E-mini S&P (March)
Yesterday’s close: Settled at 3245.50, up 21.50
Fundamentals: Stocks around the world are rallying sharply as the People’s Bank of China’s injected another $60 billion in liquidity. All major U.S benchmarks have gained at least 1%. China’s Shanghai Composite finished up 1.34%, a day after opening for the first time in a week and plunging 7.72%. Still, the Coronavirus numbers are mounting; the death toll has risen to 425 and the number of confirmed cases topped 20,000.
U.S benchmarks bounced back Monday from Friday’s bloodbath. Buyers stepped in at the opening bell and then ISM Manufacturing brought a tailwind. It both beat and avoided a contraction for the first time since June. Our narrative since Q3 has been this market will need to make a transition from Fed easing dependence to better data dependence in 2020 as the Federal Reserve pauses. The Fed cut rates three times last year and by December had expanded their balance sheet to pre-Quantitative Tightening levels. While some parts of the economy, in particular the consumer, have never wavered only to get stronger, others such as manufacturing pose serious concerns. Manufacturing has been dismal around the globe but data last week for January Chinese Manufacturing PMI was steady at 50.0, avoiding a contraction for the third month (of course, this was prior to the Coronavirus outbreak). Furthermore, the PMI data in Europe yesterday was revised a touch better and has shown signs of stability despite still being in contraction. What this comes down to is there was a light at the end of the recessionary-fear-tunnel before the outbreak. Although 15.5% of the world’s growth comes from China, Goldman Sachs now only estimates a 0.1% to 0.2% hit to global GDP in 2020. If these numbers hold true, added liquidity or not, no wonder why equity markets are rebounding from what now appears to be an exacerbated selloff.
A key read on U.S Factory Orders is due at 9:00 am CT.
Domestically, the Iowa caucus has yet to bring clarity to the democratic nomination. However, as we have noted before, there is reason to find this supportive as stocks like President Trump and will respond strongly if he appears more likely to be re-elected.
On the earnings front, Alphabet disappointed after the bell yesterday and is down 3.5%. Whereas BP smashed estimates and is up nearly 5% ahead of the bell. The results have brought a wave of relief to the beleaguered energy sector. Disney headlines after the bell.
Technicals: Yesterday’s rally was contained by major three-star resistance at 3260.50-3262.50 in the S&P. Price action overnight blew right through this level and is now reaching to last week’s peak and major three-star resistance at 3289.75-3293.50. This level aligns with the settlement from Friday January 24th before the market gapped lower that coming Sunday night. Although the S&P traded to 3297.25 last week, that was not achieved intraday. We are closely watching a trend line from the January 24th overnight high that runs against last week’s peak and this comes in at about 3275-3277 this morning; the tape is technically bullish above here but must crack through resistance intraday and settle above such. The NQ is also trading at resistance aligning with last week’s highs and its record settlement coupled with other technical indicators. The NQ’s daily chart is extremely bullish given its path of higher highs; a close above 9240-9263.75 will create a path of least resistance to our next upside target of 9425. The NQ will stay extremely bullish while trading out above 9216.25.
Resistance: 3289.75-3293.50***, 3297.25-3301.25***
Support: 3275-3277**, 3262.50-3267.50**, 3256**, 3245.50***
Resistance: 9240-9263.75***, 9287.25**, 9425***
Support: 9138-9158.785**, 9114.25***