Fresh Lows in the Dollar Driving Risk-Assets; Big Week Ahead | Morning Express
E-mini S&P (December)
Last week’s close: Settled 3636.50, up 9.25 on Friday and 82.25 on the week
NQ, last week’s close: Settled at 12,257.50, up 105.25 on Friday and 351.75 on the week
Fundamentals: U.S. benchmarks have battled through the ‘Covid-19 anti-gathering Thanksgiving narrative’ and are all generally holding within 1% of their respective all-time highs. Tech and Healthcare finished out the week as the strongest sectors and the NQ performed much better than the S&P. The U.S. set a record on Friday with more than 200,0000 confirmed cases of Covid-19 and this certainly favored Tech and Healthcare, the two sectors that performed best through the thick of the pandemic. We enter the week with a tall question; will this narrative subside and again bring value stocks to the forefront?
The NQ is holding in positive territory at the onset of U.S. hours, however, equity markets overnight have been broadly digesting weakness across Asia which comes despite good economic data and a weaker U.S. Dollar. The Dollar has been the sacrificial lamb through 2020 and continued weakness has stabilized the global economy through the Covid-19 pandemic. The Dollar Index is forging new two and a half year lows today, with the Euro eyeing the psychological 1.20 mark. On the economic calendar, Chinese Manufacturing for November last night came in better than expected at 52.1 versus 51.5. Tonight, we look to the private Caixin survey. Both Copper and Platinum are trading in positive territory on the heels of the data. From the U.S., we look to Chicago PMI at 8:45 am CT and Pending Home Sales at 9:00 am CT. The busy week picks up, and the U.S. Dollar is in the spotlight, tomorrow with Fed Chair Powell testifying before Congress and ISM Manufacturing.
Technicals: On Wednesday, we said, “We are keeping our more Bullish Bias intact, however, we are exuding caution and advise to buy pullbacks to support. It would be of the utmost construction if each the S&P and NQ hold out above key support levels at 3612.50 and 11,948-11,962.” The S&P pinged this support through Thursday and Friday, responding well to each of its tests. The NQ, however, posted strong gains from Wednesday onwards. Ultimately, it held extremely well out above previous major three-star resistance, our then Pivot, at 12,062-12,098; this set the stage for continued strength. Still, some broader, yet constructive, volatility continues, and the S&P traded down to second key support overnight on today’s session before again responding. For the S&P, our momentum indicator comes in at 3628.50 this morning, this is our Pivot and continued action above here should bring bullish tailwinds to new record highs. The NQ is working to build a constructive floor at Wednesday’s settlement of 12,152 with major three-star support below (our previous resistance) at 12,062-12,098. Our momentum indicator aligns previous major three-star resistance and Friday’s settlement at 12,225-12,260; continued action above here will bring bullish tailwinds to new record highs.
Resistance: 3636.50**, 3645**, 3662***, 3700-3731.75****
Support: 3612.50**, 3602-3606.75**, 3582-3586***, 3576**, 3554.25**, 3542-3544**, 3532.50-3538***
Resistance: 12,397***, 12,450***
Support: 12,152**, 12,062-12,098***, 11,948-11,962**, 11,872-11,905***, 11,775-11,801***
Crude Oil (January)
Yesterday’s close: Settled at 45.53, down 0.18 on Friday and up 3.11 on the week
Fundamentals: Crude Oil is trading extremely well in holding its breakout from last week as the much-awaited OPEC+ meeting kicks off. The cartel must decide whether to add up to the planned 1.9 mbpd to the market on January 1st or delay the production cut taper. Prices have clearly stabilized in recent weeks and while this discourages the delay, there are still mounting uncertainties for the demand landscape and recent destruction tailing from the surge in Covid-19 cases as well as added government restrictions. We have been Bullish in Bias Crude Oil, not only advising for a long-term buying opportunity upon the pullback to $35 but expecting to see new post-pandemic highs before the end of the year. This has all played our perfectly. However, even we have advised against chasing the breakout into the OPEC+ meeting due to our fear of a ‘buy the rumor, sell the news’ event. The market has already priced in a production cut taper, what if it does not materialize? Furthermore, is the market expecting additional barrels to come off the market due to Libya’s added production. For today, better than expected Chinse Manufacturing PMI has helped buoy the added volatility.
Technicals: We remain cautiously Bullish in Bias. Steady action above the January contract high from August at 44.60 paves a path of least resistance higher. Still, we are concerned about a potential ‘buy the rumor, sell the news’ OPEC+ event that aligns with a test of major three-star resistance at 46.62. For this reason, we are very cautious against chasing the action. However, there is a very nice bullish bull-flag developing on the daily chart and a continued constructive landscape could easily pave a path to $50.
Resistance: 45.53*, 46.42***, 48.66-48.88**, 50.00***
Support: 44.60**, 43.33-43.83***, 42.15-42.42***
Yesterday’s close: Settled at 1788.1, down 23.1 on Friday and down 90.1 on the week
Fundamentals: It is a new week and Gold is now removed from its worst week since March. Unfortunately, this does not mean a bottom is in. However, we are upbeat with the understanding that a bottoming process could now be started given that December Options Expiration and December Futures Expiration, otherwise referred to as the cleansing, is now in the rear-view mirror. Still, seasonal strength is about three weeks away and Gold could use this time for a bottoming process. Remember, a bottom is not a price it is a process.
Gold is down about another 1% this morning despite continued weakness in the U.S. Dollar. In fact, the Dollar Index has forged new two and a half year lows. Gold has further decoupled from risk-assets as hopes of a vaccine will require central banks to do less. Although this narrative brings a light to the end of the Coronavirus tunnel, there are still many uncertainties in the road ahead which pave the way for a strong recovery in Gold through the first quarter of 2021.
The week ahead is packed with economic data. Tomorrow Fed Chair Powell testifies before Congress and we get ISM Manufacturing. Friday brings Nonfarm Payroll.
Technicals: Last week, we turned fully Neutral in Bias after rare major four-star support at 1845-1851 finally, after eleven tests, gave way. Price action has not yet given us any signal it will turn around, however, the cleansing has certainly played out. We look forward to today’s Commitment of Traders report to see how the Managed Money Net-Long position was managed through last week’s blood bath (through Tuesday). Remember, 60% of their position was already liquidated after reaching its peak at the highs in August. Generally speaking, if everyone has sold, who is left to sell. Still, we must see a close back above 1785-1788 today and back above our momentum indicator to signal immediate-term exhaustion to the downside. Then a close back above 1801.6-1805 can begin some repair. In the meantime, rare major four-star support at 1770 must bring a floor.
Resistance: 1785-1788.1**, 1801.6-1805**, 1825-1829.8***, 1843-1854****
Support: 1770****, 1753***, 1732.9**, 1704-1710****
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