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Fed Day - Blue Line Morning Express

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E-mini S&P (December)

Yesterdays close:Settled at 3008, up 6.50

Fundamentals:U.S benchmarks jumped to session highs on yesterdays close and ahead of todays big Fed decision. For the last two months, the Federal Reserve has been fully expected to cut rates with nearly a 100% probability. In recent days, since another stronger than expected CPI read Thursday, those odds have dissipated to a coin flip. Are the odds of a cut today truly a coin flip? As of Fridays close, we certainly believed it was more accurate than the 85% probability markets were exuding. There have been two major market developments since then that have helped us believe a cut today is now very appropriate. Obviously, the attacks on Saudi Arabia over the weekend added another layer of geopolitical uncertainty. This comes during a time of broadly deteriorating growth around the world. Although the price of Crude Oil has been reined in, it rose as much as 15% and while this is inflationary such a move also raises concerns as extremely sharp increases in energy prices have been known to lead to a recession. Another reason is the massive jump in the overnight lending rate from the Feds benchmark 2.00-2.25% to 7.0-10.0%. For the second day in a row the Fed is expected to inject $75 billion through repo operations ($53 billion yesterday). Industrial Production yesterday was the latest economic data point to come in much better than expected. Despite the growth picture domestically signaling less need for concern, Chinas data Sunday night was at some of the worst levels since 2002. Furthermore, there has been no known headway on U.S and China trade, the major culprit in that deteriorating economic outlook globally. The Federal Reserve is not the worlds central bank but with pockets of uncertainty continuing to flash red (the overnight lending rate), we see no reason for them to alter the path they intended to set course down on July 31st.

Bill Baruch joined CNBCs Closing Bell yesterday to discuss what has become a developing opportunity in Treasuries due to the Feds expected cut and gyrating expectations.

Technicals:Price action has been overall firm since the Sunday night open and gap lower. Still, the gap has brought a strong overhead hurdle and price action has not been able to chew through major three-star resistance in the S&P at 3008.50. For the NQ, price action has bled through this level at 7908.25 but has not been able to hold out above here, we now aligned this with yesterdays settlement at 7914.50. Yesterdays pivot levels of ...Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.

Crude Oil (November)

Yesterdays close:Settled at 59.10, down 3.56

Fundamentals:Crude Oil is back to levels seen at last weeks high and up only 6% on the week compared to 15% at the height of concern. Contradicting headlines yesterday led to a very volatile session. There were early reports that Saudi Arabia would recover production fairly quickly and then there was again doubt to the timeline; the price of November Crude slipped from $62 to $58.50 and back to $60. In the end, new Saudi Energy Minister Prince Abdulaziz bin Salman said the country will be able to restore the lost production by the end of September, adding that it has been able to meet ongoing demand by drawing from storage. Adding pressures to what was arguably an exacerbated tape is last nights private API survey. They showed a build of 592,000 barrels, much less than the 2.496 mb draw analysts expect from todays official EIA report. Additionally, API reported +1.599 mb Gasoline and +1.998 mb of Distillates. If EIA confirms something in line with API rather than analysts estimates of -2.496 mb Crude, -0.538 mb Gasoline and +0.535 mb Distillates, we are likely to see additional pressures barring further contradictions out of Saudi Arabia or news of retaliation which would be overwhelmingly bullish factors.

Technicals:Price action has slipped below major three-star support that was now at 58.80-58.89, a level tested two times since Sunday night, bringing buying opportunities, before the third test into yesterday afternoon was enough to break through. Overhead, we have our momentum indicator at ...Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and actionable bias and levels.

Gold (December)

Yesterdays close:Settled at 1513.4, up 1.9

Fundamentals:Its Fed Decision Day and Gold has held ground extremely well above $1500 despite odds of a cut dissipating to a coin flip. As we discussed in the S&P section, we think a cut is now warranted compared to our belief last week that it was not so much. Given the sharp rise in overnight lending rates and the Feds repo operation to stabilize rates back to their benchmark, there are budding liquidity issues. A cut should pave the way for higher Gold and Silver prices but traders do want to keep a close eye on Fed Chair Powells post-statement press conference in case he throws cold water over the move; he did this on the July 31st cut when he called it merely a mid-cycle adjustment.

Technicals:Gold achieved a close back above the 1510.7-1511.1 level and now it must maintain such. This has reinvigorated our near-term Bullish Bias as we have remained unequivocally long-term Bullish Gold above major three-star support at ...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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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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