E-mini S&P 500 (September)
Yesterday’s close: Settled at 2796.75, up 9.25
Fundamentals: Less than an hour after the S&P 500 settled at the highest level since February 1st, global equity markets found themselves on the defensive after the White House provided a list and announced it would plan to move forward with a 10% tariff on an additional $200 billion of Chinese goods. This is where things escalate to a trade war and once again, we emphasize at these levels, the market has not priced in a full-blown trade war. Last Friday’s deadline to implement $34 billion in tariffs became a ‘buy the rumor, sell the fact’ event; it was hyped, it was expected. The second round where both sides will implement another $16 billion arguably falls within that same realm. While China has promised to fight back, it is unclear in what way exactly as they only imported $130 billion in U.S goods in 2017 and this uncertainty is now the biggest risk to the market. The Nikkei, Hang Seng, DAX and other major indices around the world are all down more than 1% this morning. The S&P and NQ have traded down more than 1% but have pared some losses as the opening bell approaches; the technicals will be absolutely crucial in navigating today’s trade (section below). Also coming into the mix is President Trump’s trip to Europe for the NATO Summit in Brussels. He has already fired shots at NATO countries for being delinquent on payments and pointed to Germany’s oil and gas imports from Russia as making them “a captive of Russia.”
The strongest portion of Friday’s breakout rally was a technical move sparked by soft wage growth data. This reminded investors of Fed Chair Powell’s comments that inflation will not run away, and championed lower Treasury yields despite the Fed pricing in four hikes this year and three next year. Most importantly, the Fed’s hiking cycle is expected to peak through 2019. This remains the most important component in the market, however, a potential auto deal between the U.S and the EU cannot be underestimated. Both sides considering waving tariffs on autos helped to form a bottom last week. With President Trump in Europe, the market quietly wants to hear more developments here and a failure to do so would add to downside pressure. Remember, a potential deal shines a light at the end of the tunnel for President Trump’s free trade agenda.
Speaking of inflation, PPI data is due today at 7:30 am CT. But it is tomorrow’s CPI read that watches much more closely. Wholesale Inventories are at 9:00 am CT, Atlanta Fed President Bostic speaks at 11:30 am, there is a 10-year Note auction at noon and New York Fed President Williams speaks at 3:30 pm.
Technicals: The technicals will continue to guide the trade and there are two interesting components to yesterday’s price action. First, the S&P settled at the highest level since February 1st; it traded 2797.75 on three separate occasions and buyers could not take it higher, 2796.50 and then 2796.25 were the two high settlements after February 1st and yesterday’s settlement was 2796.75. Additionally, the NQ and Russell 2000 have been leaders and while the S&P posted a strong session up to settlement, the Nasdaq was unchanged and failed 23 points from its all-time high. The Russell 2000 actually finished down 0.5% on the session, falling 5 points from its all-time high. This signals as multiple major benchmarks approached crucial inflection points the buyers were not stepping up; at a bare minimum the market is/was due for a pullback. So, where to? We have been pointing to major three-star support at 2763 (which was achieved last night); there is a gap here that needs to be filled intraday. Last night’s low was 2765.75 and while this provided a solid buy the first test opportunity overnight, we need to see this tested intraday to repair the chart. Now though, the fundamental backdrop has shifted and while our trade desk was going short yesterday before the electronic close this instead has provided a great place to trade out of shorts. Traders can still lean on this area for a buy, to go long, upon the first test. However, you must be prepared to add patiently into a crucial level at 2745-2748. Technically, we need to see these levels tested and gauge the developing conditions after today’s close to plan any further. Yesterday, we pointed to a key battleground at 2784-2785.75 and this level reappears at 2785.50; this is first key resistance today and a move and close above here is again bullish. Lastly 2773-2777 will act as our pivot; this also aligns with the trend line from the all-time highs and below here the bears are in the driver’s seat, above here the bulls hold an edge given recent momentum.
Resistance: 2785.50**, 2794.25-2796***, 2807.25-2814.25****
Support: 2763***, 2757**, 2745-2748***
Crude oil (August)
Yesterday’s close: Settled at 74.11, up 0.26
Fundamentals: Crude oil is down 1% this morning on trade war fears. The market has shaken off bullish inventory data late from API late yesterday and was muted on the OPEC Monthly Report this morning. The market is not concerned about the impending $16 billion in tariffs due to come in less than two weeks where China has included U.S. crude oil, the fear is if the U.S implements the third round announced last night of $200 billion it will damage global growth prospects and thus oil demand. Additionally, the tape softened from yesterday’s high of 74.70 after Secretary of State Pompeo said the U.S will consider a handful of requests from countries for relief from U.S sanctions for buying Iranian Crude. OPEC’s Monthly Report this morning was highlighted by oil demand which is expected to fall in 2019 from 1.65 mbpd in 2018 to 1.45 mbpd. Today’s EIA expectations are for -4.489 mb Crude, -0.75 mb of Gasoline and +1.2 mb of Distillates. Production must be watched closely. While EIA will remain crucial to today’s price swings, sentiment on trade should again dominate as the afternoon develops. Additionally, news is developing that the force majeure in Libya, keep an eye on this.
Technicals: Given yesterday’s failure at first key resistance, settlement back into the pivot and developments late yesterday that added pressure, we must be Neutral heading into today’s inventory data. Price action is now below first key support at 73.72, now making this today’s pivot; a move back above here is needed to neutralize the weakness. While support does come in at 72.99-73.11, persistent weakness will likely lead to a new low on the week and place major three-star support at 72.14-72.35 back into the crosshairs; this will be crucial at defining the intermediate-term momentum.
Resistance: 74.07-74.28**, 75.00-75.27**, 76.50***, 80.00****
Support: 72.99-73.11**, 72.14-72.35***, 70.73-70.91**, 69.33-69.38***
Yesterday’s close: Settled at 1255.4, down 4.2
Fundamentals: Once again, Gold is not benefiting from escalating trade war fears and once again, the Dollar Index will not give you a gauge as to why; the U.S Dollar has gained 0.7% on the session and 1.2% from yesterday’s low against the Chinese Yuan. This pairing continues to dominate the metals trade as a weaker Yuan is essentially exporting deflation. We maintain that there is tremendous long-term value here in Gold and there are several ways to play it; we discussed this yesterday with Kitco’s Daniela Cambone. This week, inflation comes into the picture; PPI beat expectations this morning, but the bigger read is tomorrow’s CPI. Wholesale Inventories are at 9:00 am CT, Atlanta Fed President Bostic speaks at 11:30 am, there is a 10-year Note auction at noon and New York Fed President Williams speaks at 3:30 pm.
Technicals: We remain Bullish in Bias because we believe in this extremely strong technical support level. However, as we emphasized in the interview linked above, it is important to manage your risk given the fundamental environment. While we discussed one way to do so, feel free to call our trade desk at 312-278-0500 or email us at firstname.lastname@example.org for further details. We will continue to watch the 1253.7-1255.7 mark as a level we want to see Gold close above, doing so will keep the bears from trying to retest rare major four-star support. A move out above 1262.5 today will invite buyers to the table.
Resistance: 1262.5**, 1267.4**, 1274.4-1275.9***, 1284.7-1287.7**, 1295.8***, 1305.5-1313***