S&P/Crude Sell-Off Extends, Gold Rallies as More Coronavirus Cases Confirmed

Markets react to an increase in cases of the Coronavirus reports Bill Baruch.

E-mini S&P (ESH)

Last week’s close: Settled at 3293.50, down 32.50

Fundamentals: U.S benchmarks gapped lower last night and selling pressure picked up again when Europe opened. In China, the confirmed Coronavirus death toll has topped 80 and the number of confirmed cases is nearing 3000. The two major concerns driving sentiment are the thump to growth figures and the incubation period of the virus. First, we imagine the growth scare is exacerbated in the near-term and smoothed out over the long-term. However, some analysts are saying Chinese GDP could be dented by as much as 1.5%. In 2019, China is estimated to have accounted for 33% of global GDP. This is much larger than 2003 during the SARS epidemic, creating a bit more uncertainty. The outbreak comes during a time of heightened travel, celebration and thus spending in China, the Lunar New Year holiday. Beijing reportedly extended the holiday by three days, but this isn’t so much to create spending and instead to better understand how bad the outbreak is given the incubation period of two weeks. This may be the largest question. Where will the toll of confirmed cases be in the coming days and weeks?

On the economic calendar, German Ifo Business Climate surprisingly slipped. We get comments from NY Fed President Williams at 8:30 am CST. This comes as panic is starting to set in due to Coronavirus but also as the Fed had begun reining in its open market activity. His comments will be closely watched. New Homes Sales are due at 9:00 am CST and Dallas Fed Manufacturing follows at 9:30 am CST.

Technicals: There has certainly been opportunity out there, but we cannot stress enough; traders must stick to their game plan, exercise patience and manage risk. Both the S&P 500 and Nasdaq 100 are running into massive levels of support at 3235.75 in the S&P and 8925 in the NQ; these levels align multiple technical indicators with a support trend line from the Dec. 3 low. Holding this low early in the session is paramount and will allow repair in the second half. Still, upon a recovery there is a lot of damage above and this means strong resistance. The S&P needs to settle back above 3260.25-3264.75 in order to begin a process of neutralizing the weakness. With all of that said, the bears are clearly in the driver’s seat well below our momentum indicators which are our Pivots at 3256 in the S&P and 8978.25-8994 in the NQ.

Bias: Neutral
Resistance: 3260.25-3269.75**, 3280.50**, 3293.50***, 3301.25-3304***
Pivot: 3256
Support: 3235.75***, 3204***, 3172.50-3181****

NQ (March)

Resistance: 9012.50**, 9077**, 9109.50**, 9144.25***, 9206.50-9208***, 9240-9263.75***
Pivot: 8978.25-8994
Support: 8907.25-8925***, 8867.50***, 8737.75-8750***

Crude Oil (CLH)

Last week’s close: Settled at $54.19, down $1.40 on Friday and $4.39 on the week

Fundamentals: The energy sector has been slammed on fears of slowing growth in China and the rippling effect on the rest of the globe due to the spread of Coronavirus. The price of crude oil is at the lowest level since October and OPEC is already working to stop the bleeding. OPEC President Arkab said this morning he expects little overall impact on the global oil market, however, pointed out that producers were ready to react, implying readiness to elevate production cuts. As we noted in the S&P section, in 2019 China accounted for 33% of the world’s GDP. As for energy consumption, in 2019 China accounted for 25%. The energy sector is pricing in the dent to demand due to lockdowns and travel bans in China during this heightened season of travel due to the Lunar New Year. The largest underlying question is given a two-week incubation period, do we continue to see the number of confirmed cases and death toll mount?

Technicals: Front month crude oil has not closed below $52.50 since the first week of last year and that was because it was amid the third week of a bounce from a low of $42.36. In other words, this is a huge level to watch through this week, but it does not mean it cannot trade or settle daily below here. In fact, the session low is $52.13. We do not need to remind you that $50 is a huge level of psychological support and lows from the front-month contract as well as the March contract bring a wave of support at $50.08-$50.52. A daily close back above major three-star resistance at $54.19 would neutralize this latest wave of weakness.

Bias: Neutral/Bearish
Resistance: 53.71-54.19***, 54.85-54.98**, 55.82-56.25***
Support: 52.50***, 50.08-50.52***

Gold (GCG)

Last week’s close: Settled at $1,571.9, up $6.50 on Friday and up $11.60 on the week

Fundamentals: Gold and other safe-have assets ripped higher on the open last night after a healthy Friday session. Risk-sentiment from around the globe is pulling back given the mounting uncertainty tied to the Coronavirus. Does the two-week incubation period mean the number of cases skyrockets in the coming days and weeks? What does it mean for Chinese growth and thus world growth (discussed in more detail above)? Today, New York Fed President Williams speaks at 8:30 am CST, New Home Sales is due at 9:00 am CST and Dallas Fed Manufacturing follows at 9:30. If risk-assets stay under pressure, safe-havens should stay bid, however, traders should expect volatility and if risk-assets recover it is important to understand Gold is struggling against previous spike highs.

Technicals: Gold settled right at the top end of major three-star resistance on Friday and it must now hold this level as major three-star support at 1565.8-1571.7 today in order to avoid a failure. Strong major three-star resistance also comes in at 1588.2-1595.7 and this stopped Gold in its tracks last night. Our momentum indicator comes in at 1575 and Gold remains healthy above here on the session.

Bias: Neutral/Bullish
Resistance: 1588.2-1595.7***, 1613.3**, 1626**
Pivot: 1575
Support: 1565.8-1571.7***, 1556**, 1546.5-1547.6***

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