Despite the massive Monday sell-off, the December 2018 low appears to be holding in equities, reports Bill Baruch.
E-mini S&P (June)
Yesterday’s close: Settled at 2416.25, down 279.75
Fundamentals: U.S benchmarks tested limit-up overnight before paring gains. They are still holding positive along with those from Asia. Much of Europe is lower after German Sentiment data eroded to the worst since December 2011. On the bright side, the S&P 500 and Dow Jones Index each held crucial levels of technical and psychological support amid circuit breakers being tested yesterday. All U.S indices were locked limit lower within a half hour of the Sunday night open and immediately hit the next limit, a -7% tier, after the opening bell. Still, amid the chaos, the S&P 500 held the December 2018 low of 2316.75 and the Dow battled to reject 20,000 [both of which are still holding].
President Trump spoke ahead of the close yesterday and warned that the Coronavirus could last until July or August, adding that it could push the U.S into a recession. Bloomberg reported Morgan Stanley (MS) as now calling a recession the “base case”. The economy is expected to shrink in March and April given what’s becoming a total lockdown state. Projections are becoming more and more negative and we are welcoming this negativity to flush out the system and create peak panic. An economic snap back at the tail end of Q2 is not only needed but becoming inevitable. Although that recovery is expected to smooth out the year from early contractions, banks are still projecting 2020 GDP below 1%.
Europe is planning a full border closure and the U.K government warned of a faster spread than anticipated. The United States is nearing an official total of 5,000 Covid-19 cases [likely to be hit today]. The total number of cases around the world is approaching 200,000 (185,487). Let’s not forget though that the number of official recoveries is also approaching 100,000 (79,936). Still, there have been 7,332 deaths. However, we do believe there are many, many unreported cases that would water down the mortality rate. As governments race to stave off the spread, central banks unleash their foreseeable toolkit, schools and towns lockdown and banks cut their growth projections it would seem that panic continues to play out. Going forward, almost nearly as important as the spread of cases are the market technicals.
On the U.S economic calendar, Industrial Production data at 8:15 am CT is a February number and won’t yet match some of the deterioration seen through yesterday’s fresh March NY Empire State Manufacturing.
Technicals: Price action in the S&P 500 is doing its best to hold the December 2018 low at 2316.75. Multiple waves down are creating a pivotal pocket of support in front at 2350-2370.75. The NQ is battling at the round 7000 mark with waves of selling going as low as 6906.
Crude Oil (CLJ)
Yesterday’s close: Settled at $28.70, down $3.03
Fundamentals: Crude oil is lingering just above the February 2016 low. The heavy price action sparked by Saudi Arabia announcing a price war is also the byproduct of overall risk-sentiment and as travel becomes totally shutdown. Inventory data will come into the picture later today, but overall data is likely to only have minor impact on the broader picture. However, slipping U.S production would be longer-term supportive; it is estimated that it could fall by as much as 25% or up to 4 million barrels per day.
Today is April options expiration.
Technicals: Although weak, buyers are responding in front of $26.05, the February 2016 low. Still, major three-star resistance at $30.25 has acted as a ceiling.
Gold (CLJ)
Yesterday’s close: Settled at $1,486.5, down $30.20
Fundamentals: Gold is in a near-term downtrend; this is a fact that cannot go ignored. Will there be a buying opportunity? Yes, we believe the buying opportunity of a lifetime is around the corner, but timing and price, two of those most crucial factors for any trade are still very unknown. However, timeline is a different story. Bill Baruch spoke with Kitco’s Daniela Cambone yesterday and said we feel confident that gold will be making a new record high or very close to it 18 months out. There are strategies to get long Gold and manage your downside while giving yourself ample time.
The Dollar is surging this morning on a much weaker Euro and global landscape. It is also recovering from yesterday’s thrashing after the Fed launched its bazooka. Although Gold has been able to shake off the Dollar’s strength at the onset of U.S hours, this is something to keep a close eye on as continued strength will be a near-term headwind.
Technicals: Gold responded to our rare major four-star support yesterday in incredible fashion [almost as incredible as the selloff]. However, the rally has dissipated, and we do not want to see a break below here.
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Please sign up at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed to you each day.
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