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China, Inflation, and a Potential Crude Breakout

By:

President of Blue Line Futures

Market Recap and Trading Levels

  • Deluge of economic indicators from China for August last night all underwhelmed and were impacted by Covid.
  • China Industrial Production for August YoY at 5.3% versus 5.8% expected was the slowest since last July. It has now weakened for six straight months since peaking off February’s 2020 base comp.
  • China Fixed Asset Investment slight miss at 8.9% vs 9.0% exp, slowed for sixth straight month.
  • Retail Sales whiff at 2.5% vs 7.0%, slowed for fifth straight month.
  • Regulatory crackdown in China continues as they shake up the casino landscape. Major operators in Macau (entities separate from the U.S. listed stocks of Wynn, Sands and MGM) were all down 20-35% yesterday. Casinos in China are operated via sub-concessions and the U.S. companies and China called to remove the system and appoint government delegates.
  • The ongoing Evergrande saga continues to unfold, Chinese developer is the world’s most indebted and looks to be on the verge of default. What type of contagion factor is at play here? No one knows for sure.
  • U.K. CPI and PPI both topped estimates. PPI outputs highest since 2009 and CPI highest since 2012.
  • U.S. CPI yesterday was soft, and the Treasury complex responded, yields on the long end dropped. ‘Transitorians’ calling a win, but is inflation persistently at 4% transitory? Higher base numbers from July, August, and September of 2020 bringing transitory smoke in mirrors. We have said this since May. No need to look further than PPI, which surged to a new record on Friday. Producer prices are a leading indicator for consumer prices.
  • NY Empire State Manufacturing crushed expectations at 34.80 vs 18.00.
  • Industrial Production and Manufacturing Production due at 8:15 am CT.
  • EIA inventory data due at 9:30 am CT. Estimates are for -3.544 mb Crude, -1.957 mb Gasoline, and -1.613 mb Distillates. Private API survey printed a composite draw of 11.08 mb, the bar is set fairly high.

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E-mini S&P (December) / NQ (December)

S&P, yesterday’s close: Settled at 4434.75, down 24.75

NQ, yesterday’s close: Settled at 15,379.75, down 50.25

  • Overnight ramp was contained relative to recent moves.
  • Opinion: overnight ramps manufactured in order to dump shares at better prices on open, funds reducing exposure.
  • Strength upon soft CPI yesterday quickly stalled and reversed, brings a clear level of resistance technically. However, bullish if out above.
  • Keep an eye on Sept S&P and SPX at 4450.
  • Gap support in S&P from August 20th held yesterday, wide rare major four-star support at 4427-4439.

Bias: Neutral

Resistance: 4452.50-4456.25**, 4474.50-4477.25***, 4483.50-4487.75***, 4499.50**, 4509.50-4514.75***

Pivot: 4444

Support: 4427-4439****, 4415.50***, 4390***

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NQ (December)

Resistance: 15,480**, 15,522-15,564***, 15,660-15,670*** 15,702-15,708***,

Pivot: 15,426-15,455

Support: 15,319-15,345***, 15,264**, 15,160-15,200***

Crude Oil (October)

Yesterday’s close: Settled at 70.45, up 0.73

  • Fundamental impact on tape with EIA, estimates above.
  • Momentum indicator at 70.90, bulls in the driver’s seat
  • Major three-star resistance aligning multiple indicators including a trend line from July high at 71.45-71.69. Currently sticking its neck above.

Bias: Neutral

Resistance: 71.45-71.69***, 73.23-73.52***

Pivot: 70.90

Support: 69.72-69.99***, 69.51**, 68.60-68.82**, 67.42-67.84***, 67.22**, 66.18***

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Gold (December) / Silver (December)

Gold, yesterday’s close: Settled at 1794.4, up 2.3

Silver, yesterday’s close: Settled at 23.796, down 0.104

  • Despite outside bullish day yesterday, major three-star resistance in Gold at 1808.9-1810 continues to hold. Tested again this morning just before blowout NY Empire Fed Manufacturing data; tape is retreating
  • Similarly, major three-star resistance in Silver at 23.88-23.95 has held
  • Continued action below our momentum indicator, denoted as our Pivots below, will encourage a soft tape. Bulls must respond to first support in order to carry any lingering effects from yesterday’s jump.

Bias: Neutral

Resistance: 1808.9-1810***, 1822.5**, 1835-1840***

Pivot: 1802.5

Support: 1795.5**, 1775.4-1784****, 1756.4***

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Silver (Dec)

Resistance: 23.88-23.95***, 24.28-24.40***, 24.68-24.85***, 25.64***

Pivot: 23.80 Support: 23.50-23.63*, 23.35***, 22.88-23.00***, 22.35***

Originally Posted on September 15, 2021

The support and resistance levels are created through our systematic and proprietary technical analysis and ranked by significance from 1 to 4 stars (****). 1-2 star levels are typically best focused on intraday or early in a session to help confirm momentum. 3-4 star levels are used to define a floor or ceiling in a market, a move and close above or below could signal a breakout or breakdown.

Our bias is our outlook for the underlying market, with 7 separate rankings from outright bullish to outright bearish.

Bullish – Outright bullish

Bullish/Neutral – Bullish the market but there may be technical/fundamental headwinds around the corner

Neutral/Bullish – relatively upbeat from a cautious standpoint 

Neutral

Neutral/Bearish – relatively downbeat from a cautious standpoint

Bearish/Neutral- Bearish the market but there may be technical/fundamental headwinds around the corner

Bearish – Outright bearish

Disclosure: Blue Line Futures

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