Market Rebound Hits Wall

04/08/2020 12:00 pm EST

Focus: MARKETS

Bill Baruch

President and Founder, Blue Line Futures

The rebound in the S&P reversed Monday, reports Bill Baruch.

E-mini S&P (ESM)

Yesterday’s close: Settled at 2642, down 2.50

Fundamentals: The S&P’s 10% gain to start the week fizzled out in the final hours of yesterday’s session. In fact, U.S benchmarks across the board pared all of Tuesday’s 5% gains by the bell. We certainly had our doubts here yesterday of the market’s ability to hold onto such strength, but now we are at an inflection point; fundamentally and technically. Clearly, upon this week’s early strength the market is pricing in an economy back at work in the coming weeks [by May 1st]. Most likely, a bit sooner than reality. However, was it wrong to price in its expectations for where the economy might be in the third quarter? Not entirely. We just happen to disagree until there is substance. As we have noted over recent days and weeks, we believe there to be financial stresses yet to be seen. Whether it’s the consumer and mounting unemployment claims or businesses that won’t meet obligations over the next 30 to 60 days. Each instance has repercussions. All in all, there are too many lingering uncertainties to be bullish the market even at its more watered-down level this morning.

President Trump and his top economic advisor Larry Kudlow each emphasized yesterday a hope of reopening parts of the economy upon more widespread testing. Going back to Sunday, the President has attempted to be upbeat but certainly has not hesitated to bubble wrap his expectations. One fact we undoubtedly agree with is his criticism of the World Health Organization in its “China centric” steps mid-January that rolled out the red carpet for a cover up. Still, beyond the WHO in mid-January, just like a basketball player missing a buzzer beater, the game was not lost in the final seconds. There were turnovers and missed free throws throughout; leaders across the world are all at fault for enabling China.

In Europe, finance ministers have struggled to find common ground in an attempt to launch a fiscal response to battle the economic deterioration. Italy, Spain and France lead a charge towards Coronabonds, however, Germany, as usual, is less enthusiastic. Despite the struggles to fund a 500-billion-euro package, German Finance Minister Scholz said a deal is close.

Technicals: Price action in the S&P 500 stalled and then failed yesterday at our rare major four-star resistance at 2729-2785. This was a much wider range than ever before, but one that was the byproduct of an expected melt-up after decisive price action through 2641.

Crude Oil (CLK)

Yesterday’s close: Settled at $26.43, down $2.45

Fundamentals: Crude oil sold off sharply in the final hours ahead of settlement on rumors of a record build and worries that an OPEC+ production cut will fall short of staving off a historic surplus. Last night’s private API survey posted a build of 11.9 million barrels of crude, +5.4 million barrels of gasoline and a drop by 500,000 for distillates. Expectations for today’s official EIA data are +9.271 million barrel of crude, +4.333 million barrels of gasoline and +1.446 million barrels of distillates. The complex will stay volatile heading into tomorrow’s OPEC+ meeting where the cartel is hoping to agree on a 10 million barrel production cut. Still, there is mounting doubt without U.S cooperation. However, the EIA revised lower its production forecast by 1.2 million barrels in 2020 and 1.6 in 2021. We may not have a decision Thursday as G20 energy ministers meet Friday and remember Saudi Arabia refrained from pricing Oil for May deliveries until a conclusion was reached this week.

Technicals: Price action sliced through strong support at $25.36 yesterday and has twice traded down to a crucial level of major three-star support at $23.04.

Gold (GCM)

Yesterday’s close: Settled at $1,683.7, down $10.20

Fundamentals: “You do not want to be buying gold when everyone is screaming for it, you want to be capitalizing on gold you already own.” Our narrative fit perfectly within the context of yesterday’s range. The fundamental landscape has certainly not changed; massive liquidity injections by central banks and governments around the world will debase currency values, encourage inflation, and send Gold prices higher over time.

Technicals: Gold traded down to a low of $1,670.7 and held key support at $1,669. Our momentum indicator comes in this morning at $1,687 and although we find the tape constructive and bullish over the intermediate to long-term, we must say it is vulnerable below $1,687 and furthermore if red on the session.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.comPlease sign up at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed to you each day.Email us at info@bluelinefutures.com to start the conversation and set up a phone call with our experts.

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