Morning Express | Major Levels for Stocks and Oil Carnage | Gold and the Chinese Yuan Story

E-mini S&P (September)

Last week’s close: Settled at 3417.50, down 44.00 on Friday and 87.00 on the week

NQ, last week’s close: Settled at 11,548.75, down 251.75 on Friday and down 443.00 on the week

Fundamentals: U.S. benchmarks consolidated during the Labor Day holiday trade before waves of selling resumed this morning. Last week, we said a correction was near if not now. The important thing to understand is that although fierce, this selling is healthy. Given the one-sided run for weeks and months, traders must expect an elevator down. Tech, which led the way higher, is of course leading the selling. As we have said many times before, the market is ready to correct on its own terms, only then will headlines be attributed to movements. Leading the narrative today are comments from President Trump, that if reelected, he will ‘decouple the U.S.’s reliance on China once and for all’ and further threatened tariffs on imports. This is not new news; we have been highlighting the deteriorating relationship between the two world powers for months. Only now is the market ready to focus on it. Last week, China announced a $1.4 trillion initiative to invest in domestic chipmaking as it too wants to end its reliance on U.S. technologies.

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U.S. Dollar strength from two-year lows is also weighing on the tape. We have said the greenback is the sacrificial lamb for not only the economy but the stock market. On Thursday, we look to a pivotal ECB meeting, one where expectations are mounting for policy measures to spark inflation. Also darkening the forecast of the Euro is the psychological achievement of 1.20, a second wave of Covid-19 cases and Brexit talks.

On the data front, this morning Eurozone Q2 GDP was less-worse than expected, however, German Imports and Exports each missed their marks. On Monday, Chinese trade data weighed on the risk-landscape after Imports contracted YoY, the read is being felt today. Crude Oil has fallen more than 5%, in part due to the news. This comes after U.S. Nonfarm Payroll on Friday was widely favorable relative to expectations with the headline Unemployment Rate falling to 8.4% and Average Hourly Earnings ticking higher all the while jobs are being added.

Tesla, arguably, has been the barometer of irrational exuberance. The stock is pointing lower by 15% ahead of the bell today. If it opens at that level, it will be down about 30% from its peak. The selling comes after the S&P 500 passed on accepting the company into its index.

Technicals: On Friday, the S&P hit our rare major four-star support at 3330-3344.75 with a low of 3347.75. All things considered, the bounce back was contained by resistance at the opening range of the intraday session and this is now major three-star resistance at 3447-33453.25, a level that price action also failed overnight. Each, the S&P and NQ, face Friday’s low and support just below. For the NQ, it is the round 11,000 mark aligned with 11,087 with a low of 11,142. If the indices chew through these lows, the selling could get much uglier with our next major three-star supports coming in at 3253-3263.50 in the S&P. Ahead of that though, several technical indicators align for key support at 3280-3284; this includes a trend line from the May low. A similar trend line in the NQ aligns with several technical indicators to bring strong support at 10,890.50. The sellers will hold the outright near-term edge while below 3292.50 in the S&P and 11,271 in the NQ. We remain cautiously Bearish.

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Bias: Neutral/Bearish

Resistance: 3417.50-3420***, 3447-3453.25***, 3477-3586.50***, 3505.75**, 3525-3533.75***

Pivot: 3392.50

Support: 3330-3344.75****, 3280-3284**, 3253.50-3263.50***, 3220.50***, 3190-3192***, 3177.25**, 3047.25***

NQ (September)

Resistance: 11,450**, 11,548-11,575***, 11,751**, 11843***

Pivot: 11,271***

Support: 11,142**, 11,000-11,087***, 10,890.50***, 10,459**, 10,301****

Crude Oil (October)

Last week’s close: Settled at 39.77, down 1.60 on Friday and 3.20 on the week

Fundamentals: Crude Oil is taking a beating along with the broader risk-environment as U.S. Dollar strength is weighing on commodities. China is at the center of several narratives. Leading the way are comments from President Trump, he wants to end the U.S.’s reliance on the communist nation and reinvigorated the threat of tariffs. Additionally, Chinese Trade Balance data Monday morning showed Imports contracted YoY. Further within the data, their buying of Crude Oil slowed sharply. Remember, in July they set a record for imports of U.S. Crude and promised to increase such in August as the two nations paraded the lauded Phase One trade deal, a deal that is now evidently in shambles. All of this comes as OPEC tapered their production cuts in August, bringing more supply to the market. Saudi Arabia over the weekend responded by cutting the price of its Crude to Asian customers. Despite all the negative news, Crude Oil is nearing our buy target.

Technicals: The tape is under immense pressure after piercing through major three-star support at 38.80-39.00. This level now aligns with our momentum indicator and the bears are in the driver’s seat below here targeting our rare major four-star support, a wide range, at 35.25-35.94. We have called this large pocket our buy target and we remain confident that the tape will bounce upon the first test, providing an ideal swing opportunity. Overall, our Bias remains cautiously Bearish.

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Bias: Neutral/Bearish

Resistance: 39.77-40.00***, 41.11**, 41.46-41.58***

Pivot: 38.80-39.00***

Support: 36.96*, 35.25-35.94****, 33.52***, 32.33, 32.66***

Gold (December)

Last week’s close: Settled at 1934.3, down 3.5 on Friday and down 40.6 on the week

Fundamentals: Gold battled well on Friday given the inherent weakness heading into the session and broadly solid Nonfarm Payroll report. The U.S. Dollar continues to strengthen from a two-year low and this has certainly weighed on commodities, Gold is not immune. The psychological $1900 mark and those record highs from 2011 are front and center attempting to buoy the weakness, detailed in the Technical section below. Although a deteriorating relationship between the U.S. and China is encouraging risk-off, such through all of 2018 was not supportive to Gold as it weakened the Yuan drastically and strengthened the Dollar. Although we remain long-term optimistic on Gold, it is heading into a seasonally weaker time of year just as the Chinese Yuan finds itself slipping from a pivotal price level at the 0.146 region. U.S. Treasuries have strengthened in this landscape and they could be the only thing holding Gold back from additional losses.

Technicals: We remain cautiously Bullish on Gold, but we were clear last week upon the rally to 1990-2000, it was not the time to buy and we expected a failure to lower prices. Our Bias is with the longer-term in focus. The metal did hold major three-star support at 1928-1932 into the close but today’s decisive action below here paves the way for lower. First key support comes in at 1914.7 and major three-star support below there is 1907.4-1909.6. Although Gold did break below 1900 on August 12th, it never closed below there; a close below 1907.4-1909.6 will encourage additional selling with 1845.4 and our buy recommendation at 1855 being a target. Please call the trade desk for help with a plan on how to position in Gold for the long run at 312-278-0500.

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Bias: Neutral/Bullish

Resistance: 1937.8-1942**, 1955.5-1958***, 1964.2**, 1973-1976.6***

Pivot: 1928-1932***

Support: 1914.7**, 1907.4-1909.6***, 1889.6***, 1845.4****, 1829.8***

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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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