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E-mini S&P (September)
Yesterday’s close: Settled at 2728.50, down 6.25
Fundamentals: After pausing though yesterday’s session, volatility is working its way back into global markets. The S&P found a low of 2705.50 at 3:30 am CT before bouncing 0.5%. European benchmarks followed a similar pattern; the DAX lost nearly 1% before regaining unchanged on the session. However, the same does not go for China; the Hang Seng is down almost 2% today and the Shanghai Composite has shed another 1% after officially closing in bear market territory yesterday. The Dollar/Yuan has reached the highest level since mid-December as China continues a devaluation process with the U.S and China trade relations in mind. Rattling investors around the world is the same trade war rhetoric and when it hits the headlines, equity markets react. It was again reported that Chinese President Xi is readying for a “full-scale trade war”. This time, adding what was due to become inevitable; China would limit or cut purchases of U.S Treasuries. This is a factor that the White House must have expected, but we do not believe global markets have priced in. Considering the massive supply of Treasuries that have been hitting the market in auctions this year, there must be buyers to support prices. If prices are not supported, they of course drop, which means yields rise and debt costs more to service. This morning, the U.S 10-year is at 2.85%, a far cry from the 3.128% high of the year and at the lowest level since May 31st, when the Italian crisis was working through markets. This is not a concern here but could become one at a steady pace. Our belief has been that Treasury yields, once the 10-year achieved 3%, would not go higher for longer. However, this could bring unforeseen circumstances; if the U.S loses China as a buyer, either investors come out of the equity market to depress yields or price action will force them to.
Durable Goods data is due this morning at 7:30 am CT. Last week, Philly Fed Manufacturing and Manufacturing PMI missed with orders falling sharply. Today’s read is a May number, but it will remain important to closely watch for effects of the trade war. Also, Pending Home Sales is due at 9:00 am CT. Fed Governor Quarles speaks at 10:00 am CT and Boston Fed President Rosengren is at 11:15 am CT. There is a 5-year auction at noon CT.
Technicals: Yesterday, we said resistance at 2735.75-2737 is almost as strong as a three-star and it proved such keeping prices action in check from further gains. The day settled right at the 2728.50 minor level and then lost nearly 1% to an overnight low of 2705.50 before stabilizing into this morning. Given Monday’s low and yesterday’s high, we now have a defined range and a close outside of that should lead directionally. Still, we cannot ignore key support at 2695.75 or major three-star resistance at 2745.50-2748.50. The 100-day moving average aligns with the overnight low and a move below here is now needed on the session in order for the bears to remain in the immediate-term driver’s seat, anything less could easily lead to short covering and fresh buying into the close given another hold in this broad psychological 2700/100-dma area. However, a move below 2695.75 opens the door to accelerated selling down to our rare major four-star level at 2670.25-2671.50.
Resistance: 2728.50*, 2735.75-2737**, 2745.50-2748.25***, 2759.50**, 2768.50-2773**
Support: 2705.50-2707.75**, 2700.50**, 2695.75**, 2679.25**, 2670.25-2671.50****, 2660***
Crude Oil (August)
Yesterday’s close: Settled at 70.53, up 2.45
Fundamentals: Crude Oil surged 3.6% yesterday after the White House issued a statement hardening their stance on Iran; countries must import zero Crude from Iran by November 4th or face U.S sanctions. While the timing of this announcement clearly surprised the market, it is just another factor in our long-term bullish stance on Crude Oil. Shortly before this announcement Saudi Arabia clearly planned to cushion the blow by announcing they will ramp up production to a record 10.8 mbpd in July. While Crude knee jerked slightly lower on that news, the reaction was very muted considering such and signaled there was likely more to follow. Inventory data comes into the picture today and yesterday’s API read set a very high bar with Crude at -9.228 mb. They had Gasoline at +1.152 mb and Distillates at +1.785. The headline Crude number helped extend the tape overnight. Expectations for today’s EIA data are -2.572 mb of Crude, +1.313 mb Gasoline and +0.774 mb Distillates. Remember though, despite these expectations, after a headline of -9.228 from API last night we must see a draw in the ballpark of 5 mb or more in order to get near the bar that was set.
Technicals: Our Bias has been Bullish Crude and remain such, however, traders who have not participated in this rally should not just chase Crude at these levels or before this inventory report. Support now comes in at yesterday’s resistance which is also where it settled; considering what inventories show 70.40-70.58 is a level in which traders can step long. Still, considering the size of recent gains, it would be smart to protect such with put options. A close below here would be disappointing though and should signal a consolidation over the next 24-48 trading hours. However, a more bearish leaning inventory report would open the door to the swing highs leading up to yesterday morning which now come in as support at 69.38-69.44.
Support: 70.40-70.58**, 69.38-69.44**, 68.37-68.58**, 67.03-67.09***,
Yesterday’s close: Settled at 1259.9, down 9.0
Fundamentals: Many have asked, why is Gold not finding support or rallying when the Dollar Index is lower? It is important to remember that the Dollar Index is 57.6% the Euro. This is not a true gauge of what the Dollar is doing across broader currency markets. In fact, the Dollar has gained 2.6% against the Chinese Yuan over the last three weeks as China devalues amidst the trade war battle. The Dollar/Yuan is now at the highest level since mid-December and guess where Gold is, the lowest level since mid-December. Today, we look to a key read on Durable Goods at 7:30 am CT and Pending Home Sales at 9:00 am CT. Fed Governor Quarles speaks at 10:00 am CT and Boston Fed President Rosengren is at 11:15 am CT. There is a 5-year auction at noon CT.
Technicals: While Gold remains under pressure, we continue to eye our rare major four-star support level. We have not seen so much technical support aligning in one area since Gold was nearing $1000 in late 2015. Furthermore, given the drop yesterday, we are excited to see the new CoT report due Friday which has a chance of showing the first net-short Gold position since that 2015 low. Be patient, we believe a low is coming soon.
Resistance: 1277.5-1281.7**, 1291.3-1293.7***, 1299.6**, 1305.5-1313***, 1321**, 1332.4***
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