US-China Trade War Heats Up

12/03/2019 1:39 pm EST


Bill Baruch

President and Founder, Blue Line Futures

Tensions are rising in the on-again/off-again US-China trade negotiations, writes Bill Baruch.

E-mini S&P (ESZ)

Monday’s close: Settled at 3114.25, down 29.50

Fundamentals: U.S benchmarks slipped to start the week; this was healthy. Price action was pointing lower again Tuesday morning ahead of the bell after President Trump signaled his willingness to delay a U.S-China trade deal until after the 2020 election. With those Dec. 15 tariffs inching ever closer, risk-sentiment is beginning to get antsy at such elevated levels. Setting the wheels in motion last week was the United States passing the Hong Kong Human Rights and Democracy Act. Although China has yet to officially retaliate on the trade front, they are now expected to publish an “unreliable entity list”. This list, initially in response to Washington’s treatment of Huawei has been marinating since May. However, given the Hong Kong bill and legislation moving through Washington related to Xinjiang, China is readying a response. As of right now, neither side seems to have crossed a line of no return and as always, we are one tweet away from solving (or temporarily mollifying) these budding issues.

From another angle, the Federal Reserve is due to meet next week and expected to stand pat on rates. With the S&P 500 at a fresh record as recently as yesterday, global data seemingly attempting to turn a corner (outside of U.S. ISM Manufacturing data) and a trade deal in the crosshairs, the odds of a rate hike rose to a 7.5%. We certainly do not expect the Fed to hike but it is important to remember President Trump wants rates even lower than current levels. It begs the question, is he stirring the pot for this reason? No trade deal leaves mounting global uncertainty and once the Fed exudes a more dovish rhetoric next week, U.S-China tensions will deescalate.

U.S and EU relations are back in the spotlight. Mounting tensions hit newswires last week amid the Airbus SE (AIR) battle but has sense moved to President Trump’s response to France’s new digital tax and his threat to impose a tariff of up to 100% on $2.4 billion of French goods. This also opens the door to other countries who have digital taxes such as Italy. All parties are in London for the 70th anniversary of NATO and this will certainly be a topic of discussion. Let’s also not forget yesterday’s threat to restore steel and aluminum tariffs on Brazil and Argentina and it would certainly appear that Washington is stirring that pot.

Technicals: Price action in each the S&P 500 and Nasdaq 100 took out crucial levels of support this morning and this opens the door for a path of least resistance to our rare major four star supports at 3032.25-3042.25 in the S&P 500 and 8072-8090.25 in the Nasdaq 100. Early yesterday morning, the S&P 500 was lingering at major three-star support at 3136-3132.50 and a big miss on ISM Manufacturing was enough to slice through this support level and open the door to what has become a minor and healthy correction (near-term bear leg).

The bears are in the driver’s seat as long as price action holds below 3095.50-3099 in the S&P and below 8233-8250 in the NQ. Major three-star resistance now comes in at 3110.25-3114.25 and 8300-8316 respectively, these levels will provide a swing trade sell opportunity upon the first test. We are not encouraging anyone to chase this price action and it is important to remember that patience is rewarding. Although, we are just now turning slightly bearish as we expect those major levels to be achieved, many of you know at the trade desk we have been patiently positioning for this minor correction from such elevated levels.

Bias: Neutral/Bearish
Resistance: 3110.25-3114.25***, 3126-3132.50***, 3149.50**, 3158*, 3165-3180***
Pivot: 3095.50-3099***
Support: 3090.75*, 3063**, 3032.25-3042.25****

NQ (December)
Resistance: 8276-8280.50**, 8300-8316***, 8330-8341.50*, 8366.25-8379***, 8453**, 8500-8527***
Pivot: 8233-8250***
Support: 8161.25**, 8072-8090.25****

Crude Oil (CLF)

Monday’s close: Settled at $55.96, up 79¢

Fundamentals: Crude oil is hanging at the flat-line this morning despite back to back 1% drops in the S&P 500 as U.S-China trade turns sour. With the pricing of the Saudi Aramco IPO due Thursday, this leaves an uncertain narrative surrounding the OPEC + meeting the following day. JPMorgan (JPM) released a note this morning saying they expect OPEC+ to implement deeper cuts of 1.5 million barrels-per-day. The headline initially brought crude more than 1% off its early $55.35 low. Traders must keep a pulse on the broader risk-environment but as discussed cannot wear blinders to the impending inventory data and OPEC headlines to come.

Technicals: We introduced a slight bearish bias yesterday as we saw value in fading the snap-back rally as long as it remained contained below major three-star resistance at $56.44. Although stretching briefly above, it was certainly contained before settling below our $56.01 pivot. Furthermore, Tuesday’s crude hit exactly $56.44. Given such, we believe the bears are in the driver’s seat today as long as price action can hold below $55.96-$56.11.

Bias: Neutral/Bearish
Resistance: 55.96-56.11**, 56.44***, 56.88**, 57.31-57.52***, 57.86*, 58.64-58.93**, 60.45***
Support: 54.72-55.17***, 53.76-53.84**, 52.52-52.58**

Gold (GCG)

Monday’s close: Settled at $1,469.2, down $3.50

Fundamentals: Gold began forming a bottom yesterday after ISM Manufacturing data whiffed but was held back by the rising global yield story on the heels of better PMI data outside of the U.S Although yields were rising, the U.S. Dollar Index was under pressure, which is supportive to gold. U.S.-China trade tensions due to recent legislation on Hong Kong seem to be rising and yields are paring all of yesterday’s gains, which has laid an extremely constructive landscape for gold. As it is trading up 1%, the winding down of a seasonally bearish time of year is playing well into our plan and it is not too late to reach out to our trade desk to discuss how to position out through Q1.

Technicals: We want to emphasize a more bullish outlook on Gold but will refrain given that it is testing into major three-star resistance. With a longer-term look, we are very upbeat and remain unequivocally bullish. Above $1,486, we see $1,500 as the next target as it aligns with the trendline from the highs and is a big round number. Our momentum indicator aligns well with yesterday’s settlement and our $1,472.7 level as first key support.

Bias: Neutral/Bullish
Resistance: 1484.9-1486***, 1500**
Support: 1469.2-1472.7**, 1459.8*, 1453.1-1454***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.comSign up for a complimentary two-week trial of 1 or all 4 of our daily Blue Line Express commodity reports!

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