US equity benchmarks have so far survived an uphill battle to start the week, states Bill Baruch of BlueLineFutures.com.
E-mini S&P (December) / NQ (December)
S&P 500 (SPX), yesterday’s close: Settled at 3958.00, down 16.00.
NQ, yesterday's close: Settled at 11,588.00, down 120.00.
Fundamentals: China reported more than 27,000 cases on Monday and nearly 28,000 on Tuesday, the most since 28,973 set a record in April. Through today, there have been three deaths (all 87 years and older), the first since May. The surge in cases has led the government to implement a fresh wave of lockdowns, in sharp contrast to hopes the communist nation was easing its zero-virus policy and taking steps to reopen. Outbreaks in Beijing and the southern manufacturing hub of Guangzhou are most notable and could lead to a record number of lockdowns, disrupting both supply chains and the demand landscape.
Supportive tailwinds yesterday came from Cleveland Fed President Mester, a 2022 voter, and San Francisco Fed President Daly, a 2024 voter, who reiterated the Fed is likely to move to a slower pace of rate hikes. Their dialogue was refreshing for a market battling the virus news out of and coming on the heels of St. Louis Fed President Bullard’s comments on Friday, where he spoke of a terminal rate between 5-7%, with 5% becoming a new floor. Mester, who votes in December, notably said, “the market’s expectations of peak around 5% are not far off.” Today, Mester speaks again at 10:00 am CT, Kansas City Fed President George at 1:15 pm CT, and Bullard at 1:45 pm CT. All have a vote in December, before rotating out in 2023.
Richmond Manufacturing released at 9:00 am CT. The US Treasury will auction $35 billion in seven-year Notes. Tomorrow, the Fed will release the Minutes from their November meeting.
Technicals: All things considered, price action in both the S&P and NQ has remained extremely constructive. Buyers have defended rare major four-star support in the S&P and 3921.25-3925.25, and the layers surrounding it (noted in the levels below). Similarly, the NQ has held major three-star support at 11,513-11,569. Supports at these marks and the ones in proximity align many technical indicators and correlate with the November tenth post-CPI surge. Furthermore, both indices have so far handedly held out above the 21-day moving average, at 3887 and 11,416, signaling this is a constructive and mild pullback, allowing for price action to digest the recent run. Although the technical headwinds persist, and resistance levels are noted below, the slightly lower lows and slightly lower highs, on the heels of the November tenth surge are forming a sloppy bull-flag pattern. Remember, the pattern itself does not have to be perfect, it is about creating the market profile trapping sellers at lower levels in a bullishly constructive manner that leads to excess buying at higher prices. We will look to our momentum indicators that align to create our Pivot and point of balance, continued price action at and above these levels.
Crude Oil (January)
Yesterday’s close: Settled at 80.04, down 0.07.
Fundamentals: Crude Oil made a face-ripping rebound yesterday from the depths of massive support at $75. The virus surge in China and ensuing lockdowns (discussed in the S&P/NQ section) dragged the tape to a two-month low before the Saudi Energy Minister spoke. In a very apparent defense of price action, he denied a Wall Street Journal report OEPC+ is considering increasing production and said, “the current cut of two mbpd will be maintained until the end of 2023 and they are ready to intervene if additional measures are required to balance supply and demand.” His comments, furthered by Kuwait and Iraq, lit a fire under the market driving it 6% into a settlement, and higher into this morning. Ultimately, OPEC+ defined their floor, in contrast to the White House dumping SPR in order to suppress prices. During the week of November seventh, the administration dumped more than four mb from the SPR. Weekly US inventories will begin hitting the picture today.
Technicals: Yesterday brought a lot to unpack both fundamentally and technically. Per the above, we noted how OPEC+ defined their floor. Technically, price action still has not settled below what was rare major four-star support at 77.75, now major three-star at 77.59-77.75, and yesterday’s volume was the most since the July fifth fallout (both only behind the Russian invasion of Ukraine in March this year). Given the tremendous volume, yesterday’s reversal has the makings of a capitulation. Although there is technical damage above to repair, defined in the resistance levels below, we now view the bulls back in the driver’s seat while holding out above major three-star support.
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1739.6, down 14.8.
Silver, yesterday’s close: Settled at 20.872, down 0.125.
Fundamentals: Gold and Silver struggled to start the week due to the US Dollar’s ascent, bolstered by the Chinese Yuan's weakness. Ultimately, the surge in virus cases and ensuing lockdowns is an exportation of deflation from China. Although the Yuan has rebounded by nearly 0.50% today, it is still off its best local level by 1.7%. It is no coincidence that Gold has become exhausted in correlation, not only because it neared the $1800 mark. Things are on the mend so far today with the US Dollar Index slipping slightly and the ten-year yield back below 3.80%. Traders should gear up for comments from Cleveland Fed President Mester at 10:00 am CT, Kansas City Fed President George at 1:15 pm CT, and the hawkish St. Louis Fed President Bullard at 1:45 pm CT. All have a vote in December, before rotating out in 2023. Richmond Manufacturing is due at 9:00 am CT. The US Treasury will auction $35 billion in seven-year Notes. Tomorrow, the Fed will release the Minutes from their November meeting.
Technicals: Price action is on the mend but faces the tough task of strong overhead resistance. Recent weakness has so far been constructive and healthy, but a failure to regain major three-star resistance in Gold at 1755.8-1758.6 and Silver at 21.28-21.34 will leave the tape heavy. A battle at our Pivot and point of balance is underway, which aligns with our momentum indicators.
Learn more about Bill Baruch at Blue Line Futures.