Today’s market action has a lot of fundamental news from the weekend to react to, reports Bill Baruch.
E-mini S&P (ESH)
Last week’s close: Settled at 2696, up 227 on Friday and down 268 on the week.
Fundamentals: The settlement data detailed above can’t do justice to last week’s chaos. Think about it; the S&P 500 gained 227 points or 9.2% on Friday, but still lost 268 points or 9% on the week. On Thursday, we led off with; “This is the panic”. By midweek, Covid-19 was not just a tale from overseas or a joke among friends on social media; events were being cancelled, lives were becoming altered and at that point the economy was expected to grind to a screeching halt.
Markets began preparing for the worst; widespread shutdown of an unknown length and an outbreak topping 100,000 in the United States over the next month. Saudi Arabia added uncertainty last weekend by beginning a crude oil price war. The ensuing plummet of energy prices one week ago was its own Black Swan event. However, what was uncertainty last weekend has helped to quickly value the severity of this situation from a deflation standpoint and simply from an awareness level. This is a virus throwing punches and one that can only be met with punches. Saudi Arabia’s prerogative was extreme but necessary in their eyes to save their interests and stimulate demand. As of Sunday, 3400 cases have been reported in the United States, school districts have been shutdown and travel is being limited [from abroad, but state to state could be next]. Here in Illinois, the Governor announced all bars and restaurants must close for dine-in customers through March 30. In other words, all economic activity is grinding to a screeching halt.
We were going to lead into this week’s two-day Fed meeting, but as we are writing they cut rates to zero and unleashed a $700 billion quantitative easing program. The QE will be made up of $500 billion worth of Treasuries and $200 billion worth of agency-backed mortgage securities. They also cut the Reserve Requirement Ratio for banks to zero and added that central banks around the world took coordinated action to increase dollar liquidity through swap arrangements.
Yes, March futures expire this week, however, we never roll on Monday, we typically do this Tuesday. Tonight, at 9:00 pm CST we get our favorite deluge of data from China, Industrial Production, Fixed Asset Investment and Retail Sales. These February numbers are expected to be sharply lower. Better reads on the heels of the Fed’s move could help bring tailwind if the market holds the technical landscape described below.
Technicals: Price action ripped higher by 5% just ahead of Friday’s close as President Trump spoke declaring a national emergency. The settlement was decisively out above major three-star resistance at 2630-2658.75, a level that it had stalled multiple times going back to Thursday’s spike on the Fed’s repo announcement. After the bell, the tape did come in a bit, however, it held this level with an electronic close at 2664.75 and a low of 2656. This level will act as our pivot coming into the session and continued price action above here is favorable and paving for a move to 2777, a level we said the S&P must close above in order to neutralize last week’s damage. Similarly, the NQ settled at 7915.75 and out above a crucial level at 7791.75-7820 in which it could not trade above before. After the bell, it also came in to finish just at the topside of this level that will act as a pivot. First key support in the S&P aligns multiple levels with our momentum indicator, we imagine Friday’s late momentum will stay intact above here. As for the NQ this similarly comes in as major three-star support at 7566-7582.50. A break below either of these levels will place the bears squarely in the driver’s seat.
Bias: Neutral
Resistance: 2695.25-2707.75**, 2740.25***, 2777***, 2865-2869***
Pivot: 2633-2658.75***
Support: 2579-2587.75**, 2550.50**, 2513-2528.50**, 2466-2488.75***, 2693.50**, 2316.75****, 2191.50***
NQ (March)
Resistance: 7915.75**, 8003.50***, 8127.75***, 8218.50***, 8331***
Pivot: 7791.75-7820***
Support: 7601.50-7622.75**, 7566-7582.50***, 7460**, 7396.50**, 7296-7338***, 7215.25-7224***, 6941.25-7000***, 6650-6700***
Crude Oil (CLJ)
Last week’s close: Settled at $31.73, up 0.23¢ on Friday and down $9.55 on the week
Fundamentals: Crude oil showed promise overnight heading into Friday, but the Russian Energy Minister Novak threw cold water over the tape saying they had no reason to restart talks with OPEC and could increase production by as much as 200,000 bpd in April. The tape trickled lower through much of the session before President Trump brought it life during his speech when declaring a national emergency. He said the Department of Energy would buy crude oil for the nation’s Strategic Petroleum Reserve (SPR). This jolted the price from below $32 to a high of $33.86. However, that enthusiasm has quickly dissipated after tonight’s reopen despite the Federal Reserve throwing the kitchen sink at Covid-19 by cutting rates to zero and announcing quantitative easing (discussed in S&P section). Overall, the weakness stems from widespread global lockdown. No one is traveling or planning on traveling unless its home and in that case they better almost be there. Additionally, no progress from OPEC following comments from Russia is pulling down price action.
Technicals: Crude oil hit an early low of $30.25 as the S&P 500 trades limit down. We have major three-star support at $30.20 and it will be extremely constructive for price action to respond from here. However, steady price action below here will open the door to $27.34 at minimum. First key resistance comes in at $31.73, aligning settlement with our momentum indicator. The real line in the sand is now Friday’s post-settlement spike and tonight opening high at $33.75. Although the tape could have been in store for a dead-cat, oversold bounce, below here the bears are clearly in the driver’s seat.
Bias: Neutral
Resistance: 31.73-31.93**, 32.93**, 33.75-33.86***, 34.36**, 35.50*, 36.22-36.35***, 37.60**, 41.05-41.57***
Support: 30.02-30.20***, 27.34**, 26.05***
Gold (GCJ)
Last week’s close: Settled at $1,516.7, down $73.60 on Friday and down $155.70 on the week
Fundamentals: Friday’s bloodbath followed that from Thursday, helping gold tally a near 10% loss on the week. Funds and investors need cash amid the precipitous fall in stocks and one way of raising such is selling safe-haven assets such as gold. This has caused a massive divergence in gold traded on exchanges and that of physical. In fact, demand is so strong on the physical side that warehouses have sent notices of delays because of no inventory. Some physical brokers are charging more than a 150% premium to spot price. When will the price rise? We do not know. Gold is a massive casualty to this deflationary and cash strapped environment. However, the Fed launched its bazooka tonight cutting rates to zero and beginning QE4. What we do feel confident in is a larger-scale run than that from 2011… so yes, we expect the aftermath of this drawdown to bring a new record high.
Technicals: There is tremendous damage on this chart and for bulls/longs holding hefty risk from way above, it is mere hope for a one-day or one-week rally. It can be done, as seen in the prior week, but hope is not a risk management strategy. We now have several layers of major three-star resistance with the first coming in at $1,574.8, tonight’s spike high, aligned the 38.2 Fibonacci retracement from Friday’s low; a close above here will neutralize the wave. Still, a close back above $1,604 is needed to encourage added buying. The point of balance is between $1, 542.8 and $1,550, this aligns many technical indicators and seems to be a level price action is tethered to in the early Sunday night trade; continued price action below here is negative and encourages a retest to the Friday low.
Bias: Neutral
Resistance: 1574.8-1580***, 1597.9-1604***, 1619.6-1627***, 1638.5-1642.4***
Pivot: 1542.8-1550
Support: 1528.9**, 1516.7***, 1500-1504***, 1446.2-1452.6****
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