Risk-On and Sector Allocation | Bill Baruch breaks down the action | Morning Express
E-mini S&P (December)
Yesterday’s close: Settled at 3287.25, up 49.25 on Friday and down 29.00 on the week
NQ, yesterday’s close: Settled at 11,136.50, up 244.75 on Friday and 209.50 on the week
Fundamentals: We have another strong Sunday night session on our hands and U.S. benchmarks are picking up right where they left off Friday. We spoke of a buying opportunity Thursday and turned cautiously Bullish in Bias here Friday. The shift comes after we called a near-term top at the onset of September and went Neutral last Monday when our S&P downside target was achieved. Ultimately, we have gone full circle and find the path of least resistance higher. However, discussed in the Technical section, there are notable levels of resistance overhead.
Equity markets surged higher around 5:00 am CT. Although there does not seem to be a single news event, a slew of upgrades and comments from Senator Ted Cruz supporting fiscal measures may have done the trick as the House looks to pass watered down measures this week. There is still great divide in Washington, too much to detail here ahead of the bell, but fiscal measures in the $2 trillion ballpark are the wild card that could lift stocks steadily ahead of the election. Side note, among those upgrades was Chevron; our portfolio management company Blue Line Capital began allocating to energy late last week, with Chevron as a favorite, and finds good long-term value here.
The economic calendar is jam-packed this week, but today is quiet. Tomorrow evening we get the first of three presidential debates and the week culminates with Nonfarm Payroll Friday. ECB heads are talking today and there seems to be division developing on how to support the economy. ECB President Lagarde speaks at 8:45 am CT. Tomorrow, we look to a Fed speak and Manufacturing data from China.
Technicals: The S&P and NQ have cleared crucial levels of technical resistance overnight at 3316.25 and 11,202-11,255 in the NQ and this paves a path of least resistance higher. Still, there are strong levels of technical resistance overhead at 3342.50 in the S&P and 11,341 in the NQ. These were already tested this morning and traders cannot chase this action if they are not already long. Instead, look to pullbacks to support levels as buying opportunities; previous resistance is now support, for the S&P, this is 3316.25 and the NQ this is major three-star support at 11,255-11,275. Traders must be conscious of the gaps left from Friday’s settlement, most importantly major three-star support in the S&P at 3283-3287.25. Ultimately, a healthy session and close today should point to a test to 3379.50-3387 in the S&P and 11,539-11,571 in the NQ; for all intents and purposes, these are our near-term upside targets.
Resistance: 3342.50***, 3357**, 3363**, 3379.50-3387***, 3397**, 3419.25-3431.75****
Support: 3316.25**, 3283-3287.25***, 3268.25-3273.50**, 3246.50-3256.75****
Resistance: 11,341**, 11,539-11,571***, 11,735-11,764***
Support: 11,255-11,275***, 11,125-11,136**, 11,000-11,020***, 10,830**
Crude Oil (November)
Last week’s close: Settled at 40.25, down 0.06 on Friday and 1.07 on the week
Fundamentals: Crude Oil has not joined the early morning wave of risk-on that equity and metals markets have enjoyed; both have found tailwinds from a weaker U.S. Dollar and a glimmer of hopes that Washington could find common ground on fresh fiscal measures. Overall, such a narrative should be supportive to the energy space as well as a continued reduction in floating storage. However, Crude’s snap back the week before last upon comments from the Saudi Arabian Energy Minister have introduced as many questions as they seemingly introduced at the time. Although we are not bearish energy, (in fact, we like strategically buying energy stocks for portfolios) we are eager to see OPEC+ compliance data for September and how those developments curtail into October.
Technicals: Price action is consolidating around the $40 mark, and our momentum indicator comes in at 40.09 today. Friday’s settlement and today’s early high of 40.79 has not been able to hold out above first key resistance at 40.30-40.51. The longer it consolidates, the more likely it becomes we see a directional move. Still, we must see a close outside of resistance at 41.57-41.72 or support at 38.55-38.87.
Resistance: 40.30-40.51**, 41.57-41.72***, 42.19-42.33***, 43.24***, 43.78-44.05***
Support: 39.54-39.67**, 38.55-38.87***, 36.36-36.58***, 35.54**, 34.09***
Last week’s close: Settled at 1866.3, down 10.6 on Friday and 95.8 on the week
Fundamentals: After last Monday’s bludgeoning, Gold is starting this week off on a good note; the higher tape this morning has responded to our “buy zone” at 1855. There is a glimmer of hope that Congress could pass fresh fiscal measures ahead of the election. Overall, the metals space is enjoying U.S. Dollar weakness and it was Platinum that first poked its head up. Regardless, there is a tumultuous week ahead and this is still a seasonally softer time of year; we believe the 1950 region is in the cards in the coming weeks, but a breakout may not be here until December or into the first quarter of next year.
Technicals: Price action in Gold double bottomed at 1851 this morning. In fact, the double bottom retested the low from Thursday and responded at the same time of morning, 4:00 am CT. We have seen a steady climb into U.S hours with an early high testing the same 1881 it did that Thursday morning. Today, we must see a close above key resistance at 1885.4-1889.6 in order to continue laying a constructive groundwork to bottom, with a close above 1901-1907 being very bullish. A failure to settle above 1864-1866 will be disappointing.
Resistance: 1879-1881*, 1885.4-1889.6**, 1901-1907***
Support: 1864-1866**, 1851**, 1845.4****, 1829.8***
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