E-mini S&P (March)
Last week’s close: Settled at 3339.25, down 30.00 on Friday and 41.75 on the week
Fundamentals: Risk-assets across the board are sharply lower this morning. U.S benchmarks are all down 2.5% or more as some panic begins to set in. Ultimately, we find this a very healthy correction and one we have been able to capitalize on through the Russell 2000. Fears are mounting as to the impact of the Coronavirus, now known as Covid-19. The number of infections has topped 80,000 and the death toll is stretching towards 3000. However, today’s panic is due to the rise in cases outside of China. Particularly, South Korea and Italy. South Korea has shutdown a Samsung factory after an infected employee was reported; there are 833 cases and seven deaths in the country. Italy’s numbers are rising this morning to 200 cases and five deaths. They have restricted travel and Austria has halted trains coming from Italy.
The economic data last week was very mixed, but Friday’s massive whiff on U.S Services PMI sparked strong waves of selling. We have been saying since last summer that the stock market must make a transition from Fed easing dependence to relying on better data. The read of 49.4 on Friday was the worst since January 2013 and the first contraction since February 2016. Looking back at the stock market’s bottom in February 2016 and how the Manufacturing reads from New York and Philadelphia last week surprisingly beat (Manufacturing PMI as a whole missed 50.8 vs 51.5 exp), we certainly find the economy at an inflection point.
One of our base cases for being negative on the Russell 2000 was the expectation that although sentiment turned broadly positive since February 2nd, the hard data displaying the impact of Covid-19 has yet to come. Additionally, the small caps have lagged the breakout to new highs. Bill Baruch breaks down his Russell 2000 trade among others such as Crude and Copper when he joined the PureXposure Live Trading event last week.
Chicago Fed National Activity is due at 7:30 am CT and Dallas Fed Manufacturing is out at 9:30 am CT. Also, the U.S Treasury will auction 3- and 6-month Bills at 10:30 am CT. The yield on the 10-year Note has cracked through 1.50% while the 3-month yield is higher at 1.54%. Cleveland Fed President Mester, a 2020 voter, speaks at 2:00 pm CT.
Technicals: The S&P and NQ are both sharply lower but neither has taken out the lows from end of January. Remember, the NQ laid extremely constructive groundwork at that time, putting in a low of 8925.50 on January 27th and ultimately making higher lows into the January 31st session, whereas the S&P traded to a new low on January 31st. These areas bring tremendous technical support starting with their February 3rd closes at 3245.50 and 9114.75; a level that price action gapped higher from the following morning. Although the S&P has several levels of strong support even below that January 31st low given the lower lows that were made at that time, the NQ has a larger line in the sand at 8925.50-8954.50. For the S&P, we see significance at 3195.75; at this level we believe enough of the longs would have hit the panic button. What matters at this point is whether the NQ has held 8900, its own potential panic new low aligning with a round number. However, a break below here could cause precipitous selling. The S&P has strong support at 3272.75 and would need to close above 3299.50-3303.50 in order to neutralize the near-term tape. For the NQ, we see a large pocket of resistance at 9330.75-9368.75; this aligns many technical indicators and a close above here would neutralize the tape in the near-term.
Resistance: 3272.75**, 3299.50-3303.50***, 3312**, 3328**, 3339.25***
Support: 3245.50***, 3234.25***, 3224**, 3212.75**, 3195.75***, 3181**
Resistance: 9275.50**, 9330.75-9368.75***, 9458***
Support: 9138-9158.75**, 9114.25***, 8925.50-8954.50***, 8900**
Crude Oil (April)
Last week’s close: Settled at 53.38, down 0.50 on Friday and up 1.06 on the week
Fundamentals: Crude Oil is sharply lower along with all other risk-assets. As we discussed in the S&P section, panic is spreading due to the mounting number of Covid-19 cases outside of China with South Korea and Italy being of concern. Now that travel bans are being more widely used, it sheds light on the demand structure for the energy complex. There were rumors that Saudi Arabia along with the UAE and Kuwait would cut 300,000 bpd in order to help stave off a fall below $49, however, those rumors were denied, and price action remains heavy. Crude’s mid-January fallout of more than 15% immediately priced in some demand destruction. Now that the broader risk-environment is beginning to do the same, stocks, it could encourage an overshoot for the energy sector.
Technicals: We find the tape bearish as long as it can stay below 51.80. However, we will not increase our Bearish Bias given that Crude Oil is already down more than 4.5% on the session and we want avoid encourage traders to chase the move given that there are strong levels of support that come in at $50 and below. Our momentum indicator comes in at 52.30 this morning and is slipping, we expect it to align with 51.80 by end of day. There is no argument that the setup is very bearish.
Resistance: 52.29-52.64**, 53.15-53.38***, 54.20***
Support: 51.07**, 50.00-50.20**, 49.00-49.50****
Last week’s close: Settled at 1648.8, up 28.3 on Friday and up 62.4 on the week
Fundamentals: Gold matched its best week since June, gaining nearly 4%. We pointed heavily last week to the 3-month Bill and 10-year Note yields inverting and this being a key factor paving a bullish road for the metal. Now, risk-assets are starting to catch up to some of the underlying signals such as the yield inversion and Friday’s whiff on Services PMI data was the last straw. The most amazing part is that Gold has been able to rally with such ferocity despite U.S Dollar strength.
Technicals: Gold is very bullish out above our momentum indicator which comes in this morning at 1662, however, just as we said in the Crude section, we are not increasing our Bias in order to exude patience in strategy and not to encourage chasing a move. There is strong support below the market adding to the bull case. Major three-star support comes in at 1645.9-1648.8 aligning Friday’s close with a previous level.
Resistance: 1687**, 1716***
Support: 1645.9-1648.8***, 1615-1619.6***
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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.