Is China Setting Up For Another Black Monday?

Central banks boost liquidity
The path of least resistance in equities is higher
U.S. economic data remains steadily healthy
Stock Market Update for Traders

Stock Market Update for Traders

Last Week's Close

E-mini S&P (September): Settled at 3129, up 26.00 on Friday and 122.00 on the week

NQ, last week’s close: Settled at 10,355.75, up 87.00 on Friday and 490.25 on the week

Fundamentals: Benchmarks from around the world have started the week off with fireworks. The China Securities Journal, a state-run newspaper, has stoked exuberance by calling for a “healthy bull market.” The Shanghai Composite gained 5.71% today and is now already up 11.67% for the month. The surge is drawing comparisons to the rally that occurred from November 2014 through June 2015, where the index more than doubled before falling 45% through August 2015. Chinese social media has also incurred a sharp jump in searches for “how to open a stock account.” The tailwinds accompany continued efforts from central banks around the world to boost liquidity during the worst of the pandemic and its unknown aftermath. 

Still, not all is roses as the fresh state-run efforts come as China tightens its grip on the region. The communist nation passed the Hong Kong Security Law that squashes free speech and essentially removes autonomy from the territory. The rally in risk-assets also masquerades what we believe to be a deteriorating relationship with the U.S. There are multiple pieces of legislation moving through Washington to condemn China, not to mention the questionable status of the trade war. The reality is, the U.S. has its hands full domestically with record surges in Covid-19 cases, ongoing protests, and an upcoming election. China certainly seems to be doubling down on the cards they have been dealt with.

The economic data in the U.S. has been overall healthier than feared. Last week, Consumer Confidence for June, despite riots, looting, and protests, was broadly strong. ISM Manufacturing and Nonfarm Payroll also posted better than expected results. Still, the U.S. Dollar cannot gain traction due to its safe-haven attributes, and as banks revise their 2020 growth predictions as normalization slows upon the surge in Covid-19 cases. This morning, though German Factory Orders did not snap back as well as expected, U.K. Construction and Eurozone Retail Sales followed with strong improvements. From the U.S., we look to final June Services PMI 8:45 am CT, and the more closely watched ISM Non-Manufacturing at 9:00, which both came out better than expected.

Technicals: The path of least resistance remains higher, and each pullback is shallower than the last. Today follows another Sunday night run, but now without the weakness that preceded each of the last three. The NQ extends its record run to at least 7% above its February record high. Our next major three-star resistance was pinged, and the tape remains extremely and immediately bullish out above 10,415-10,434.75. Pullbacks that test and hold major three-star support at 10,296-10,308 remain constructive. Although its run sits in the shadow of the tech-heavy index, the S&P has certainly done nothing wrong. Price action is testing major three-star resistance at 3175.50, a gap from the June 10th close. Before the early June rally sputtered out, we had major three-star resistance that contained the rally at 3186.75-3189 and we will maintain such. Overall, the S&P faces a thick resistance overhead and because of such, we have kept only a cautiously Bullish Bias. However, the tape is bullish above 3156.25; pullbacks to 3141 remain extremely constructive, and we envision the first test to 3129 as a buying opportunity.

Bias: Neutral/Bullish

Resistance: 3175.50***, 3186.75-3189***, 3212.75***, 3258.75**, 3312**, 3339.50****

Pivot: 3156.25

Support: 3141**, 3129***, 3115.75-3118**, 3103-3104.50***, 3092**, 3071.75*, 3056.25-3063.25***


NQ (September)

Resistance: 10,513-10,525.75***, 10,580**, 10,647**, 10,863.75***

Pivot: 10,415-10,434.75

Support: 10,355.75**, 10,296-10,308***, 10,246.50-10,268.75**, 10,171-10,196**, 10,082-10,088**, 9943.25-9973.75***


Interested in our technical perspective? Please sign up to have Blue Line Futures technical outlook, actionable bias, and proprietary levels emailed to you each day.

 

 

About the Author

Blue Line Futures, is a leading futures and commodities brokerage firm offering discounted personalized service and futures and commodity research.