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US Stock Indexes Consolidate: Chinese Health Scare

01/21/2020 11:06 am EST


Bill Baruch

President and Founder, Blue Line Futures

Multiple geopolitical news events are driving markets, reports Bill Baruch.

E-mini S&P (ESH)

Last week’s close: Settled at 3325, up 8.50 on Friday and up 60.25 on the week

Fundamentals: U.S benchmarks are consolidating lower in a healthy manner. The slightest signs of exhaustion crept into the market Friday with the Russell 2000 small cap index finishing 1% from a new swing high achieved on the opening bell. Further waves of selling kicked in last night on fears of a potentially  deadly epidemic spreading through China. Coined the Coronavirus, the disease brings back memories of the SARS virus, which killed more than 800 nearly two decades ago. Although authorities say the outbreak is controllable, fears are mounting due to the Chinese Lunar New Year and Spring Festival where hundreds of millions will travel in planes, trains and buses back to their hometowns this week to celebrate with families.

The Shanghai Composite fell by 1.41% and the Hang Seng slipped by 2.81% with a fresh Moody’s downgrade adding additional pressure. Benchmarks in Europe are down less than 1% with surprisingly strong ZEW Sentiment data buoying the tape. The outbreak quickly draws comparisons to SARS, but from a market perspective this is also similar to the Ebola outbreak in the autumn of 2014. At that time the S&P 500 had just crossed 2000 for the first time and as fears spread it gave investors a reason to take some chips off the table. At the same time, it presented a tremendous buying opportunity.

The World Economic Forum in Davos, Switzerland is underway, and President Trump spoke this morning. Amid positive comments about the U.S economy he made sure to take jabs at the Federal Reserve for raising rates too high and not cutting them low enough. Domestically, his impeachment trial starts in the Senate today at noon CT.

Technicals: Lower price action overnight has pinged major three-star support in each the S&P and NQ at 3304.75 and 9128-9133.50. Price action is now below our momentum indicators which come in as today’s Pivots at 3314.5-3317.75 in the S&P and 9151 in the NQ; continued trading below here will leave the door open for waves of selling with the probability of chewing through those supports increasing. We are taking a more Neutral approach but also feel the market is overdue for a nice healthy pullback. We have our next area of major three-star support aligning with what is a gap from the January 10th settlement at 3260.25-3264.75 in the S&P and 8978.25-8994, this is the area to target in case of a move lower.

Bias: Neutral
Resistance: 3325**, 3330.25**, 3336.50-3346***
Pivot: 3314.50-3317.75
Support: 3304.75***, 3293.75-3294.75**, 3281.25*, 3273.25-3275.50**, 3260.25-3264.75***

NQ (March)
Resistance: 9174.50-9189.25**, 9206.50***
Pivot: 9151
Support: 9128-9133.50***, 9100**, 9035.25-9055.50**, 8978.25-8994***

Crude Oil (CLH)

Last week’s close: Settled at $58.58, up 5¢ on Friday and down 41¢ on the week

Fundamentals: Crude oil spiked to a high of $59.77 on the open Sunday night, the highest since Jan. 9 after a missile attack in Yemen before gains steadily dissipated into this morning. There is a clear psychological resistance level at the $60 mark but news of the Coronavirus outbreak in China is the key driver in this move lower. The energy related fear is the demand impact due to any potential travel bans domestically in China or globally. We expect the situation to develop over the coming days and continued uncertainty will likely weigh on risk-sentiment.

Technicals: Price action spiked just shy of major three-star resistance at $60.17 but also barely stayed above key resistance at $59.21. Friday’s settlement aligns with our momentum indicator this morning as our pivot and continued price action below here will leave the bears with a clear edge. Price action has recovered from the first wave down after testing a low of $57.71 and holding major three-star support at $57.36; a close below here is bearish. The managed money net-long position was decreased by nearly 20% and this could help stave off violent waves of selling upon a close below major three-star support.

Bias: Neutral/Bearish
Resistance: 59.21-59.30**, 60.17-60.47***
Pivot 58.54-58.58
Support: 57.84-58.09*, 57.36-57.42***, 55.82-56.25***

Gold (GCG)

Last week’s close: Settled at $1,560.3, up $9.80 on Friday, flat on the week

Fundamentals: Gold is defying logic this morning and trading more than 1% from last night’s spike high. Price action began making a U-turn at midnight despite mounting fears that the respiratory epidemic in China coined the Coronavirus could spread. The U.S. dollar is weaker against most major currencies and equity markets are broadly lower across the globe. However, the Chinese yuan is down 0.54% against the dollar and German ZEW Sentiment came in much better than expected. Still, the German 10-year Bund yield although up marginally on the session is still below las week’s lows and U.S Treasuries prices are sharply better on Coronavirus fears. Lastly, the onset of Chinese Lunar New Year is typically a supportive time for gold. Overall, the only answer we have at this point is gold technically failed at resistance.

Technicals: Gold ran into a strong area of major three-star resistance last night at $1,565.8. This is an area that we have said the metal must close above in order to reinvigorate immediate-term bullishness. Platinum and silver which both surged yesterday are about 3% from those highs. Our pivot today is the initial $1,551.8 low in gold, it must regain this level in order to work to neutralize this early damage. Support does come in at $1,547.6 and the metal must respond.

Bias: Neutral
Resistance: 1558.4-1560**, 1565.8-1571.7***, 1583.9*, 1588.2-1595.7***, 1613.3**, 1626**
Pivot: 1551.8
Support: 1546.5-1547.6**, 1538.3-1541**, 1529.8-1533.2***, 1510-1514.3***

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!Please sign up at Blue Line Futures to have our research emailed to you each morning.  

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