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The word of the day is: Volatility


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E-mini S&P (December)

Yesterdays close: Settled at 2628.25

Fundamentals: A combination of fears and simple profit taking have put pressure on equity markets around the globe. While the S&P lost nearly .5% yesterday, it sits about 1.5% from Sundays all-time high. The NQ did not accelerate selling on yesterdays session though it remains 3% from its all-time high last week and at the low end of its range. The Russell 2000 small caps are also 3% off their high, though one that came Sunday night. They lost 1% yesterday. U.S markets are lower, and selling hasnt accelerated domestically in an ugly fashion since yesterdays close. Asian markets are taking a serious beating; the Nikkei and Hang Seng are down 2%. Lets not forget that Chinas Shanghai Composite has shed 4% in just two weeks, since their 10-year yields hit 4%. In Europe, the DAX and Euro Stoxx 50 are both down about 1%. In the U.S, the buy the rumor, sell the fact on tax-reform might have come early as yesterdays price action in the S&P signals that this is more than a sector rotation; yesterday the XLF finished -.5%. However, as many jump to this conclusion because tax-reform is just about all we hear, there are quite a few other catalysts to put pressure on equities around the world. There is a looming government shutdown if Washington cannot agree on a budget by Friday and this comes at a time when the tax legislation has revealed it would add $1 trillion to the national debt in the next decade. Is there another short term scare on the Russian probe, or are investors simply cutting longs because of last weeks shock? The impasse that Brexit talks hit on Monday is beginning to seem a little bigger of a deal than it was made to be then. We have been discussing 4% on the 10-year in China for weeks now, but this is having a lasting effect as officials call for tighter policy and regulation. Lets throw into the geopolitical mix Jerusalem being acknowledged as the capital of Israel. Last, but surely not least, even though the market barely reacted to North Korea launching a missile last week, it is taking notice to the continued drills that the U.S and South Korea are running as tensions rise. Furthermore, the U.S is pushing for tighter policy on North Korea and needs China to continue to step up. The problem with these theories is that we are not seeing a rise in traditional safe-haven buying, but Bitcoin does continue higher. Ultimately, investors that have seen the 20% and 30% rise in the S&P and NQ that we discussed yesterday, are beginning to take something off the table until we get a little more clarity over the next week.

ADP Payrolls are due today at 7:15 am CT and Nonfarm Productivity data is to follow at 7:30 along with the Bank of Canada monetary policy meeting. The data focus is Fridays Nonfarm Payroll and next weeks Fed rate hike meeting.

Technicals: Yesterday we said that the damage on the chart from Monday has begun to Neutralize our stance and called for a close above 2642-2644 to repair that damage. Price action held this level and rejected resistance at 2650.75-2651.25 before turning sharply lower into the close. Key support at the 2618-2619.25 level is working well to stall the selling into this morning. We have become Neutral in the near term and believe that this market can be traded from both sides using the levels. Trend line support from the November 15th low now aligns with support at the 2618-2619.25 level. Minor resistance come in at 2631.50-2633.75, however, much stronger resistance aligns multiple levels at the 2637.50 level and should provide a solid opportunity to sell the first test.

Bias: Neutral/Bullish

Resistance 2631.50-2633.75*, 2637.50**, 2643*, 2648.25-2651.25**, 2666***, 2679-2685**, 2712****

Support 2618-2619.25**, 2605-2607**, 2594.50-2596****, 2555.50-2565***

Crude Oil (January)

Yesterdays close: Settled at 57.62 but lost ground into the electronic close after API

Fundamentals: We all knew trading this week would be centered around this EIA report and rising U.S production. Yesterdays API read put pressure on prices despite a draw of 5.481 mb in Crude. This is because of the massive surprise on Gasoline that saw a build of 9.196 mb when only 1.145 mb was expected. Adding further pressure was a build in Distillates of 4.259 mb when only about 500,000 was expected. Todays EIA expectations call for -3.40 mb Crude, +1.741 mb Gasoline and +.967 mb Distillates. U.S production estimates have hit a record for four straight weeks and its likely that we see a fifth. Yesterdays API data gave us a total build of almost 8 mb. With this deviating drastically from expectations, we must see one of two things a surprise build in Crude oil or a total build of nearly half of this in order for the EIA report to not become bullish because of the pendulum of perception.

Technicals: We remain bearish and price action is playing out this morning, testing into key support at the 56.75-56.94. We must see a settlement below here today and a failure to do so will begin to Neutralize our stance in the immediate term as it risks a rise into the weekend.

