Morning Express

E-mini S&P (March)

Last week’s close: Settled at 2951, down 6.00 on Friday and down 388.25 on the week

Fundamentals: U.S benchmarks are ricocheting around, and volatility is showing no sign of slowing. After losing as much as 14.5% in a single week, this type of movement is to be expected; uncertainty is rampant, and markets hate uncertainty. Overnight, the S&P completed a 4.5% range in the first 10 hours of trade. Friday’s 4% rip in the final 30 minutes quickly disappeared on the open last night after China’s PMIs over the weekend contracted at the worst pace on record and the first Covid-19 death in the U.S was reported. So, what now?

China’s hard data was expected to be poor to breathtakingly poor, but this did top even the worst expectations; Manufacturing PMI at 35.7 and Non-Manufacturing PMI at 29.6. The private Caixin HSBC survey was less-worse at 40.3. Coronavirus/Covid-19 has been in the news for more than a month and a half now and even the most mediocre forecasters expected the panic to hit in waves because the incubation period is up to three to four weeks. This means that even after the outbreak was widely known, those who had been in contact with someone over recent days and weeks may not have experienced symptoms until mid-February. This narrative has played out perfectly. So why the panic last week? First, although we were not negative the market broadly, we were bearish the Russell 2000 and recommended short exposure on that index for the better half of February. Along the way, we noted the inversion between the yield of the 3-month Bill and 10-year Note. This became decisive the week before last, right as the 30-year Bond shattered below 2.0%, a massive psychological benchmark. It was no coincidence that on Friday February 21st U.S Services PMI dropped a bomb on the tape and exuded the first real warning sign through hard data; the S&P lost nearly 1% and the rest is history.

The global impact to the Covid-19 outbreak is still very uncertain and that is why once the data knocked the market off its one-way bullish tick of over-exuberance, traders and investors alike panicked. The panic brought a very healthy cleansing.

Bill Baruch joined CNBC’s Trading Nation on Friday to discuss what he likes in the Dow.

Also, what the yield curve and potential Fed action mean for bank stocks.

This brings us to the Fed, there is now a 100% probability, yes 100%, that the Federal Reserve cuts rates by not 25 basis points but 50 basis points at their March 18th meeting. Furthermore, there is a 75% probability they cut another 25 basis points by April 29th. With such certainty priced in, it becomes more and more likely they could act if data this week is as bad as, or worse than, that Services PMI read almost two weeks ago. Coming up at 9:00 am CT is February ISM Manufacturing, expected 50.5. Remember, although Manufacturing PMI (a separate survey) missed expectations it did not cross into contraction; the final February read is due out at 8:45 and expected at 50.8. If this number comes in much worse than expected, we could see the Federal Reserve step in as promised by Fed Chair Powell on Friday shortly before the market ramped-up into the close. If this number comes in better than expected we forecast panic buying.

Technicals: Price action has traded at a high velocity in a very wide range, it is imperative that you pick your spots and stick to your game plan. With that said, there are very strong levels of technical support below the market being tested. Bill Baruch spoke of a line in the sand on TD Ameritrade Network Friday before the bell; this is 2855-2857.25 in the S&P and the 200-day moving average for the NQ coming in today at 8184. In the same manner that selling picked up when the S&P closed below the 200-dma, traders must keep the same pulse on the NQ. Furthermore, the NQ held a constructive close Friday on two other fronts. The first being the .382 retracement from the 2018 correction at 8257 and the second being a trend line from the same low at about 8390 today. We believe a market to be trending over a particular time-horizon when holding a .382. As for the trend line, today it aligns closely with our momentum indicator; above here remains favorable in the near-term. This brings us to another crucial fact; since falling on Thursday February 20th from a new record high, both the S&P and NQ have traded below our momentum indicator and have each failed to decisively close back above in order to neutralize the tape. After Friday’s rip and last night’s two-sided volatility both have caught up to trade around and above those levels designated as our Pivots; above here is favorable on the session. Holding above such paves a path of least resistance to our only layers of major three-star resistance at 3051-3061.25 in the S&P and 8751.50 in the NQ; we advise that traders look to capitalize on longs against these levels. However, continued price action below these pivots invites fresh waves of selling. Lastly, 24,000 in the Dow is a paramount level. We will hold a minor Bullish Bias given our more intermediate to long-term focus.

