We called this market exhausted at our major three-star resistance at 2603-2609.50 says Bill Baruch, President of Blue Line Futures.
E-mini S&P (ESH)
Yesterday’s close: Settled at 2635.25, up 22.00
Fundamentals: We called this market exhausted at our major three-star resistance at 2603-2609.50 and said we were comfortable to see our two overhead resistance levels at 2624-2626 and 2631-2633 get tested. Through our exhausted narrative we have been keen to point out two types of market participants who could each be catalysts in higher price action. First, the many shorts who are trapped from 2500 and lower. The second being under-positioned portfolio managers. A short covering pop was inevitable, hence our comfort above major three-star resistance. Yelling fire in a crowded movie theatre has a negative connotation. However, the same theory applies when you have shorts who must cover and under-positioned portfolio managers with FOMO (fear of missing out) who feel their job is on the line.
Yesterday’s news that the U.S is weighing lifting the tariffs on China is exactly that. The Treasury department and the U.S Trade Representative’s office denied reports that the U.S was going to give-in, but the damage has already been done, fire has already been shouted and the theatre has already been emptied. Listen, we understand that many times when there is smoke, there is fire. But the question is whether this is true substance ahead of the meeting between the U.S and China later this month or is it the latest attempt at jawboning?
The government shutdown heads into its fifth week. This has slimmed out the economic calendar a bit but today brings a full dose. New York Fed President Williams (NYSE:WMB) speaks at 8:00 am CT. Industrial Production is due at 8:15 am CT. Michigan Consumer data is expected to dip due to the shutdown and will be closely watched at 9:00 am CT, it is the freshest data point released each month. At 10:00 am CT, Philadelphia Fed President Harker speaks.
Crude Oil (CLH)
Yesterday’s close: Settled at $52.36, down 25¢
Fundamentals: The IEA released their monthly report this morning and said they expect U.S production growth coupled with a slowing global economy to put downward pressure on Crude Oil in 2019. They did note that the impact of higher prices on demand has begun to dissipate. Therefore, they kept demand growth unchanged despite their expectations for the global economy to slow.
Prices were under pressure early yesterday on reports that showed reinvigorating tensions between the U.S and China on trade after lawmakers wanted to introduce a bill that would ban the sale of chips to Chinese companies that violated export laws. However, the tables were turned late in the afternoon after it was reported the U.S is weighing lifting the tariffs on China. Although these reports were denied, this has provided a strong tailwind to risk sentiment. This was so for Crude Oil as it coupled with the OPEC Monthly report that showed a drop in OPEC production of 751,000 bpd in December. For now, OPEC’s jawboning coupled with trade tailwinds has drowned out a growing composite of inventories domestically.
Gold (GCG)
Yesterday’s close: Settled at $1,292.30, down $1.50
Fundamentals: Gold has slipped by nearly 1%. This began after midnight as global equity markets are responding to yesterday’s reports that the U.S is weighing lifting the tariffs on China; less demand for safe-havens. Gold and the Chinese Yuan have both recovered firmly since October which means that positive news on trade does not have the same impact in the past given that there is nothing for them to price-in anymore. NY Fed President Williams said this morning reiterated patience and data dependence. He noted that uncertainties have risen, the lack of data due to the shutdown and that it could also affect consumer spending. Industrial Production beat expectations this morning which added pressures to the metal. Michigan Consumer data will be crucial at 9:00 am CT and Philadelphia Fed President Harker speaks at 10:00 am CT.