark missed. U.S Flash PMIs are due at 8:45 am CT and Michigan Consumer data is due at 9:00 am CT.
Technicals: Major three-star supports held very well through the week at 3095.50-3099 in the S&P 500 and 8250-8265.50 in the Nasdaq 100. We were admittingly surprised to see strong volume intermittently slice through these levels before stabilizing. These supports aligned with gaps from last Thursday and typically such a move through a gap struggles to stabilize that quickly and we always note that traders must be cautious.
Crude Oil (CLF)
Yesterday’s close: Settled at $58.58, up $1.57
Fundamentals: Crude oil stacked back to back 3% gains and settled at the highest levels since Sept. 16, which was Monday after the attacks on Saudi Arabia’s largest oil facility. An upbeat U.S.-China trade narrative, speculation of more stringent compliance among OPEC+ members to not surpass their quotas and hopes that economic data is turning a corner have all fueled crude higher. However, one of the most underestimated factors is simply the bulls becoming under-positioned and the bears becoming over-positioned relative to recent years and ultimately as positioning reverted to the mean after a failure to go lower it brought a tailwind to the tape. We have been neutral but are now getting excited on a value basis at these levels.
Technicals: Price action is holding well at and above our pivot of $58.14-$58.17 which consists of our momentum indicator and the previous swing high; out above here the bulls are in the driver’s seat.
Gold (GCZ)
Yesterday’s close: Settled at $1,463.6, down $10.60
Fundamentals: Gold settled yesterday on the lows of the session. Equity markets are proving to be in more of a healthy consolidation rather than a reprieve, the odds of future Fed cuts have completely dissipated and the U.S-China trade narrative continues to have an upbeat feel. All of such are pressuring the metal. U.S Flash PMIs are due at 8:45 am CST and final November Michigan Consumer data is due at 9:00 am CST. These number will help bring some focus to the metal in the near-term.
Technicals: Gold continues to struggle at first key resistance at $1,471.9-$1,474 but it is holding ground at support at $1,462.6-$1,463.9. As it consolidates at the lowest level since August, we believe patience will be rewarded.
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.
