We could not have been more Bullish on this rally. in the S&P 500. Furthermore, our upside target of 2924.50 may not have been perfectly achieved for those who are greedy but hitting within 7 points is a win in our book. Yesterday’s PCE data showed that inflation stabilized back at 2.0% for the month of July.
Crude oil closed back above $70 a barrel as storms, both real and politically, started to develop. Prices were on the rise after U.S. oil supply fell 2.6 million barrels this week, which raised even more concerns about the market’s ability to replace plunging Venezuelan oil production and Iranian exports that reportedly already are facing falling oil supply. Now, you get Mother Nature involved with more storm activity brewing out in the Atlantic, and you have a very bullish outlook.
I usually wouldn’t pay attention to stuff like this. I take it as negotiating bluster. But the world is changing and suddenly we have a time window change of direction where precious metals are suddenly strong and the Greenback can’t seem to right the ship. Sometimes big things develop out of little beginnings.
A strong close Friday confirmed that the Federal Reserve is still in the driver’s seat. The major takeaways from last week’s FOMC Minutes and Fed Chair Powell’s speech are that there are no signs inflation will run away, real rates have stayed suppressed and as long as uncertainties in international trade persist, the Fed will remain accommodative; this is a potent recipe for higher prices.
Crude oil is being driven by more plotlines than an afternoon soap opera. With upcoming sanctions on Iran, the Fed on pace for gradual interest rate increases, strikes in the North Sea and a big drop in the U.S. oil rig count (which fell by 9 rigs, the biggest drop since May of 201), there is enough drama for both the bulls and the bears.
China is buying our oil and that could be Iran’s worst nightmare. It seems that the Chinese trade talks went nowhere, but despite that fact, China’s demand for U.S. crude oil might rise anyway. According to Reuters “China’s Unipec will resume purchases of U.S. crude oil in October after a two-month halt due to the trade dispute between the world’s two largest economies.”
The S&P 500 traded perfectly down to major three-star support on Friday and stabilized. As beautiful as the technicals were, (discussed in the ‘Technical’ section below) the bounce from major three-star support caught a tailwind from positive news on U.S.-China trade talks. It was reported that they are paving a path to resolve the trade dispute by November.
Commodities tried to turn the corner on reports of low-level talks about a framework to end the trade war and this made everyone realize that perhaps some of the fears of the backlash from a trade war were overblown. China is feeling the pain of the trade war while the United States looks to be gaining. If recent trade trends continue, it is possible that the United States may find it harder and harder to lift tariffs.
The coming week of Aug. 24, 2018, sets up trending pivot math in the Japanese yen, a potential rangebound pivot breakout higher in soybeans, and bulls entering many markets. The S&P 500 appears near highs for next week, but the monthly Camarilla pivot at the 2,867 level seems to make sense to me, so I projected next week’s new high at 2,865 or higher.