No New Tariffs: Bullish Markets

The long awaited Phase One Deal avoided new tariffs on Dec. 15, which was what the markets wanted for Christmas, reports Bill Baruch.

E-mini S&P (ESH)

Last week’s close: Settled at 3175.25, up 4.25 on Friday and up 27.25 on the week

Fundamentals: U.S benchmarks are drifting higher to start the week after avoiding fresh tariffs. Both the U.S and China had planned to implement new tariffs yesterday, but the two sides agreed to an interim “Phase One” trade deal Friday. Although this headline grabbing title didn’t achieve much, we’ve said all along, what really matters were those Dec. 15 tariffs and a deal ultimately took a back seat. President Trump is on that path we began dictating here this summer; he wants at least three rate cuts this year in order to boost the market amid trade turbulence before securing trade deals at the turn of the year, which would provide a bullish tailwind to ride into the 2020 election. The 86-page agreement rolls back September tariffs totaling $120 billion worth of Chinese goods from 15% to 7.5%, however, the 25% on $250 billion worth of other goods will remain in place. While this agreement does work on the trade deficit, it certainly is not as robust as the headlines read. China was said to target $50 billion worth of Agricultural products, this number is more like a shade under $40 billion and spread over two years. China did agree to purchase more goods and services including energy products. One thing that remains to be seen are steps towards enforcing intellectual property rights. All in all, it’s a bubble-wrapped way to avoid the Dec. 15 tariffs, but again, it’s a win for the market because that was all that mattered right here, right now.

Economic data out of China last night added a tailwind to the already firm open. Industrial Production handedly topped expectations at +6.2% year over year and Retail Sales also beat while Fixed Asset Investment was in line. After Industrial Production missed three out of the last four months coming in below 5.0%, last night’s number has invigorated hopes of growth turning a corner. It also drowns out calls for China’s GDP to slip below 6% next year as the trade war drags on. Data out of Europe though this morning was another story altogether. After PMI data seemingly began turning a corner in recent months, Manufacturing slipped deeper into contraction than thought. Still, the euro is firm on U.S-China trade and Brexit. We look to U.S PMI data at 8:45 am CST; better than expected results should add strength to this already firm tape.

Technicals: Price action is strong and trending higher. Given today’s strength on top of last week’s move, the path of least resistance is paved for the S&P 500 to see what’s above 3200. First key supports in each the S&P and NQ will be crucial today because those levels align Friday’s settlement with our momentum indicator and will act as a line in the sand to keep such momentum intact. Given this elevation over the last 36 trading hours, those momentum indicators will rise as the day unfolds. The NQ is already testing major three-star resistance, a level aligning two range extensions right in front of the round 8600. Although this could work to keep session surges in check, it would be very bullish for the tape to chew through here and close handedly above. Lastly, there is strong support 1-2% below the market and this will keep pullbacks buoyed.

Bias: Bullish/Neutral
Resistance: 3187.75-3193.75**, 3200-3204.25***, 3214.50*, 3248.50***
Support: 3175-3180**, 3157-3159.75***, 3145.75***

NQ (March)
Resistance: 8576.25-8590***, 8624.75**, 8659** 8770***
Support: 8521-8535**, 8461.75**, 8405.75-8430***, 8319.25***

Crude Oil (CLF)

Last week’s close: Settled at $60.07, up 89¢ on Friday and up 87¢ on the week

Fundamentals: Crude oil is holding well at the psychological $60 mark on this January contract options expiration day. The interim “Phase One” trade deal (discussed in the S&P 500 section) has provided broad support to risk-sentiment and solid economic data out of China last night has added a tailwind. Still, flash PMIs from Europe were disappointing, and we await the U.S read at 8:45 am CT. Although there is reason to believe the path of least resistance is higher, we still find fundamental hurdles through Q1 amid conflicting estimates of a potential glut. Furthermore, the Saudi Aramco IPO is slowly moving into the rear-view mirror, it may not happen right away, but we are very cautious as to the nation holding to such tight production constraints defined by the additional OPEC+ cuts as well as the usual offenders such as Iraq; only time will tell.

Technicals: We would not be surprised to see this market settle right at 60.00 given the large open interest for calls and puts at this strike. Rally attempts have struggled to chew through what was the top end of our major three-star resistance at 60.45 (now broken apart). The continuous weekly trend line from April comes in at 61.20 and this brings an additional ceiling if rally attempts chew through and close out above $60.45. Our momentum indicator comes in at $59.90 today and aligns Friday’s settlement to create out pivot and a level in which we could find the market settle.

Bias: Neutral
Resistance: 60.45***, 61.20***
Pivot: 59.90-60.07
Support: 58.91-59.24**, 58.52*, 58.09-58.11***, 57.31-57.61***

Gold (GCG)

Last week’s close: Settled at $1,481.2, up $8.90 on Friday and up $16.10 on the week

Fundamentals: Gold notched a strong week last week and is holding ground very well today given the broader landscape. Equity markets are setting fresh record highs on a daily basis and the U.S-China Phase One deal avoided fresh tariffs on each other. Additionally, Industrial Production data from China last have ignited hopes of global growth turning a corner. The combination of these three have lifted Treasury yields, something gold is ignoring today but traders must remain vigilant for a delayed reaction in here. However, Flash PMIs from Europe were a flat-out disappointment and U.S Manufacturing PMI was nothing to write home about. For now, Gold seems to be doing what it needs.

Technicals: We remain cautiously bullish gold but are raising further caution in the near-term given what Treasuries are doing today and the metal’s history of a delayed reaction and especially so while sitting just below major three-star resistance at $1,484.9. Gold also faces trend line resistance from the September high which also aligns with last week’s swing high. Price action is above our momentum indicator at 1480 and minor support at 1477, this is constructive for now.

Bias: Neutral/Bullish
Resistance: 1484.9-1486***, 1491.6-1493***, 1500-1503**
Pivot: 1480
Support: 1477.3-1477.7*, 1468.2-1469.2**, 1463***, 1459.8*, 1453.1-1454***

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