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Are we at the Onset of Exhaustion?


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E-mini S&P (December)

Yesterdays close:Settled at 3623, up 41.00

NQ, yesterdays close:Settled at 12,005, up 71.50

Fundamentals:U.S. benchmarks are digesting a healthy start to the week, but one that faces increased obstacles. Last week, Chicago instituted a stay-at-home order and travel advisory on the heels of shutting down indoor dining. Due to a surge of infections across the country, California, Washington, Oregon, Michigan, and New Jersey are among states to reimpose tight restrictions to curb the spread of the virus ahead of the Thanksgiving holiday. The market has instead focused on unprecedented stimulus measures, a vaccine, the expectation of fiscal policy in January, post-election tailwinds, and a continued rebound in Asia as U.S. benchmarks hold steady just below last Mondays record highs.

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There is no doubt that the pullback from last weeks roar higher, upon Pfizers vaccine news, was as constructive as anyone could have imagined. In a technical landscape that certainly opens the door to capitulation, the Dow, which set its first record high since February, and the Russell 2000, which set its first since August 2018, each posted strong sessions yesterday and battled back into the thick of last weeks surge. Credit to Modernas equally, if not more, positive vaccine news.

For the time being, the market is less concerned with fresh headwinds coming in the tune of restrictions and lockdowns, a deflationary event, and more widely focused on how such elongates the need for continued stimulus measures; more of the same, what powered historic rallies in the S&P and NQ from April through August. Although a vaccine foreseeably brings a glimmer of light to the end of this Coronavirus tunnel, there is still a very uncertain timeline of mass distribution through the end of 2021. Furthermore, damages from just the onset of the pandemic and original lockdowns may have yet to be seen and this uncertainty also elongates the timeline for current stimulus measures to remain in place. Remember, the Federal Reserve and Chair Powell said they are very willing to allow the economy and inflation to run hot.

All things considered, there have been logistical tailwinds within the market. The Dollar has been devalued and the Chinse Yuan has strengthened. Furthermore, news of an Asian Pacific trade deal and a transition in the White House should keep this trend in place. Economic activity is improving. Chinas Industrial Production has now expanded YoY for three straight months and Fixed Asset Investment is joining the party. Although economic activity in the U.S. is still below levels from one year ago, the improvement across the jobs landscape is very visible, GDP has topped expectations and the consumer remains resilient.

Speaking of the consumer, October Retail sales is due this morning at 7:30 am CT while Home Depot and Walmart each handedly topped earnings estimates. However, their respective stocks are unenthused. Home Depot announced a plan for a $1 billion workforce investment and Walmarts CEO did not provide an outlook. Industrial Production data is due at 8:15 am CT.

Weighing on some S&P participants is the announced inclusion of Tesla. The company, valued at more than $400 billion given the overnight surge, will force index funds to rebalance as it is larger than all but seven of the indexs current components.

Technicals:Price action in the S&P is holding ground constructively but showing some signs of near-term exhaustion. Most clearly, the S&P is down about 0.75% ahead of the bell. Such has pinned the tape below our momentum indicator at 3612 which aligns with a previous level at 3606 to create our Pivot; continued action below here can easily open the door down to major three-star support at 3576.25-3582. However, the NQ already battled early weakness yesterday and this has allowed minor strength into this morning to hold out above our momentum indicator at 12,000, a level that aligns closely with yesterdays settlement and would act as a barometer of sentiment as the day unfolds. Tech is holding up better, but the NQ has so far failed to clear major three-star resistance at 12,062-12,098; price action must close out above here to stave off near-term exhaustions. Although we remain very upbeat the market, we are extremely cautious and prepared for a consolidation lower; one that we would want to see hold a constructive path in order to remain intermediate-term optimistic.

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Bias:Neutral/Bullish

Resistance: 3622.75**, 3637-3645**, 3662***, 3700****

Pivot: 3606-3612

Support: 3590**, 3576.25-3582***, 3547.50-3552.50**, 3532.75**, 3498.75-3500.75****

NQ (December)

Resistance: 12,062-12,098***, 12,225-11,260***, 12,397***, 12,450***

Pivot: 12,000

Support: 11,933-11,956**, 11,820-11,850**, 11,775-11,784***, 11,703-11,717**, 11,588-11,618***, 11,502**, 11,265-11,304****

Crude Oil (December)

Yesterdays close:Settled at 41.34, up 1.21

Fundamentals:Crude Oil posted a healthy Monday on the heels of Modernas vaccine news, but that enthusiasm is dissipating due to fresh restrictions across the U.S and its threat on demand. Strong economic data from China was also Sunday night and into Monday, but the China story is was a very well-known component, already providing a formidable tailwind. OPECs JMMC meeting is in the spotlight and the Saudi Oil Minister noted the positive vaccine news but acknowledged the long road ahead, saying, we must maintain high compliance while retaining the flexibility and nimbleness to adjust our commitments upon changing market conditions. Is he signaling a delay? At this point, the market already expects a delay. We noted here Friday that Libyan production has already surpassed 1.2 mbpd. All things considered, the market is asking for OPEC to remove production at the turn of the year, not simply delay their planned production cut taper.

Lastly, today is December options expiration. Yesterday, we said that such should keep a lid on rally attempts. How fitting would it be to see Crude Oil settle right at $40 today, where there is an Open Interest of more than 40,000 contracts in Puts and Calls combined. This is third, behind the $45 and $50 strikes, but the one closest to the market action by far.

Technicals:Price action is pressing below previous support at 40.75-41.12. We will break this large pocket apart with 41.12 being our Pivot. Our momentum indicator has yet to feel the impact of this mornings drop, trading at 41.40, but we imagine it will catch up soon enough. Continued action below here paves the way to that round $40 mark with the large options Open Interest. Although we are losing near-term enthusiasm across risk-assets broadly, the technical landscape holds very health while out above major three-star support at 39.23-39.46.

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Bias:Neutral/Bullish

Resistance: 41.50-41.74***, 42.19**, 43.56-44.33****, 46.37***

Pivot: 41.12

Support: 40.73*, 39.71-40.13**, 39.23-39.46***, 38.35**, 37.06-37.24***

Gold (December)

Yesterdays close:Settled at 1887.8, up 1.6

Fundamentals:Golds resilience cannot go unnoticed and the surge in infections across the U.S. has offset vaccine optimism. Furthermore, coupled with uncertainty as to mass vaccine distribution and the Feds promise to allow inflation and the economy to run hot, the narrative that the Fed will have to do less due to a vaccine is slowly dissipating. This mornings Retail Sales data and yesterdays NY Empire State Manufacturing both underwhelmed and are buoying the Gold. Industrial Production is due at 8:15 am CT and the Dollar is on shaky footing. Bringing further strength to Gold is the Asian Pacific trade deal which has added a tailwind to the Chinese Yuan and thus the metals complex.

Technicals:Golds rebound yesterday has reinvigorated a potential floor at 1877.1-1880 and this will go a long, long way in the metals extremely constructive weekly chart, one that exemplifies a potential bull-flag as we near the most seasonally bullish time of year for Gold in the second half of December. Still, the market has its work cutout for it and major three-star resistance comes in at 1893. Furthermore again at 1907; we must see a close above here in order to neutralize the selling and begin repair.

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Bias:Neutral/Bullish

Resistance: 1893***, 1907***, 1921**, 1936-1942***, 1962.1-1970***

Support: 1877.1-1880**, 1865**, 1845.4-1851****, 1825-1829.8***



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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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