Markets fail to respond to positive stimulus, reports Bill Baruch.
E-mini S&P (ESM)
Last week’s close: Settled at 2779.75, up 44.75 on Thursday and up 297 on the week.
Fundamentals: The S&P gained 12% in its best week since 1974. The historic surge comes on the heels of a 36% plunge from record highs and has hardly been celebrated. Thursday’s session tacked on 1.6% after the Federal Reserve found a new kitchen sink to throw at the beleaguered economy and despite a three-week tally of unemployment claims topping 16 million. With rates already at zero, the Fed helped secure a bottom in equity markets on March 23 by unleashing QE-infinity 2. A move that was lauded as unprecedented set the stage for unlimited buying of U.S Treasuries and mortgage-backed securities. The committee topped themselves with their well-timed announcement.
Thursday on plans to lend as much as $2.3 trillion, drowning out the fresh 6.606 million Initial Jobless Claims and counting. The program essentially allows the Fed to buy those small business loans recently announced by Washington as well as junk debt. Although the news boosted equity prices, the S&P 500 finished 1% from its session high.
U.S benchmarks are all lower by about 1% ahead of the bell as earnings season comes into focus. OPEC+ reached a historic deal over the weekend, but it underwhelmed and crude oil is little changed from its late Friday weakness. After some volatility on the open last night where the S&P quickly lost 3% before settling in, it has been an otherwise quiet Easter Monday session with much of Europe closed for the holiday.
Technicals: The S&P 500 and Nasdaq 100 are working to recover from the worst of the session. Through last week’s strength a few observations stand out. First, the S&P did trade through but could not close above the 50% retracement on the entire volatile range at 2785; this will continue to be a crucial level. Although, the NQ has struggled at a similar level at 8205.75 and it did close as high as 8227.50, strength Wednesday and Thursday certainly lagged the S&P. The NQ outpaced the S&P initially, does this begin to exude near-term exhaustion?
Bias: Neutral
Resistance: 2785****, 2809.50-2819.50*, 2846-2854.25***, 2930-2953.75****
Pivot: 2752.25
Support: 2720.25-2735**, 2667**, 2635.75-2642***, 2620.75*, 2573***, 2530-2549**, 2482.75-2496.75****
NQ (June)
Resistance: 8205.75-8227.50**, 8320.25***, 8495***, 8578-8623***
Pivot: 8170
Support: 8073.25**, 7995-8012***, 7926-7950**, 7851.75**, 7739.50-7750**, 7660-7686****
Crude Oil (CLK)
Last week’s close: Settled at $22.76, down $2.33 on Thursday and $5.58 on the week
Fundamentals: After four days of intense negotiations, OPEC+ reached a historic agreement Sunday to cut 9.7 million barrels per day (bpd). Of all countries involved, surprisingly it was Mexico who only produces 1.78 million bpd that held up the deal though the weekend. Mexico though is insulated from weaker prices due to billions spent yearly on hedges. In the end, they shaved off 100,000 bpd and the G20 (U.S, Canada and Brazil) committed to a curb 3.7 million bpd. So why has crude oil failed to gain ground Monday?
Not only do these cuts assume the tall task of 100% compliance, for OPEC+ it is only a 7.2 million bpd cut from first quarter average production levels. Let’s not forget this is more of a demand issue in the near-term as there is an unforeseeable timeline before demand is restored to near pre-Coronavirus levels. Lastly, these cuts are for May and June before being tapered. Coupled with unprecedented stimulus from central banks, what this action does is lay the groundwork for higher prices later this year. In the near-term, however, it would seem storage levels could be the elephant in the room forcing lower prices first.
Technicals: Price action is unenthusiastic, and the door is open for continued selling on the heels of Thursday’s weakness. Our momentum indicator brings first key resistance at $24.30 and above there is major three-star resistance aligning previous technical levels with the Sunday opening spike high and Thursday’s low before breaking.
Bias: Neutral
Resistance: 24.25-24.30**, 24.74-25.09***, 27.25-27.33**, 28.61-29.13***
Pivot: 22.76-23.04
Support: 21.60**, 20.00-20.31**, 17.12****
Gold (GCM)
Last week’s close: Settled at $1,752.8, up $68.50 on Thursday and up $107.10 on the week
Fundamentals: Gold had begun seeing renewed strength early Thursday ahead of the Federal Reserve’s added stimulus measures and a higher read on Initial Jobless Claims than expected. After a surge earlier in the week gold settled in as it always does (replenished its market profile at support). The news simply aided this process. Was a retest to $1,750 surprising on Thursday? Certainly not as gold is in a fundamental and technical bull market, one discussed here at length last week. So, what now? Fundamentally, gold is trading better when equity markets and crude are not losing value; each are viewed to be a barometer of less stress on cash and point to future inflation expectations now that central banks have debased currencies to levels never seen before. We expect gold to trend higher, but rallies are not to be chased, support is to be bought.
Technicals: Price action has held what is now first key support at $1,722 but has remained contained by overhead resistance from las week’s early high and a high from November 2012 at $1,755. A constructive tape above first key support and furthermore above our momentum indicator at $1,733 will continue to encourage the inverse head and shoulders breakout. We are unequivocally bullish gold across all time frames but would rather be buyers against 1706.6-1710 than chase rallies. Silver though has struggled to regain its 50-day moving average at 16.15 and an area of the March 12th breakdown. Gold cannot keep its pace of gains without Silver in agreement.
Bias: Bullish/Neutral
Resistance: 1742.6*, 1752.8-1755**, 1794.8-1804.4***
Pivot: 1733
Support: 1722**, 1706.6-1710***, 1688**, 1669-1673.6***
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. Email us at info@bluelinefutures.com to start the conversation and set up a phone call with our experts.