Bias: Bearish

Resistance 57.81-58.06**, 58.36*, 58.97***, 59.96***, 62.58**

Pivot - 57.56

Support 56.75-56.94**, 56.54*, 55.95*, 55.00-55.25***

Gold (February)

Yesterdays close: Settled at 1264.9, the lowest in the front month since August 8th the February since July 26th.

Fundamentals: A stronger Dollar yesterday weighed on Gold, but the lower price action was much, much more; this was a glimpse of the cleansing of longs. As we discussed here yesterday, there is the lack of a catalyst in Gold to take it out above the psychological $1300 mark just as there has been the lack of one to take it lower. Because of this, Gold has lost some interest. Despite all the potential reasons to spark safe have demand that we mentioned in the S&P section of this report, Gold remains at the lowest level in four months. We are long term bullish and there is not a better reason to spark buying than a sale. Gold traded lower yesterday despite disappointing reads on both U.S Trade Balance and ISM Non-Manufacturing. ADP Payroll are due at 7:15 am CT but the main event is Fridays Nonfarm Payroll.

Technicals: Gold traded through the 200-day moving average and the recent lows of the February contract. However, the front-month lows at 1262.8 did the trick in slowing down the selling. Price action is consolidating but the bears remain in the clear drives seat until a close back above the 200-day moving average at 1277.1

Bias: Neutral/Bullish

Resistance 1272.7-1273.1**, 1277.1-1278.6***, 1283.3**, 1287.5**, 1292-1292.5**, 1304.7***

Pivot - 1268.1

Support 1262.8***, 1250.2**, 1214.5-1225***

Natural Gas (January)

Yesterdays close: Settled at 2.914U

Fundamentals: Yesterdays exacerbated selling has settled back in. With weather models showing uncertainty for the second half of December, bulls were pushed on their back-foot and jumped ship. The bears and algos then jumped on momentum. We remain long term bullish and maintain that prices below $3 present a great buying opportunity through the first half of February.

Technicals: With price action bottoming out yesterday, we will reintroduce our Bullish bias behind Neutral. Yesterdays low of 2.875 came in just in front of support at the 2.847-2.861 level. Ultimately, we must see price action continue to consolidate back towards 2.981-2.996 in order to neutralize weakness. However, hanging at and below the 2.903-2.929 level will keep prices vulnerable to further waves of selling.

Bias: Neutral/Bullish

Resistance 2.981-2.996***, 3.04-3.053**, 3.113-3.137**, 3.182**, 3.218-3.237**, 3.321-3.358****

Support 2.903-2.929**, 2.847-2.861**, 2.753-2.7565***, 2.486-2.522****

10-year (March)

Yesterdays close: Settled at 12411

Fundamentals: A combination of data misses and a weak equity market brought the buyers to the treasury market. ISM Non-Manufacturing missed and the U.S Trade Balance widened. The government will shut down after Friday if a budget is not reached and traders gear up for Fridays Nonfarm Payroll and next weeks Fed rate hike. ADP Payrolls due today should be watched but ultimately the key driver in this market today will be global equity weakness.

Technicals: Price action is above resistance at the 124145-124155 level and the Russell 2000 small caps are 3% from the Sunday night high and the S&P is 1.5% from such. Furthermore the 10-year held major three-star support at 12327 and if data continues to miss and equities remain weak we could see a move to major three-star resistance at 124295-125 before the end of the week. The 21-day moving average comes in at 12419 and a move out above here will put the 9-day on a path to cross out above. Support comes in at 124065-124095 and a close below here will signal a near term failure.

Bias: Bullish/Neutral

Resistance 12422-12424**, 124295-12500***

Pivot - 124145-124155

Support 124065-124095**, 124015**, 12327***
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About the author


Bill Baruch is President and founder of Blue Line Futures a leading futures and commodities brokerage firm located at the Chicago Board of Trade. Blue Line’s mission is to put the customer first and bring YOU the best customer service, consistent and reliable research and state of the art technology. Bill has more than a decade of trading experience. Working with clients he focuses on developing trading strategies that present a clear objective for both long and short-term trading approaches. He believes that in order to properly execute a trading strategy, there must be a well-balanced approach to risk and reward.

Prior to Blue Line, Bill was the Chief Market Strategist at iiTRADER which followed running a trade desk at Lind Waldock and MF Global.

Bill is a featured expert on CNBC, Bloomberg and the Wall Street Journal as well as other top tier publications.

 
 
Contributing author since 10/6/17 

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