ISM Manufacturing Disappoints

12/02/2019 2:36 pm EST


Bill Baruch

President and Founder, Blue Line Futures

The ISM number showed a fourth consecutive monthly contraction, reports Bill Baruch.

E-mini S&P (ESZ)

Last week’s close: Settled at 3143.75, down 10.00 on Friday and up 32.25 on the week

Fundamentals: As the old children’s tale reads, stocks always go up on Cyber Monday. Overnight, the S&P 500 set a fresh record and we see three catalysts lifting the tape from Friday’s holiday session consolidation. First, China’s response to the United States passing the Hong Kong Human Rights and Democracy Act into legislation has so far avoided any trade retaliations. They sanctioned U.S human rights organizations and suspended U.S naval port visits. Secondly, global economic data has been trying to turn a corner and Manufacturing PMIs since last night are playing along with that narrative. China’s November read strengthened for the fifth straight month coming in at 51.8, the strongest in nearly three years. Also, although Germany, the Eurozone and the U.K remain in contraction, they each trended better on these final November reads. Lastly, Cyber Monday is in focus and Reuters reported Adobe Analytics as predicting a record of $30 billion in sales. Today is expected to pull-in $9.4 billion online after Thanksgiving and Black Friday accumulated a record-setting $11.6 billion. The U.S consumer is exemplifying they are the heartbeat of the economy, but can today’s sales match these lofty expectations?

The closely watched U.S ISM Manufacturing PMI showed contraction for November on Monday morning, coming out at 48.1%. This read has contracted for the fourth straight months and was expected to improve to 49.2.

Technicals: The S&P 500 set a fresh record high overnight, but the NQ failed to do so by 1.50. We remain neutral as this market is in a bullish breakout, but we feel no need to chase such action as we have held a fairly bullish bias through key stretches of this run. Friday’s price action was healthily soft, and the S&P 500 settled right at first key support whereas we now have first key support in the NQ aligning the round 8400 mark and Friday’s settlement. We are less focused on these first levels as we believe the tape is elevated and more focused on our major three-star supports at 3126-3132.50 in the S&P and 8366.25-8379 in the NQ. These levels should provide a quick swing trade opportunity at minimum upon the first test. Price action is below our momentum indicators this morning at 3149.50 and 8453; sustained action below here will help encourage that healthy consolidation lower.

Bias: Neutral
Resistance: 3149.50**, 3158*, 3165-3180***
Support: 3141.50-3143.75**, 3126-3132.50***, 3118.50**, 3111.50***, 3095.50-3099***

NQ (December)
Resistance: 8453**, 8500-8527***
Pivot: 8435
Support: 8400.75-8417.50**, 8366.25-8379***, 8330-8341.50**, 8280.50-8295.75**, 8233-8250***

Crude Oil (CLF)

Last week’s close: Settled at $55.17, down $2.94 on Friday and down $2.60 on the week

Fundamentals: Friday’s massacre came during abbreviated U.S holiday hours but the volume overtook the previous week’s volume the day of the EIA’s weekly inventory report; such a move should not get brushed under the rug as typical holiday volatility. The sharp selloff came as Russian producers press to keep the current OPEC+ production pact intact without extending cooperation or deepening cuts at the meeting later this week. Things took a U-turn on the open last night and continued to firm as Iraq rescued the Saudi narrative by saying the cartel will consider deeper production cuts at the meeting Friday, a day after the Saudi Aramco IPO is priced. With price action working higher, stronger than expected Manufacturing PMI data from China to Germany added a tailwind at the onset of U.S hours. However, weaker than expected U.S ISM Manufacturing has subdued the broader risk environment as traders also await fresh remarks on U.S-China trade.

Technicals: Friday’s move cannot go unnoticed because of the volume and the damage to the daily chart. Price action quickly chewed through the 200-day moving averages and stalled for a moment before taking out strong support at $56.01 to $56.20. The session settled at the lows which was buoyed by the Nov. 20 low and what we now have as major three-star support at $54.85 to $55.17. On this recovery, we are watching two things technically, our pivot at $56.01 and major three-star resistance at $56.44, which now aligns with our momentum indicator; a failure at $56.44 or to hold $56.01 would reinvigorate the selling. A close back above $56.44 will neutralize Friday’s weakness, however, the 200-day moving averages then pose a ceiling to momentum.

Bias: Neutral/Bearish
Resistance: 56.44***, 56.88**, 57.31-57.52***, 57.86*, 58.64-58.93**, 60.45***
Pivot: 56.01
Support: 55.66**, 54.85-55.17***

Gold (GCG)

Last week’s close: Settled at $1,472.7, up $11.90 on Friday and up $2.20 on the week

Fundamentals: Gold slipped into U.S hours from a firm session Friday after global PMI data showed a stable improvement. Yields of government debt from Germany to the U.S are improving this morning and the 30-year bond is down more than a handle. However, the picture was a bit different in the U.S with ISM Manufacturing coming in below expectations at 48.1 versus 49.2 expected; its fifth miss in as many months. The data has pressured equity markets, reinvigorating the tape for Gold as it is trading about $10 from session lows. This will be a busy week that culminates with Nonfarm Payroll as the seasonally dull and arguably bearish time of year for Gold winds down.

Technicals: With gold recovering from another test to major three-star support at $1,453.1 and the December to February roll completely out of the way, we are slightly bullish. We now have minor support at the low of the session and want to see construction off this as the week unfolds. Furthermore, we want to see price action stable above our pivot which is where our momentum indicator now is.

Bias: Neutral/Bullish
Resistance: 1471.8-1472.7**, 1484.9-1486***
Pivot: 1465.5
Support: 1459.8*, 1453.1-1454***, 1442.9-1446.2**, 1413.2-1419***, 1400-1402.3***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.comPlease sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.

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