August 17, 2018 - 6:20 AM EDT
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Bullish Stocks Soured by Turkey. Yuan Gains on USD. Crude Resistance

Bill Baruch, president and founder of Blue Line Futures, previews E-mini S&P, Gold, Crude, and Treasury markets and today’s economic report calendar. Follow his reports Monday-Friday on and short Midday Markets video.

E-mini S&P (September)

Thursday’s close: Settled at 2844.75, up 23.50.

Fundamentals: U.S benchmarks are off Thursday’s swing high and the S&P 500 (SPX) is contained below resistance as the week looks to wind down. Geopolitics remain in the headlines and the White House said it will ramp up sanctions on Turkey after the country hasn’t released the American pastor from house arrest.

The global picture is mixed with Japan in the green and Europe paring early gains to dip in the red. The biggest name in the retail sector, Walmart (WMT) did its job Thursday in proving that the consumer is alive and well; it was a major catalyst in helping the S&P to its high of 2851.75. Ultimately, Walmart added further wind to the sails after China announced it would reopen trade talks with the U.S.

However, Thursday’s very bullish mood was soured when the spat with Turkey regained steam.

On the bright side, China is trying to reestablish communication with the U.S on trade ahead of the September deadline to implement $200 billion of tariffs on Chinese goods, though a small one and literally so as they send low level delegates. While it is a step in the right direction ahead of the deadline, there is much more that must develop in order to take a real step forward. Still, the Chinese yuan (CNY) has gained as much as 1% on the U.S dollar (USD) since this news was announced, helping to stabilize commodities and equities around the globe.

Domestically, the consumer continues to stay in focus to close out the week and after strong reads from Home Depot (HD), July Retail Sales and Walmart, the first look at August University of Michigan Consumer Sentiment Index has been holding at high levels and accelerated in the last two weeks of July. The consensus for preliminary August is 97.9, unchanged from July.

Technicals: Momentum was strong Thursday and especially so once price action got out above 2835-2837. Still, strong resistance at the 2849.50 level worked to keep this in check; the high was 2851.75 before retreating and our trade desk encouraged longs to sell and bears to look for an opportunity. Our major three-star level at 2835-2837 has held this dip in check and we maintain that the bulls are in the near-term driver’s seat until a close below here. The bigger broader picture remains a very strong one and this week’s dip to 2803 (which we said was a buying opportunity) has ultimately allowed a bullish tail to develop; we must see a close above our major three-star support which is now ...

Crude Oil (October)

Thursday’s close: Settled at 64.88, up 0.42.

Fundamentals: Crude Oil put in a low early in Thursday’s session (Wednesday night) and began to see a firm move after China announced it would send representatives to the U.S to discuss trade. While there are many reasons, technically and fundamentally, why Crude Oil did and would have bounced back from that low this does demonstrate how impactful the potential trade war and currencies are on this market.

The Chinese yuan has gained as much as 1% on the U.S dollar since that low, boosting commodities and equities. If emerging markets are in a freefall, demand for Crude Oil is perceived to be in jeopardy. If the U.S implements the third wave of tariffs, $200 billion on Chinese goods, global growth is in jeopardy and thus demand for Crude Oil.

Right now, demand is strong domestically and globally. Thursday, we pointed to the build in inventories being cause by the rise of imports and this is another casualty of the strong dollar. For now, this is seasonally a soft time for Crude Oil, but this soft tape should present a buy opportunity; Bill Baruch lays out the trade on CNBC’s Trading Nation.

Technicals: Traders must be technically cautious in the near term as Crude Oil is running head-on into major three-star resistance at 65.09-65.35. If you bought the Wednesday night dip that hit the 200-day continuous moving average than you should make sure to capitalize in some manner. As for the bigger broader picture, we remain unequivocally intermediate and long-term bullish. The October contract officially becomes front-month today and a close above ... 

Gold (December)

Thursday’s close: Settled at 1184, down 1.0.

Fundamentals: The washout this week is making a valiant effort to stabilize. Sometimes the cure for a dead market is lower prices. Most importantly, the Chinese yuan has gained as much as 1% against the U.S dollar and for Gold’s sake, it should continue in this direction ahead of Chinese representatives’ meeting with the U.S. China sent low level delegates to ultimately secure more time from a September deadline before the U.S implements $200 billion in tariffs on Chinese.

China is weakening the yuan in order to make their goods cheaper to combat the tariffs, something we expect them to cease going into this meeting. The U.S dollar is higher this week against most currencies around the world and this weighed on Gold.

However, Treasury yields are weaker given the geopolitical landscape and this is supportive to Gold. Furthermore, we continue to reiterate here that we have been using Treasuries to complement any strategy in Gold and we encourage you to call our trade desk at 312-278-0500 to discuss. Bill Baruch discussed his views on the Treasury yield curve on CNBC’s Trading Nation.

The freshest data point released is due today. August University of Michigan Consumer Sentiment Index has been holding at high levels and accelerated in the last two weeks of July. The consensus for preliminary August is 97.9, unchanged from July.

Technicals: Price action is battling to settle above major three-star support at 1179.7-1182. But we must see buyers step in to take it above 1194.5-1198.9 to neutralize the washout at minimum. Today, we look forward the CFTC’s Commitment of Traders due out this afternoon. Though Wednesday’s session incurred the largest chunk of selling and will not show up as the report is for the week ending Tuesday, Monday was just an eyelash behind. We expect to see record shorts, net-shorts and relative longs for Managed Money; a trio of data points that would signal that the sellers have already sold. 

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Source: (August 17, 2018 - 6:20 AM EDT)

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