Markets Continue to Climb Wall of Worry

Markets appear solid despite the weekend’s multiple protests reports Bill Baruch, who proves support/resistance levels for major markets.

E-mini S&P (ESM)

Last week’s close: Settled at 3042, up 4.00 on Friday and up 89.00 on the week

Nasdaq close: Settled at 9560.25, up 100 on Friday and 154 on the week

Fundamentals: Major cities across the United States are experiencing riots and looting, but stock benchmarks are holding ground. Protests towards police brutality of African Americans began last week in Minneapolis following the death of George Floyd while he was restrained. Those protests quickly turned into violent riots that led to mass lootings across the city. This domestic terrorism, fueled by hate and paid professional protestors, spread over the weekend to Chicago, Los Angeles, New York City and places in between. Despite this, a Federal Reserve balance sheet surpassing $7 trillion, essentially doubling since August, has completely disconnected stocks broadly from the economic carnage of the Covid-19 pandemic and civil unrest.

On Friday, Personal Spending and Income data detailed a story of stimulus that alludes to such disconnection. While Personal Spending plunged from March to April by 13.6%, due to the $1,200 stimulus checks Personal Income jumped by a record 10.5%.

With interest rates at zero and the 10-year Treasury note returning a meager 70-basis points, there simply is nowhere else to gain yield other than public companies. Pension funds and portfolio managers need yield, throwing trillions upon trillions into stocks and investors have jumped on the bandwagon.

This certainly does not mean there are no risks. In fact, we see the risks rising to levels never seen before. The four-week average of Jobless Claims runs at 2.6 million and Friday we get nonfarm payroll data. The layoffs and downsizing continue even before we understand the true economic impact of the Covid-19 pandemic, but now we also face a country more divided than ever. All the while, fiscal and monetary stimulus masquerade the carnage.

Let us not forget a deteriorating relationship between the U.S and China, the world’s largest powerhouses. A new chapter in the trade war will have far reaching dynamics wreaking havoc on demand and supply chains once again across the globe. On Friday, U.S. benchmarks lingered on the edge, but in the end President Trump did not throw out the lauded Phase-One trade deal and they rallied sharply into the close. In fact, both the S&P and NQ settled at new swing highs. However, China responded today by ordering state-run firms to pause some U.S. ag purchases with new tensions being evaluated.

Pent-up demand is snapping back from complete shutdown and just as data was skewed in February due to supply chain distortions, we still will not have a strong understanding of where the economy lies.

Technicals: The S&P 500 continues to struggle at major three-star resistance at 3048.75-3052.75; testing multiple times into weekly settlement and again overnight, but never steadfastly breaking out through.

The NQ traded through and settled above major three-star resistance at 9500-9508 on Friday and is holding this level ahead of the bell. Each index is holding at and above our momentum indicator which is defined as our pivot today and for the NQ aligns with 9500-9508; above here the bulls have the technical edge given Friday’s late rally. A close above 3048.75-3052.75 in the S&P is bullish and opens the door to 3107-3109.

To the downside, the S&P seems to be buoyed well by support at 3009-3012.50, the 200-day moving average at 3000 and the freshly created rejection at 2992 from Friday; only a steady price action below 3009-3012.50 will open the door for the bears to attempt a break below Friday’s low. For the NQ, strong support at 9381.25-9400 will be increased to major three-star given that Friday’s low held this level; a break below here would get the ball rolling on waves of selling.

Bias: Neutral
Resistance: 3048.75-3052.75***, 3067.25**, 3091.50**, 3107-3109***, 3131**, 3169.75***
Pivot: 3032
Support: 3009-3012.50**, 3000**, 2992***, 2953-2965.50***

NQ (June)
Resistance: 9560.25-9565**, 9604-9613.50**, 9644.75-9652.75***, 9754.25-9782.75***, 9843***
Pivot: 9500-9508***
Support: 9441-9460.25**, 9381.25-9400***, 9327.50**, 9290**, 9172.50-9210***, 9096.50***

Crude Oil (CLN)

Last week’s close: Crude settled at $3.49, up $1.78 on Friday and $2.24 on the week

Fundamentals: Crude oil ripped higher Friday ahead of settlement and before equity markets made their turn. The hope is OPEC+ extends their pandemic cuts, adding a bullish tilt to supply-demand dynamics. Over the weekend, the cartel announced the June 9-10 meeting will move up to Thursday and there is anticipation for an extension of a couple months which makes it more likely for Russia to jump on board, rather than locking in cuts through yearend.

According to a Bloomberg survey, data Monday morning showed OPEC cut 5.84 million barrels per day in May, shy of full compliance due to Iraq and Nigeria. The news seemed to bring a wave of weakness. Inventory data will be critical as the week unfolds but make no mistake OPEC and their rhetoric is the main event.

Technicals: Price action remains elevated but flirting with rare major four-star resistance at $34.72 to $35.18 and not decisively holding out above. Our momentum indicator has caught up with this big level, which means price action is ready to cool off a bit. Still, stead price action above $34.00 is healthy in the near-term.

Bias: Neutral/Bearish
Resistance: 35.49*, 35.77-35.90**, 36.35***, 39.19***, 37.33-37.64***, 41.05-41.28****
Pivot: 34.72-35.18****
Support: 34.00**, 33.46**, 32.90-33.10**

Gold (GCQ)

Last week’s close: Settled at $1,751.7, up $23.40 on Friday and down $1.80 on the week

Fundamentals: Gold’s strong close to the week did see some follow through early in the session. However, despite mounting economic uncertainties and social unrest, the metal has shaken off the positive finish from Friday. A weaker Chinese yuan Monday, which exports deflation, coupled with rising Treasury yields has weighed on the metal. We find it hard to believe that Treasury prices are lower today and yields higher given the anarchy over the weekend, but risk assets are better. Gold has keyed off silver’s strength which has been able to feed of positive vibes in the risk-landscape. ISM Manufacturing was touch better and this could hold Gold back today.

Technicals: Given how the tape turned a bit softer this morning, we will be a slight bit more cautious from our outright bullish bias to finish last week. Our momentum indicator comes in at $1,749 and we see this a small headwind on the session. However, we find previous resistance at $1,744.5 to be our pivot and a point of balance; the bulls must hold price action above here in order to open the door to the next bullish wave.

Bias: Bullish/Neutral
Resistance: 1749*, 1754.6-1755.6**, 1767-1770.1**, 1787.5-1788****
Pivot 1744.5
Support: 1737*, 1725.5-1726.8***, 1720*, 1701.6****

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.