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Morning Express: May 22, 2020

By:

President of Blue Line Futures

E-mini S&P (June)

Yesterday’s close: Settled at 2937, down 31.50

Fundamentals: U.S benchmarks are paring overnight losses ahead of the bell and long Memorial Day weekend. China began its National People’s Congress, a yearly event with the objective of showcasing the strength and leadership within the Chinese Communist Party. Beijing has used the onset to shoot two birds with one stone; Hong Kong and U.S-China trade. Late yesterday, China’s Foreign Ministry accused Hong Kong of “colluding with external forces to carry out acts of secession and subversion”. Today, they promised to crackdown by announcing a plan to impose new security laws to toughen control. At the same time, this pokes the deteriorating U.S-China relationship, pressuring the U.S to step in. This comes a day after President Trump called out China for their disinformation and propaganda attacks on the U.S and Europe. The Hang Seng lost 5.56% and closed on the lows. The Shanghai Composite lost 1.89%. The S&P lost as much as 1%, but the landscape stabilized once Europe opened and Asia began to close. The German DAX has gained 2.2% from its opening low.

Not all risk-assets have recovered so smoothly after China dropped its official GDP target for the first time in some three decades. On the heels of a stealth run this week, Copper is 3.5% off yesterday’s high. The Aussie lost ground and Crude Oil is battling back after overnight weakness. The U.S Dollar has strengthened along with Treasuries and Gold.

The ECB Minutes signaled the central bank is prepared to expand bond purchases as early as June. They meet June 4th. Retail Sales in the U.K were a touch below dismal expectations and that from Canada was a bit better. The economic calendar is otherwise quiet, but today’s tape may not be as traders and investors shore up positions ahead of the long weekend with the S&P struggling below critical technical levels.

Technicals: Both the S&P and NQ traded below levels of major three-star support that align with gap settlements from Tuesday’s close; gaps that still have not been filled intraday. For this reason, we still hold major three-star support at 2918.75 in the S&P and 9273-9300.75 in the NQ. Price action has recovered from the overnight lows to retest settlements which align closely this morning with our momentum indicators; the bears must suppress the first hour below here in order to open the door for renewed softness in the tape or volatility could slip out ahead of the weekend. Still, we had viewed levels of major three-star support below there as more crucial and a line in the sand defining the bullish leg this week at … Please sign up for a Free Trial at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed directly. 

Crude Oil (July)

Yesterday’s close: Settled at 33.92, up 0.43

Fundamentals: Overnight weakness across the energy sector was met with buying in front of the psychological $30 mark. Purchases from China, curtailed production and normalization after capitulation in April have all steadfastly lifted the complex. Despite no GDP outlook from China at their National People’s Conference, expectations for the country to continue padding reserves keeps Crude invigorated. Still, weighing on risk assets broadly is Beijing tightening its grip on Hong Kong and fears that it will continue to deteriorate relations with the U.S. Today, slipping U.S production which the EIA estimates to be more than 1.5 mbpd from its peak comes into the picture as we look to Baker Hughes Rig Count data at noon CT.

Technicals: The tape is certainly exuding signs of exhaustion as the 14-day RSI reached 75 yesterday, the highest closing level since January 3rd (it had stretched and failed January 5th). Our Pivot comes in at 32.96-33.15 and stead price action below here would help encourage profit taking from over-committed long position. First key support comes in at …  Please sign up for a Free Trial at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed directly.

Gold (June)

Yesterday’s close: Settled at 1721.9, down 30.2

Fundamentals: Gold is firming up after yesterday’s damage. We find the selling yesterday healthy as the metal needed to recalibrate fundamentally and technically after what was a failure Monday. The reinvigorated strength comes on the heels of China tightening its grip on Hong Kong and fears that it will further deteriorate U.S-China ties. Gold, the Dollar and Treasuries are all stronger today ahead of the long Memorial Day weekend. Still, June Gold options expire next Tuesday and the futures contract falls off through the end of the week; we believe such expirations are holding the metal back as they have in the past and getting through this is likely to bring a relief rally. There is no U.S economic data today, but less-dismal PMIs yesterday weighed on the tape.

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Technicals: Weakness yesterday met a trend line and retracement level over the intermediate-term, and this coupled with a fundamental shift have allowed for relief into this morning. Our momentum indicator aligns with the …  Please sign up for a Free Trial at Blue Line Futures to have our entire technical outlook, actionable bias and proprietary levels emailed directly.

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