Markets reverse—indexes down, gold and crude up—after U.S. takes out key Iranian military target, reports Bill Baruch.

E-mini S&P (ESH)

Yesterday’s close: Settled at 3259, up 28.00

Fundamentals: U.S benchmarks are down sharply after surging to new highs into yesterday’s close. Last night, the U.S launched an airstrike that killed its target Qassim Suleimani, Iran’s top security and intelligence commander. Suleimani, who led the Quds Force of the Revolutionary Guard and is responsible for the deaths of thousands, was killed along with several other military officials. Tensions in Iraq have been rising for days if not months, culminating with violent protests outside of the U.S Embassy. The White House moved to strike given intelligence that Suleimani was making plans to attack American diplomats. Iran’s supreme leader, Ayatollah Ali Khamenei, has called for three days of mourning followed by retaliation.

The sharp reversal in equity markets and rise of safe-havens conveys the developing uncertainties and markets do not like uncertainties. Crude oil is up more than 3.5%, trading at the highest level since April. The S&P 500 hit a two-week low before stabilizing at the onset of U.S hours, however, global benchmarks are seeing less damage. One thing to point out is the 0.75% rip to new highs in the last two hours of trading yesterday ultimately exacerbates today’s losses.

Today’s economic calendar boasts the closely watched ISM Manufacturing read at 9:00 am CST followed by EIA inventory data at 10:00 am CST. This comes as C=crude oil is front and center.

Technicals: Both the S&P 500 and Nasdaq 100 surged to fresh record highs yesterday before reversing sharply. So, what now? Both achieved major three-star support levels this morning before bouncing and this now brings a line in the sand for the session; for the S&P this is 3200-3204.25 and for the NQ this is 8737.50-8743.50. Above here, the bulls will attempt construction. However, a break below here does not guarantee a windfall of panic selling.

Crude Oil (CLG)

Yesterday’s close: Settled at 61.18, up 0.12

Fundamentals: Crude oil has surged more than 3.5% after the White House launched an attack that killed Qassim Suleimani, Iran’s top security and intelligence commander (see additional details above). This quickly escalates mounting tensions between the U.S and Iran, elevating crude oil as we await Iran’s retaliation. This uncertainty is the current premium. While some analysts out there are grabbing headlines calling for $80 crude, first it must be understood they are referencing the Brent contract which his currently trading around $69. We see these calls as merely attention grabbing and do not agree with this narrative given the landscape we currently know. Additionally, headlines also point to recent joint naval operations between Iran, China and Russia. We view these as stirring fears and furthermore politically motivated. The most likely outcome as of right now are ongoing, but yes dangerous, clashes between Iran-backed and U.S forces.

EIA inventory data is due at 10:00 am CST. The private API survey was released on Tuesday and showed a massive draw of 7.8 million barrels. Analysts expectations for today’s official EIA report are for a drop of 3.288 million barrels of crude, +1.823 million barrels of gasoline.

Technicals: Price action in the February contract traded out above $63.87, the April high for February, and to the highest level since November 2018. The front month contract brings a thicker pocket of resistance ranging up to that April high at $66.60.

Gold (GCG)

Yesterday’s close: Settled at $1,528.1, up $5.0

Fundamentals: Gold is up 1.5%, trading to the highest level since Sept. 5 after the U.S launched an attack that killed Qassim Suleimani. The S&P has pared losses and sits down about 1% while Treasuries and safe-haven assets (Gold) surge along with crude. The U.S. Dollar Index remains about 0.75% off its Dec. 31 low and traders should keep an eye on its strength (or weakness) given that ISM Manufacturing data is due at 9:00 am CST. Traders should also keep a pulse on developments as to Iran’s retaliation; failing to see one (a good thing for this world) by the Sunday night open could take some near-term wind out of gold’s sails unless equity markets see continued weakness or Manufacturing data whiffs. Gold has had a tremendous rally since the start of what we called a buy on Dec. 23, if you have profited on such a move, you should look to capitalize between now and Sunday night as Gold historical takes a breather somewhere between the third and fifth trading day of the year.

Technicals: Gold is flirting out above major three-star resistance at $1,549.9 and holding strongly out above our momentum indicator which comes in today at $1,537.3 and aligns with $1,540 to create key support and a tradable test.

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!