While the President contemplates reopening portions of the economy, it is best to not to expect too much, reports Bill Baruch.
E-mini S&P (ESM)
Yesterday’s close: Settled at 2775, down 68.00
Fundamentals: U.S benchmarks held a higher low upon yesterday’s pullback. Constructive technicals coupled with reinvigorated hopes of reopening the economy both buoyed the tape ahead of Initial Jobless Claims this morning. President Trump plans to issue guidelines later today for reopening the economy saying data alludes to passing the peak of new cases. It is similar to levels in which European nations eased lockdowns. Still, many are pushing back saying it is too soon. The reality is this lockdown will not end on May 1 and we could only hope for a June 1 throttle date. Furthermore, here, we are discussing the S&P 500. A stock index comprised of 500 companies. There are certainly a few great companies thriving amid these unimaginable conditions; Amazon (AMZN) and Netflix (NFLX) both set record highs yesterday. However, we continue to believe the uncertainties with the vast majority of those 500 stocks far outweighs the assumed certainties of the few. Assume for a moment the economy is opened, a full throttle if you will, on June 1 and everyone is back to work. Will the consumer and businesses inject dollars at the same pace as before? At even the same pace as the potential tail end of a business cycle in Q4? We are confident in believing it will take many weeks and months to reach normalization. Washington unleashed more than $2.2 trillion in stimulus. The Fed Reserve backed this and added many other tools to stabilize the economy and markets. We believe their measures can only go so far and the economy must go through its own gyrations. Today, data showed there were another 5.245 million unemployment claims last week, a four-week running total topping 22 million. April Philly Fed Manufacturing plunged by 56.6, just shy of a record set in 1975. Yesterday, April NY Empire State Manufacturing fell by 78.20. Headline Retail Sales for March was -8.7% and the Core -4.5%, we could easily see numbers for April Retail Sales in the -30% ballpark. The banks have kicked off earnings season and each topped analyst’s estimates for Reserve Builds. This is the amount of cash set aside for bad loans. This is their guidance and they are signaling they expect the situation to get worse. In conclusion, this is not an environment where we want to buy stocks at these levels.
Technicals: Major three-star support levels held perfectly yesterday, plain, and simple. This set the stage for higher action overnight and at the onset of U.S hours, with the help of a little jawboning of course.
Crude Oil (CLK)
Yesterday’s close: May settled at $19.87, down 24¢ and June settled at $26.04, down $1.36
Fundamentals: May is working to close the historically widespread against June and back months by losing much less yesterday and outpacing slightly on gains so far on this session. Today is options expiration for the May contract which means we are in the thick of the roll. There are more than 11,000 contracts open interest on the $20 puts and this will work to keep a floor on May. If Crude turns negative, we imagine that once again June and back months outpace the losses with this $20 put strike aiding such.
Yesterday’s EIA data was once again at historic levels with a record headline build of 19.248 million barrels and a composite topping 30 million barrels. Gasoline though did add less to storage than expected. Only 100,000 barrels per day fell off production which still keeps the estimated level at 12.4 million bpd. Goldman Sachs (GS) commented on $20 being a crucial level for producers to survive and expects any length of time below there to in turn buoy prices.
OPEC released their Monthly Report today and said the “downward risks remain significant”. They revised lower their demand to shrink by 6.9 million bpd on average in 2020. They added that April demand alone will drop by 20 million bpd. Their report has weighed on the tape.
Technicals: The tape is consolidating after a push north late yesterday. As we noted above, today is May option expiration and $20 could be sticky, however, this would foreseeably paint added weakness in June.
Gold (GCM)
Yesterday’s close: Settled at $1,740.2, down $28.70
Fundamentals: Gold has slipped from session highs despite Initial Jobless Claims coming in above expectations to create a running four-week total topping 22 million. Furthermore, Philly Fed tested historic lows on the heels of NY Empire Manufacturing. The landscape is bullish for gold over the long-run but there are near-term headwinds due to resistance in silver and if equity markets struggle at what we consider to be overvalued levels (see S&P section)
Technicals: Our momentum indicator caught up with yesterday’s lower tape and now comes in at 1747; continued price action above here is healthy. Minor support comes in at yesterday’s settlement and the overnight low; a violation of this again today is negative and paints a path of least resistance.
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.
