E-mini S&P (December)
Yesterday’s close: Lost 4 ticks and settled at 2578
Fundamentals: Weakness was not abated yesterday, and global markets are under pressure this morning; Nikkei futures are down about 2%, the DAX is under pressure losing more than 1% and Euro STOXX 50 is down a little less at -.75%. The commodity sector is leading the way with mining and energy stocks under pressure. The Euro has gained more than 1.5% on the week which has in turn put pressure on European equities following the ‘dovish taper’ honeymoon. Tax-reform took another twist last night with the release of the Senate’s new version that sunsets many middle-class cuts. U.S equity markets are beginning to respond to the lasting uncertainty. The Senate will markup their proposal today while the House is preparing for a Thursday; both versions will eventually need to find an understanding. CPI and Retail Sales is due this morning at 7:30 am CT. This Retail Sales number comes on the heels of a poor Consumer Sentiment read and ahead of the holiday season. NY State Empire Manufacturing is also due at 7:30 and Business Inventories at 9:00.
Technicals: Price action is testing key support at 2561.75-2562.25 for the second time in two days. We have discussed that a move below here will ultimately open the door to major three-star support at 2539.25-2543; upon such, our Neutral/Bearish bias will become outright bearish. The 50-day moving average now comes in at 2540 and aligns with this three-star level, the S&P has not closed below its 50 day since August 29th and this is one of many reasons why we would look to buy against here. The 20-day moving average comes in at 2574.75 and a close back near this level will neutralize weakness. Only a move back above resistance at 2583-2585.75 will turn the market bullish again.
Bias: Neutral/Bearish
Resistance – 2583-2585.75**. 2594.50-2596**, 2600*, 2616**
Pivot – 2574.75
Support – 2561.75-2562.25**, 2555*, 2539.25-2543***, 2525.50**, 2504.24-2507.75****
Crude Oil (December)
Yesterday’s close: Lost nearly 2% to settle at 55.70 but traded lower into the electronic close.
Fundamentals: Yesterday’s IEA report put a damper on the upbeat Oil demand rhetoric we have been hearing from OPEC. The API data late in the session put further pressure on the market as it showed a large build of 6.513 mb when a draw of 1.4 was expected. Adding to pressure was a build in Gasoline of 2.399 mb when a draw was also expected here of 1.1 mb. Distillate inventories declined 2.527 when a build of 500,000 was expected. All of this has encouraged selling but we maintain our belief that the true catalyst has been the lid on the market above $57 due to large call option open interest. Furthermore, even larger open interest at the $55 mark has created a gravitational pull. We also believe once the expiration passes, it will spark renewed buying interest into the end of the week as traders reposition. In fact, we loved to see such a bearish API report last night as it gets a lot of the selling out of the way. Now, today’s EIA report must be nearly as bearish or more bearish to encourage fresh selling (exp Crude -2.2 mb, Gasoline -.919 mb, Distillates -1.269 mb). Production will be watched, and it is likely that much of the volatility in inventories would be attributed to the weekly shift in exports.
Technicals: We have been Neutral/Bearish calling for this correction since Sunday. Now that it is achieved we are Neutral this morning. Price action is hugging the key $55 mark that not only has large call open interest but also put OI. This was also a key breakout level as it was the previous high of the year and encourage massive volume. Barring a more bearish EIA report than API, we expect to see a technical hold at this level and a reversal of yesterday’s that might begin as early as 10:00 am CT but ultimately after the settlement at 1:30 as buyers step in to finish out the week. Monday’s low and yesterday’s high will bring a key resistance level and if price action gets out above here it should spark a bullish leg higher.
Bias: Neutral
Resistance – 56.30-56.77**, 57.15**, 57.92**, 58.97***
Support – 55.02-55.25***, 54.45-54.54**, 53.76-53.90**, 52.86-53.11***
Gold (December)
Yesterday’s close: Settled 1% off its low at 1282.9
Fundamentals: Gold finally began to respond to a weaker U.S Dollar after St. Louis Fed President Bullard commented that he is skeptical on hiking rates in December. We added that he does not expect inflation to reach the Fed’s 2% target until later in 2018 or 2019. Bullard’s comments came right before and took precedence above a strong but likely transitory read on PPI. CPI and Retail Sales are due out today at 7:30 am CT and these reads will be crucial and accompanied by NY State Empire Manufacturing. Business Inventories are due at 9:00. Chicago Fed President Evans spoke again this morning and said that he will go into December’s meeting with “an open mind”. He added that the “economy is strong but there is still a ways to go with inflation and an accommodative policy should remain”. Tax-reform remains a hurdle and has been supportive to Gold, the Senate released their version last night. The House is due to vote on theirs on Thursday.
Technicals: Gold is a fighter and continues to battle at major four-star support and win. Price action has been very constructive this week and a close back above 1280.5-1281.6 yesterday was key, it must continue to close above the level that includes the 100-day moving average. Still, the metal faces resistance at 1291.3-1292.9 and a move out above here is needed to squeeze the shorts.
Bias: Bullish
Resistance – 1291.3-1292.9**, 1298.4-1300**, 1308.4-1312.6**
Pivot – 1280.5-1282.1
Support – 1262.8-1271***, 1243.6*
Natural Gas (December)
Yesterday’s close: Settled at 3.102
Fundamentals: Estimates on tomorrow’s storage data are looking for a build of 15 bcf and price action came under pressure to start the week as this was taken in stride. Yesterday, the IEA said that U.S will become the leading global gas exporter by the mid 2020’s. This is in line with our belief and a major factor in why we think Natural Gas is too cheap near $3, especially heading into the winter.
Technicals: Price action has battled against first key support and put in a low in at 3.064. The tape has stabilized and is attempting to trade constructively heading into tomorrow’s data.
Bias: Bullish/Neutral
Resistance – 3.179-3.198***, 3.22**, 3.297-3.353***, 3.55**, 3.67**
Support – 3.08**, 3.035-3.051** 2.984-2.998***, 2.847-2.861**, 2.753-2.7565***, 2.486-2.522****
10-Year (December)
Yesterday’s close: Settled at 124’235
Fundamentals: With global equity markets under fairly severe pressure this morning along with a weaker Dollar the 10-year has gotten a firm bid off of yesterday’s low. Comments from Fed speakers Bullard and Evans are more dovish than anticipated and not that it will completely effect a December rate hike that is nearly priced in 100% but because this almost assures that they will not speed up the pace of hiking from the already priced in three hikes next year; the key reason why we are long term bullish the 10-year. CPI and Retail Sales will be crucial reads today.
Technicals: Key support at 124’19 did the trick in stopping the bleeding early yesterday. Price action is testing first resistance now at 124’31-125’015 and a close out above here is needed to offset the recent weakness.
Bias: Neutral/Bullish
Resistance – 124’31-125’015**, 125’19**, 125’255**, 126’01**, 126’15***
Support – 124’19**, 124’00**, 122’22 – 122’29***
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