The Saudi decision to drop crude prices when OPEC + could not settle on production cuts, was roiled the markets, reports Bill Baruch
E-mini S&P (ESH)
Last week’s close: Settled at 2964, down 51.00 on Friday and up 13.00 on the week
Fundamentals: The S&P 500 is locked limit lower this morning after a historical move by Saudi Arabia. Russia refused to come to the table at last week’s OPEC+ meeting and Saudi Arabia retaliated by creating an all-out price war. The nation drastically reduced the price of its crude oil it sells to Asia, Europe, and the United States, while promising to continue pumping. Crude oil opened sharply lower last night, hitting its own price limit before trading down more than $10 and to a low of $27.34 after the initial pause.
The S&P 500 saw continued pressure after the open. The repercussions from this unprecedented move by Saudi Arabia are still unknown. There will be bankruptcies in the oil and gas sector. There will be ripple effects on banks. The Federal Reserve is now expected to cut rates by a full 100 basis points to zero with an 80% probability. Will it be enough? Could they make their own unprecedented intervention, cutting today or this week during the blackout period ahead of next week’s formal meeting?
There are a lot of unknowns right now and we hope to keep you updated as we know more. Risk management, as we always preach, is key.
Technicals: We have taken the cautious approach in recent sessions after price action failed to hold gains last Tuesday upon the emergency Fed cut. We are neutral and will continue to be given this uncertain landscape. We believe the technical levels to be crucial as traders navigate this same uncertainty. The S&P 500 is now locked at 2819 and has broken below major three-star support at 2853-2857.25. Our next level of major three-star support comes in at 2775.75-2800; a wide range but our idea with this was that volatility will pick up upon such a break below 2853-2857.25 and this will make pockets of support less precise. As for the NQ, it is now handedly below the 200-day moving average, which comes in today at 8210.50. We have discussed here as well as in many of our videos and interviews that all bets are off upon a close below here. Aligning with 2853-2857.25 in the S&P and 8210.50 in the NQ is a crucial level of support in the Dow Jones Index at 24,000-24,200. This trend line from the 2016 low has not yet been broken, but a close below all three today will be very ugly. Those levels will now become resistance in the S&P and NQ and only a close back above there today will bring a sense of calm.
Bias: Neutral
Resistance: 2853-2857.25***, 2898**, 2964***, 2997-3015.50***
Support: 2775.75-2800***, 2728.75-2729.50***, 2570-2600***
NQ (March)
Resistance: 8210.50-8256***, 8310.50***, 8390-8408**, 8503.25-8512.50***
Pivot: 8126.25***
Support: 8035.75-8051.75***, 8000**, 7791.75***
Crude Oil (CLJ)
Last week’s close: Settled at $41.28, down $4.62 on Friday and down $3.48 on the week
Fundamentals: In a historic move, Saudi Arabia slashed the prices of its crude oil to Europe, Asia, and the United States and promised to produce “significantly above” 10 million barrels-per-day. This comes after Russia refused to meet Saudi Arabia’s demanded production cut in order to stave off the rippling impact of the Covid-19 outbreak. Saudi Arabia has ignited an all-out price war and crude oil has gapped down sharply, trading to a low of $27.34 and nearly testing the 2016 low of $26.05. Heading into the cash equity market open, crude oil is down about $10 on the session and for now, traders and investors must suspect that the worst is not in, but we could be near. There will be bankruptcies in the sector but in the end, there should also prove to be some value depending on your investment horizon. With historic moves, may come historic opportunity; just manage your risk properly.
Technicals: We have been slightly bearish as the tape has been inarguably negative. We will maintain this bias because rallies in crude should prove to be selling opportunities. However, this does not mean to take unfettered risk, we could see the landscape shift at any point. Furthermore, there is value below, we just do not know where yet. To put our caution into perspective, in an ideal situation, traders could sell crude oil closer to $40 and Friday’s settlement at $41.28, however, this is now nearly $10 away. Our momentum indicator comes in at $36.34 this morning and dropping sharply; we imagine this to be near 35.00 by end of session and therefore have this as a wide range of resistance. The floor can prove to be 26.05 to 27.34, however, a move below $20 is not out of the question upon a close below $26.05.
Bias: Neutral/Bearish
Resistance: 33.68**, 35.00-36.34**, 41.05-41.57***
Support: 27.34**, 26.05***, 25.00***, 20.00***, 17.12****
Gold (GCJ)
Last week’s close: Settled at $1,672.4, up $4.40 on Friday and up to $105.70 on the week
Fundamentals: Gold stuck its nose out above $1700 last night to a new swing high, however, price action has peeled back, and this again is likely due to investors and managers raising cash given the rout in equity markets. Although we expect gold to capitalize long-term, we envision near-term hurdles given expected margin calls and liquidations across other asset classes. For this reason, and as we have always stated, traders should not chase gold. Instead, traders should capitalize on Gold they already own. However, supportive of Gold is the move in Treasuries and the Dollar. The 10-year Note yield is now at 0.40% with a low of 0.36% overnight and the 30-year Bond yield is now at 0.84%. Make no mistake – this is historic. The Dollar Index is also down about 1% with safe-haven currencies such as the Yen and Swiss soaring.
Technicals: Given our “do not chase gold” mentality and the failure to hold above $1,700 overnight, we stand neutral. Remember, we have had major three-star resistance at $1,691.7 to $1,700. Still, we are unequivocally bullish gold long-term, however, for the purpose of this write-up we want to be buyers at lower prices. Friday’s wave of weakness held major three-star support at $1,642; a continued hold of this level is extremely constructive. In an ideal situation, we would see a buying opportunity in the metal at major three-star support at 1612.8-1619.6.
Bias: Neutral
Resistance: 1691.7-1700****, 1710.9**, 1722**
Pivot 1672.4-1680
Support: 1662.5***, 1642.9-1644***, 1612.8-1619.6***
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 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.
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