Equities have responded to Friday’s massive sell-off with rebound, reports Bill Baruch.

E-mini S&P (ESH)

Last week’s close: Settled at 3224, down 65.75 on Friday and down 69.50 on the week

Fundamentals: U.S benchmarks began Sunday night on favorable footing and are working to repair last week’s damage. Benchmarks from China are a different story. After being closed all last week for the Lunar New Year holiday, the Shanghai Composite finished down 7.72% Monday. Hong Kong’s Hang Seng which opened last Wednesday and lost 5.86% on the week traded to a new low but finished the session +0.17%. The Coronavirus death toll has surpassed 360 and the number of confirmed cases has mounted to 17,500. Also, the Philippines confirmed the first death outside of China. The question is:  is the worst in? A narrative of ours; markets do not like uncertainty. Although there is no certainty as to the impact of Chinese and thus global growth or in stopping this outbreak, we do believe that markets have begun to digest the damage. What we do know, China is racing to combat weakness by injecting $22 billion (according to Bloomberg) in liquidity and this is working to stave off this panic. After last week’s bloodbath, U.S benchmarks are set to open higher; gold is 1% from the overnight high and Treasuries are drifting back.

Speaking of Treasuries, the U.S three-month bill yield is 1.55% this morning while the 10-year note yield is 1.54%. This recessionary indicator is back after the 10’s lost 18 basis points last week and 41 in the month of January. The U.S two-year Note lost 25 basis points in January and is trading at 1.35% this morning.

Coronavirus headlines will dominate an already busy week. Final January Manufacturing PMIs from Europe were a touch better. We now look to the closely watched U.S ISM Manufacturing read at 9:00 am CST. This read has missed expectations for six months running, essentially worsening since July to a contraction low of 47.2 for December. Final Manufacturing PMI comes ahead of this at 8:45 am CT. We look to the Services sector Wednesday and Nonfarm Payroll Friday.

As for earnings, Alphabet (GOOGL) is set to report after the bell.

Technicals: We took a very cautious approach last week. On Friday, the S&P 500 broke below significant major three-star support at 3235.75-3239.75, trading to a low of 3212.75 and settling at 3224. However, the Nasdaq 100 did not set a new low Friday and arguable held this rising trend line a shade above major three-star support at 8925-8954.50. This is very constructive for the tech heavy index; it has gained as much as 1% overnight before paring back. The S&P 500 has spent a bulk of the overnight trade at previous support which aligned multiple technical indicators at 3235.75-3239.75 and this will act as our pivot today; the tape will be constructive above here. Still, our momentum indicator aligns with the overnight high to bring first key resistance. The real task on the week is major three-star resistance at 3260.50-3262.50; this aligns the .382 retracement with multiple indicators including the 150% move on the 2018 selloff. The S&P is again bullish upon a settlement above here. As we noted, the NQ is a bit more constructive and given that it did not set a new low, is healthy above that major three-star support. Still, last night’s high aligns with our momentum indicator to bring a line in the sand; it must close above here in order to continue to lay healthy groundwork in the near-term.

Bias: Neutral
Resistance: 3247-3250.50**, 3260.50-3262.50***, 3275.25**, 3289.75-3293.50***, 3297.25-3301.25***
Pivot: 3235.75-3239.75
Support: 3224***, 3212.75**, 3204***, 3172.50-3181****

NQ (March)

Resistance: 9074-9092.25***, 9138-9158.785**, 9216.25***, 9240-9263.75***
Support: 8975*, 8925-8954.50***, 8907.25*, 8867.50***, 8737.75-8750***

Crude Oil (CLH)

Last week’s close: Settled at $51.56, down 58¢ on Friday and down $2.63 on the week.

Fundamentals: Crude oil opened sharply lower last night to $50.42, the lowest in more than a year. It lost 15.56% in January and 4.85% last week. However, the market is working higher. Lifting sentiment broadly are promises from the People’s Bank of China for continued stimulus to combat the sharp hit to growth due to the Coronavirus, the bank injected $22 billion to start the week. Lifting the energy sector specifically is news OPEC is considering holding a meeting late next week to cut at least 0.50 to 1 million barrels-per-day temporarily. Saudi Arabia is spearheading the move, bringing legitimacy to the jawboning.

Technicals: We’ve held a slight bearish bias late in this sell off. Last night’s fallout on the open perfectly pinged major three-star support, a floor previously tested three times last year, before working higher. Friday’s drop settled below $52.50 for the first time in over a year but did hold budding support at $51.66. This level now is our pivot, aligning settlement, previous support and our momentum indicator; the tape can begin repair above here. Still, the bears are in the driver’s seat and rallies to major three-star resistance at $53.99 should prove a sell opportunity. For now, we are neutral until a better opportunity arises.

Bias: Neutral
Resistance: 52.50-52.62**, 53.99-54.19***
Pivot: 51.56-51.66
Support: 50.08-50.52***

Gold (GCJ)

Last week’s close: Settled at $1,587.9, down $1.30 Friday and up $9.70 on the week

Fundamentals: Gold opened higher last night but failed to cross $1,600 before retreating. Risk sentiment around the globe, outside of China, has bounced back from Friday’s bloodbath. With fresh liquidity from the People’s Bank of China, Treasuries are also retreating from their overnight high. Outside of Coronavirus developments, this is a pivotal week for the U.S economy. As mentioned above, the three-month and 10-year yields have inverted. Last year, we found the yield curve inversion as a fuel for gold and expect the same as it plays out in the coming days and weeks. In the near-term today’s price action will be driven by ISM Manufacturing data due at 9:00 am CTS. This read has missed for the last six months and is expected to contract again. Services sector data is due Wednesday and Nonfarm Payroll is Friday.

Technicals: We have been bullish gold long-term, but after failing to cross $1,600 last night we must raise near-term caution. Today’s retreat pins the metal below our momentum indicator at $1,584 this morning and continued price action below here can weigh on the tape. Friday’s settlement was the highest yet for gold on this swing and will act as a benchmark this week; a move and close above here is again near-term bullish. However, major three-star resistance is $1,598.5, the swing highs in gold minus the Iran attack night. Major three-star support comes in at $1,575, aligning multiple technical indicators and a trend line and considering the session’s reversal, holding this level is constructive, but a close below here is negative.

Bias: Neutral/Bullish
Resistance: 1587.9-1588.2**, 1594.7-1598.5***, 1613.3**, 1626**
Pivot 1584
Support: 1575-1578.2**, 1567.9-1568.8*, 1562.1-1562.7**, 1555**, 1542.8-1547.6****

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Sign up to have 1 or all 6 of our daily Blue Line Express reports emailed directly each morning!