The S&P 500 could not hold the 10% level suggesting further losses, writes Bill Baruch
E-mini S&P (ESH)
Yesterday’s close: Settled at 2957, down 153.25
Fundamentals: The S&P 500 has now lost more than 500 points and 15% from its fresh record last Thursday. Yesterday’s failure to hold 3050 into the close was a sure sign of more pain to come, something we voiced here in our Technical section. On a fundamental basis, uncertainty is arguably at a peak heading into the weekend; this is driving price action as markets hate uncertainty. The death toll in China is nearing 3000. Deaths are slowing stacking up in Iran, South Korea, and Italy while such is also emerging in France and other nations. U.S benchmarks were working to stabilize after what was a budding capitulation yesterday morning, but the construction quickly fell apart on reports that further emphasized how California is monitoring more than 8,000 people for Covid-19 (Coronavirus). The tape could not recover from this and it’s hard to imagine a bottom ahead of the weekend given this mounting uncertainty.
For now, there are only 60 confirmed U.S. cases, but the first this week with no known origin outside of the country. As travel and manufacturing facilities remain on lockdown, the real impact on the stock market is supply chain disruption. Microsoft (MSFT) was the second tech behemoth to announce a sales warning, following Apple (AAPL). Crude oil has fallen 30% from its high this year. People think of travel and gas demand when they think of crude; how about, 8% to 10% of crude oil is used to make plastic. Plastic is made in China and Asia.
The tape is heavy, and uncertainty is rampant, but there are near-term upside risks. This includes less uncertainty coming out of the weekend, a coordinated effort around the globe that soothes concern and of course central bank action. The probability of the Fed cutting rates at their meeting March 19th has now mounted to 100% and the question is whether they do 50 basis points instead of only 25.
Technicals: Price action has completely fallen apart and now it is a matter of where this market can find support. We have major three-star support in the S&P at 2855-2857.25; a close below here today will lead to 2800 and below. This is a large air pocket between resistance and support, but we noted yesterday that a close below the 200-day moving average would get ugly and increase volatility in the manner we are now witnessing. For the NQ, there is a 38.2% Fibonacci retracement from the 2018 correction bringing major three-star support at 8257, this has been taken out but matters largely on a closing basis. Below there is the 200-day moving average at 8179.25. To the upside, The S&P needs to close above 2984.50-2990 in order to neutralize the leg that kicked in late yesterday. Only a close above 3050-3077 will neutralize the tape more broadly as it is a close above the 200-day moving average and the newly created 38.2% retracement.
Bias: Neutral
Resistance: 2984.50-2990***, 3001.25**, 3050-3077***
Support: 2855-2857.25***, 2800-2810.25**, 2775***
NQ (March)
Resistance: 8475-8480**, 8520-8542.50***, 8705.50***, 8753.25***,
Support: 8257***, 8179.25***, 8051.75***
Crude Oil (CLJ)
Yesterday’s close: Settled at $47.09, down $1.64
Fundamentals: Crude oil is heavy and chewing through levels of technical support this morning. The pressures come despite Russia signaling it has already trimmed production, eluding to the OPEC+ cartel agreeing to officially cut 600,000 barrels-per-day at their meeting next week. The problem now is whether 600,000 bpd is enough. Traders should look for jawboning from Saudi Arabia today and through early next week of larger cuts in order to stabilize price action. In the meantime, broader risk-sentiment will be driving the tape. Baker Hughes Rig Count is due at noon CT and traders should be watching this number closely in the coming weeks.
Technicals: Crude oil is battling at and just below our next level of major three-star support and our momentum indicator remains decisively above at $46.28; this means the bears are in the driver’s seat. Price action is setting up for a clear weekly close below the trend line dating back to February 2016 and this is bearish. A close below $45.33 today will pave a path of least resistance to $42.36.
Bias: Neutral
Resistance: 46.28**, 47.09*, 48.25-48.47**, 49.00-49.50****
Support: 45.33-45.47***, 45.00*, 42.36***
Gold (GCJ)
Yesterday’s close: Settled at $1,642.5, down 0.6
Fundamentals: Margin calls, margin calls, margin calls. Gold is the casualty of widespread equity and commodity margin calls. Comparatively to the Chinese yuan falling out of bed in the summer of 2018 and dragging gold with it, those with assets denominated in yuan had less available to purchase gold. Now, equity markets are going through widespread correction from the United States to Germany and Asia and the available equity in someone’s trading is tighter; even meaning there are fewer funds available to purchase safe havens. Furthermore, given the increase in volatility in gold, it is no longer attractive from a value perspective in volatility strategies.
What to do? This is a BUYING OPPORTUNITY! First and foremost, you must define your risk to the downside. Yes, gold exacerbated the upside and it is simply coming in right now. This is why we always say you do not want to buy gold when everyone is screaming for it, such as Sunday and Monday and instead capitalize then on the gold you already own. Now, you are ready to buy this pullback that is testing crucial levels of technical support. The odds of a Fed cut at their March 19 meeting have reached 100%; it is not a matter of cutting or not, it is a matter of 25 or 50 basis points. In fact, there are rumors that upon a poor finish in the equity market today, the Fed could cut over the weekend. For all these reasons, we think there are several ways to gain calculated exposure in gold.
Technicals: Gold is finally testing right into our major three-star support at $1,615. We have a second wave of major three-star support at $1598 and we believe if you can manage risk properly and creatively, this is where you want to get a long exposure. Price action is below the previous low on the week at $1,626 and continued trading below here is negative near-term. However, a move back above our momentum indicator on the session at $1,640 is again near-term bullish.
Bias: Neutral/Bullish
Resistance: 1640**, 1659.1-1660.7**, 1666.7-1666.8**, 1687**, 1716***
Pivot: 1626
Support: 1615-1619.6***, 1598-1600***, 1585***
At the close yesterday, Bill Baruch laid out the levels for stocks, commodities, and currencies across the board, don’t miss it. 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 6 of our daily Blue Line Express commodity reports! Please sign up at Blue Line Futures to have our research emailed to you each morning.
Please sign up to have 1 or all 6 of our daily Blue Line Express commodity reports emailed directly!