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Bias: Neutral/Bullish

Resistance: 2951**, 2984.50**, 3006-3021**, 3001.25**, 3051-3061.25***

Pivot: 2940

Support: 2878.25-2889.25**, 2855-2857.25***, 2800-2810.25**, 2775***

NQ (March)

Resistance: 8512**, 8574.25**, 8677**, 8751.50***

Pivot: 8390-8408

Support: 8257***, 8224.25*, 8184***, 8126.25**, 8051.75***

Crude Oil (April)

Last week’s close: Settled at 44.76, down 2.33 on Friday and down 8.62 on the week

Fundamentals: Crude Oil was one of the first risk-assets to turn positive after last night’s poor open. This could be a sign of things to come this week as sentiment is arguably exacerbated in the near-term and especially so given that OPEC+ meets later this week; risk to the upside on a larger than 600,000 bpd production cut. China’s Manufacturing data topped even the worst expectations over the weekend and takes credit for that opening last night, but as price action battles back the emphasis will be on today’s U.S February ISM Manufacturing read – larger discussion in the S&P section. Traders must keep a pulse on the broader risk-environment, stocks.

Technicals: Crude Oil did close below major three-star support at 45.33-45.47 on Friday and spent the entire intraday session below there. However, the late Friday stability and last night’s rip higher have allowed price action to hold above our momentum indicator which aligns with that long-term level of support. Continued price action above this level will pave a path of least resistance to major three-star resistance at 47.65. Given such, we will introduce a cautiously Bullish Bias while holding out above here. To the upside, there is extremely significant resistance at 48.99-49.50. Lastly, Managed Money according to the Commitment of Traders showed fresh buying through last Tuesday; Crude Oil is attempting to bottom out for the fourth time since the 2018 collapse after the Managed Money Net-Long position pings the general 100,000 contract level.

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Bias: Neutral/Bullish

Resistance: 46.71-47.09*, 47.65***, 48.99-49.50****

Support: 45.33-45.47***, 44.76*, 43.32**, 42.36***

Gold (April)

Last week’s close: Settled at 1566.7, down 75.8 on Friday and down 82.1 on the week

Fundamentals: Gold was the largest bloodbath on the board Friday, and this was solely due to margin calls and thus the necessity to raise cash. Gold is a liquid asset and simply put, because of that, it was a casualty. Going forward, we continue to strongly believe there is tremendous value in the metal at and near its current levels. However, this week will act as an intermediate-term inflection point. The Dollar is already losing value and Treasuries are trading at record levels as the odds for the Fed to cut rates have now increased to a 100% probability of 50 basis points by their March 18th meeting. The bad news is this is already priced in. What happens next will be very dependent on the data this week. Gold can trade higher with stocks as long as it is Fed driven, however, if the data surprises to the upside Gold is in store for additional waves of selling. ISM Manufacturing is due at 9:00 am CT and Friday bring Nonfarm Payroll.

Technicals: Gold stabilized overnight and worked higher, testing to exactly the .382 retracement from the high set the last Sunday night and the low set Friday. This will bring a line in the sand on the week aligned with our previous 1619.6 and a close above there is again near-term bullish. For now, our momentum indicator aligns with old support at 1598-1600 and the metal is very vulnerable to waves of selling while holding below here. Given Friday’s damage, such could open the tape to 1530.

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Bias: Neutral/Bullish

Resistance: 1612.8-1619.6***, 1627.9**, 1640-1642.9***

Pivot: 1598-1600

Support: 1576.3**, 1566.7-1569***, 1560**, 1551.1**, 1530***

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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.

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