Equities Remain Strong after US-China Trade Truce, Seasonal Gold Play Line up, according to Bill Baruch.
E-mini S&P (ESH)
Yesterday’s close: Settled at 3195.50, down 3.00
Fundamentals: Equity benchmarks around the world are steady. U.S. economic data yesterday was all better than expected; Building Permits, Housing Starts, Industrial Production, Manufacturing Production and JOLTs Job Openings. German Ifo Business Climate followed suit this morning. This read rates the current business climate and measures expectations six months out. It reached the highest level since June and has now improved for four straight months. Yes, Flash PMIs Monday outside of China still raised concerns but there is reason to believe both hard and soft data are trying to turn a corner. Following last week’s Fed meeting and a U.S.-China trade truce, the odds of a rate cut at the Fed’s March meeting have dissipated from above 20% to below 10% (as low as 4% Monday). We are back to our aforementioned inflection point; this market must make a transition from Fed easing dependence to data dependence.
The Democratic heavy House of Representatives is gearing up for a historic impeachment vote today. They are expected to vote along party lines for two impeachment articles, sending President Trump to trial in the Republican controlled Senate. The odds for an impeachment to pass the Senate are slim to none as they need a two thirds majority.
Technicals: Price action remains as stable as ever, volatility is slipping out as both the S&P 500 and Nasdaq 100 consolidate at elevated levels and the broader momentum is undeniably bullish. For this reason, we will remain cautiously bullish. The NQ has continued to hold healthily out above our previous major three-star resistance, now support at 8576.25-8590 and this favors the bull camp. Regarding our momentum indicators, the S&P and NQ have gyrated around such since yesterday morning (our pivots), whereas the Russell 2000 is trading above what comes in at 1658 this morning and has since late yesterday morning
Crude Oil (CLG)
Yesterday’s close: Settled at $60.87, up 73¢
Fundamentals: EIA inventory data is front and center this morning. With little news other than a broadly upbeat risk-environment due to a U.S-China trade truce and better than expected data from China Sunday night driving crude. This week’s inventory report could have a great impact at these elevated levels. Last’s week’s report was overall bearish but was drowned out by the U.S and China agreeing to a “Phase One” trade deal and cancelling the Dec. 15 tariffs. Yesterday’s private API survey, which has held less weight month after month, was a slight reminder of mounting product inventories. They reported a huge build of 5.6 million barrels of gasoline and 3.7 million barrels of distillates. Gasoline has added massively to stockpiles over the last five weeks. In fact, there has been a total build of more than three times expectations (and more than 10 million barrels) in that timeframe while being written off as a seasonal loll period and ignored due to more broad narratives. Distillates is not too far off having added stockpiles by more than two and half times over the last two weeks. This week looks to be no different, and although we do not think the market can withstand another report that fits within these lines, unfortunately for the bears those expectations have already been lifted and digested due to API; in other words, the bar is now higher. API also reported crude as building much more than expected at 4.7 million barrels. Again, the bar is raised for today’s official EIA data to have a bearish impact but if the data is more in line with API than the official EIA expectations of -1.288 million barrels of crude, +2.718 million barrels of gasoline and +0.312 million barrels of distillates than we should get a reprieve from these elevated levels.
Technicals: Price action, driven by the January to February roll post-options expiration, was able to achieve a close out above major three-star resistance and previous swing highs at $60.45.
Gold (GCG)
Yesterday’s close: Settled at $1,480.6, flat
Fundamentals: Gold is deflecting negativity. Ignoring a U.S.-China trade truce, record highs in equities, U.S. Dollar Index strength, better than expected economic data, higher yields this week and dissipating dovishness from the Federal Reserve. Something has to give, and recent history will tell us that narratives come in three to five-week waves. Gold has done one heck of a job battling this wave since the early November fallout to remain technical constructive. Now that the seasonally bearish time of year is in the rear-view mirror, the metal’s fight could pay off if the aforementioned narrative begins to shift and align perfectly with what has been a seasonally bullish time of year, if you buy gold on Dec. 23 and have held through the better half of January you have made money in 11 out of the last 14 years.
Technicals: The only negative thing we have to say here about gold is more of a devil’s advocate in the near-term; our momentum indicator has caught up with the metal and can begin to weigh on price action in the near-term.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
