Markets Struggle on Fears of Expanding Covid-19 Cases

Stock indexes are down from their early Friday peak after reports of expanding Covid-19 cases, note Bill Baruch 

E-mini S&P (ESU)

Last week’s close S&P: Settled at 3059.50, down 38.50 on Friday and up 35.75 on the week

Last week’s close: Settled at 9923.50, down 59.50 on Friday and up 291.25 on the week

Fundamentals: On Friday’s quadruple witching, U.S. benchmarks posted session highs at the opening bell; upon the expiration of June futures and options. After trading lower into the close, price action gapped down on the open Sunday night. In a similar fashion to one week ago, negativity quickly dissipated and European hours brought a wave of buying. The S&P 500 has traded more than 2% from its opening low. 

To end the week fears that Covid-19 is reemerging weighed on the risk appetite. Cases were budding in China and through the southern U.S. states. Additionally, quadruple witching was an unwinding of bullish positions and worked to exacerbate such sentiment. Coming out of the weekend, news of the virus being contained in China helped turn things. Furthermore, hopes of stimulus measures from Europe have continually lifted markets and overnight was no different. Although the DAX is still red, it is well off the opening lows. Still, headwinds persist a continued uptick in new U.S. cases, a reemergence in Germany, and a worsening situation in South America. 

The week ahead is sprinkled with Fed speak. Today, we look to Minneapolis Fed President Kashkari, a 2020 voter at 5:30 pm CT. Chicago Fed National Activity turned positive this morning for the first time in three months; this was an abysmal number even before the pandemic. U.S Existing Home Sales are due at 9:00 am CT along with European Consumer Confidence. ECB and German Bundesbank members speak throughout the day. Tomorrow brings closely watched Flash PMIs, which for headline value, are beginning to normalize. 

Technicals: Price action in the S&P and NQ trekked lower into key support. For the S&P this was 3023.75-3037, a wide range but our next level below major three-star support at 3062-3072.25. Friday’s intraday low essentially held that three-star and is set to be above there for the opening bell. Therefore, traders must keep a pulse on this pivotal level. Especially as price action remains steadily below our momentum indicator at 3089. For the NQ, it still has not pulled back much relative to its highs and recent ranges; the S&P has outpaced the NQ upon this healthy pullback. Price action is battling at our momentum indicator right at 10,000 and steady price action above here will help set a tone across indices despite overhead resistance levels. 

Bias: Neutral/Bullish

Resistance: 3098-3107**, 3118.50-3120*, 3128-3130.50*, 3150.50**, 3175.50***, 3216.75-3220.50***

Pivot: 3089

Support: 3062-3072.25***, 3023.75-3037**, 2986.25-2993.75***

NQ (September)

Resistance: 10,035**, 10,073.25-10,098***, 10,140**

Pivot: 10,000

Support: 9945.25**, 9837-9845.25**, 9754.25-9788.50***, 9600-9632.25***

Crude Oil (CLQ)

Last week’s close: Settled at $39.83, up 0.78 on Friday and yup 3.32 on the week

Fundamentals: Crude oil snapped back from a heavy wave of selling Friday and the August contract poked its head back above $40 overnight. Risk-sentiment is broadly better and feeding off reports that new Covid-19 cases in China have been contained. On Friday, Baker Hughes reported a drop of 13 rigs and this comes on the heels of EIA estimating a drop of 600,000 barrels per day (bpd) in production for the prior week. Headwinds continue to be OPEC+ compliance at the onset of July, the last solidified month for the pandemic cuts and a continued reemergence of virus cases in the United States, Germany and South America that invigorate fears of a second wave.

Technicals: Friday’s sharp pullback was relatively shallow, and this has left our momentum indicator tethered near $40. Although while trading below $39.78 leaves the tape vulnerable to waves of selling, the overall pattern is very constructive. Still, crude must close out above our pivot to remain immediate-term constructive in painting a path of least resistance to $42.33. Only a break and close below $36.96 is negative in the near-term. 

Bias: Neutral/Bullish

Resistance: 40.69**, 42.33****

Pivot: 39.78-39.85***

Support: 39.05-39.36**, 38.51**, 36.96***, 35.79**, 34.66-35.05**, 32.89***

Gold (GCQ)

Last week’s close: Settled at $1,753, up 21.9 on Friday and up $15.70 on the week. 

Fundamentals: Gold finished last week on a very strong note and continued that push early last night. Despite ping-ponging around a bit, the tape remains elevated and attempting a push above previous highs and to $1800. Silver remains a laggard but has regained $18 and has a technical tailwind developing. The reemerging virus fears have played a supportive role in the metals complex, and if the fears continue to percolate we imagine it fueling the next leg. However, in the thick of such playing out, a wave of deflation will act as a sturdy headwind. Dovish Minneapolis Fed President Kashkari, a 2020 voter speaks at 5:30 pm CT. Existing Home Sales are due at 9:00 am. Tomorrow, we look to Flash PMI data.

Technicals: The closeout above major three-star resistance at $1,737 paves a path of least resistance higher and this now comes in as strong support. Gold traded to a high of $1,776.7 early last night and pared all gains. Friday’s settlement of $1,753 acted as support and constructively helped the market turn higher once again; this now brings a higher line in the sand on the session. Our momentum indicator comes in at $1,758 to $1,761 and above here the bulls are in the driver’s seat on the session. Silver is the wildcard and the 50-day moving average is creeping up on the 200-day; we expect this Golden Cross to create a tailwind higher and help fuel Gold through $1800. 

Bias: Bullish/Neutral

Resistance: 1776.7**, 1785-1800***

Pivot: 1758-176

Support: 1753**, 1737-1743***, 1723-1726.8***, 1714.2-1716.6*, 1704-1705.8***

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.