The last minute Phase One trade deal that avoided extension of tariffs is supporting markets, reports Bill Baruch.
E-mini S&P (ESH)
Yesterday’s close: Settled at 3198.50, up 23.25
Fundamentals: U.S benchmarks are holding steady at record levels after avoiding the highly feared Dec.15 tariffs. Although details of this “Phase One” deal remain few and far, we discussed yesterday how an actual deal took a back seat to the potential of new tariffs. Amid such a headline driven market, each trader and investor looking for their edge coupled with algos feeding off momentum, one must hand it to the administration for knowingly providing and playing out such bullish catalyst. Ultimately, the White House is dangling this trade deal carrot while the market continues to chase it. Now that there is an interim “Phase One” trade deal with little resolved, “Phase Two” will soon be dangled to keep the market moving. In the end, this trade deal is Schrodinger’s Cat, without opening the box it has simply become a bullish force.
For over a year now, we have said the market underestimates the impact of a no-deal Brexit. Last week’s blowout victory for Prime Minister Johnson’s Conservative Party was assumingly a major step towards achieving a Brexit deal and the FTSE surged to a new record high post-election. Don’t underestimate the tailwind to U.S markets either. This has given Johnson the power to control negotiations on his side, however, the EU does not find it plausible to move as fast reintroducing the possibility of a no-deal Brexit. Traders must keep a pulse on the developments.
Boeing (BA) lost 4.29% yesterday after announcing it will suspend production of the 737 Max. It is the largest stock in the Dow and down another 1.5% premarket. There is technical support at $320, the post-January rally low. A break below that level though would likely send the stock another 6.25% lower to $300, which is perceivably a two-year floor. In this case, traders want to keep a very close pulse on the Dow as it could send tremors through the broader indices. What’s also important is the estimated hit to U.S GDP starting at Boeing and working down to its suppliers; Bloomberg reported this as 0.6%.
Technicals: We upped our bullish bias yesterday morning as we detailed the path of least resistance to be higher. The S&P 500 has directly pinged major three-star resistance at 3200-3204.25 while the NQ settled yesterday out above what we see as major three-star resistance at 8576.25-8590. Although the NQ achieved the desire bullish close, generally speaking, we tend to lean on the S&P 500 three out of four times for direction; an avid reader would easily pick this up. Given the S&P’s exhaustion at major three-star resistance and the aforementioned worries surrounding Boeing’s price levels being a potential Dow driver we will reduce our bias back to cautiously bullish.
Crude Oil (CLG)
Yesterday’s close: Settled at $60.14, up 16¢
Fundamentals: Crude oil is holding out above $60 with February now the front-month contract. A broadly upbeat risk-environment due to U.S-China trade and the continued jawboning which sets the table for “Phase Two” discussions has lifted assets around the world. Better than expected data from China on Sunday night has aided such tailwinds and U.S Industrial Production at 8:15 am CST should be closely watched today. Early estimates for tomorrow’s inventory data are showing a draw of 1.92 million barrels of crude. API is due at 3:30 pm CST today and remember last week’s bearish inventory report was drowned out due to U.S-China trade headlines.
Technicals: We have a neutral bias on crude oil despite it slowly grinding higher and holding out above our momentum indicator in a constructive manner. Still, strong resistance sits overhead and the February chart is different than previous months as the spike in July and more importantly the Saudi attack in September were more subdued in further out months such as February.
Gold (GCG)
Yesterday’s close: Settled at $1,480.5, down 70¢
Fundamentals: Gold is certainly battling despite daily records being set by U.S equity markets. The Treasury complex is paring some of yesterday’s brutal losses, losses that gold was able to ignore; if the Treasury complex can continue to hold ground today it will prove favorable for gold. However, we do not believe gold could withstand another negative session in Treasuries even half as bad as yesterday without giving up some ground. Building Permits and Housing Starts both beat expectations this morning. Industrial Production is due at 8:15 am CST, JOLTs Job Openings are out at 9:00 am CST and both Boston Fed President Rosengren and NY Fed President Williams speak at 11:30 am CST. It is important to know though that Williams remains a voting member in 2020, whereas slight hawk Rosengren does not.
Technicals: We remain cautiously bullish in the near-term and expect a favorable rally over the intermediate and long-term through February or March.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
