Equity Run Takes a Break on Trade Worries

Equity markets paused its climb to new highs as US-China trade concerns are back, reports Bill Baruch.

E-mini S&P (ESZ)

Yesterday’s close: Settled at 3118.50, down 3.25

Fundamentals: U.S benchmarks are experiencing a healthy pullback. Price action slipped from record highs early yesterday in this low volume environment as a bulk of retail stocks lingered lower following Home Depot (HD), which lost 5.44% after reporting underwhelming earnings and lowering guidance. The consumer has fueled the economy this year and we’ve discussed that any signs of exhaustion in retail earnings could have a broadening impact on the market. Today, the sector is signing a different tune with Target Corp. (TGT) and Lowe’s Companies (LOW) both posting beats and showing premarket gains of 10% and 4% respectively. The energy sector also lost ground with the big names down more than 1% and the smaller independents getting tagged for more than 2%. Crude oil lost 3.1% yesterday and although U.S equity benchmarks extended gains into yesterday morning despite a softening narrative around U.S.-China trade, crude was more in tune with such.

That U.S.-China trade narrative is ultimately what’s pressuring benchmarks a bit ahead of the opening bell. Yesterday, the U.S Senate unanimously passed the ‘Hong Kong Human Rights and Democracy Act’. The bill aimed to protect human rights goes to the House of Representative which passed their own version last month. The move has angered China, further dented dissipating trade hopes and the country has promised to retaliate if the bill becomes law.

On the economic calendar, we look to Crude Oil inventory data at 9:30 am CST as the only piece of U.S data this morning. At 1:00 pm CST, the Fed releases the Minutes from their most recent meeting and rate cut. With the odds of a fourth cut in December less than 1.0%, today’s minutes will give some insight into 2020.

Technicals: We neutralized the cautiously bullish outlook we’ve had for weeks on Monday and have reiterated longs should ring the register at what were new records. Although we are not turning bearish, we see value in trying to capture downside and there are a number of ways to do it.

Crude Oil (CLF)

Yesterday’s close: Settled at $55.35, down $1.79

Fundamentals: Crude oil is working higher this morning on news Russia plans to comply with its OPEC+ pact for November. It’s widely known Russia has overproduced relative to its OPEC+ ceiling and news yesterday that they are unlikely to agree to deepen cuts helped fuel the downside. Given that it is already Nov. 20, this would seem more like jawboning than anything, however, Saudi Arabia is almost certainly pressuring Russia to keep prices stable ahead of the Saudi Aramco IPO.

EIA inventory data is due at 9:30 am CST and yesterday’s private API survey was bearish. They reported +5.954 million barrels of crude, +3.354 million barrels of gasoline and -2.19 million barrels of distillates. This certainly sets a bearish bar relative to EIA expectations, but we’ve also discussed the dissipating impact of this private survey. Analysts expect the official results to be +1.543 million barrels of crude, +0.87 million barrels of gasoline and -0.732 million barrels of distillates. Traders should keep a close eye on the composite results relative to the composite EIA expectations.

Today’s overall finish will be interesting and help define whether Crude Oil ultimately rejected lower prices and what type of weight the OPEC narrative will carry over the next two weeks.

Technicals: Crude oil finally took out major three-star support at $56.01 and the flood gates opened to a low of $54.85 overnight. Price action did not quite get to a trend line at $54.60 which aligns to create major three-star support at $54.38.

Gold (GCZ)

Yesterday’s close: Settled at $1,474.3, up 2.4

Fundamentals: Gold is holding ground but just cannot find the catalyst to extend gains. Who can blame it with equity markets and risk-sentiment lingering at such elevated levels amid dissipating odds of additional Fed cuts? Today, the Fed releases the minutes from their most recent meeting at 1:00 pm CST and this promises to invite volume to what is otherwise becoming a consolidation week.
Technicals: Resistance at $1,474 continues to be a hurdle and although the tape sticks its neck above here it is exhausted.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.
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