Crude up more than 1%, while gold at lowest level since July

December 11, 2017 11:42 AM

E-mini S&P (March)

Last week’s close: The March contract is trading about 3 points higher than the December. A new all-time settlement high was achieved on Friday, March at 2654 and December at 2651.

Fundamentals: Strong headline job growth and the anticipation of tax-reform have kept a bid under equity markets. Friday’s jobs report was exactly what we were looking for with better than expected job creation coming in at 228,000 versus expectations at 200,000. However, the weaker than expected Average Hourly Earnings underpins the report coming in at .2% vs .3% expected while October was revised to a contraction at -.1%. The Fed is set to hike interest rates on Wednesday but lagging wage growth and inflation are key concerns; we discussed this in yesterday’s Tradable Events this Week. PPI is due out tomorrow while CPI is due out Wednesday morning and this will give the Fed fresh data to consider. Ultimately, we believe inflation could poke its head out by the middle of next year as it makes a run at the Fed’s 2% target. The downside of this though is, we do not believe wage growth will follow; and that there is the long-term issue. Friday’s data continues to lay the groundwork for higher equity markets as a ‘not too hot, not too cold’ read is not enough to push the Fed’s hand any faster. If inflation data falls short this week, we might see the Fed become more dovish on Wednesday.

Technicals: (March) Friday’s session set a new closing all-time high and is now trading above the 2650.25-2654 level that correlates with 2648.25-2651.25 on the December contract. On Friday’s Midday Market Minute, we said a closeout above here will encourage further buying to the all-time high. The bulls are clearly in control and we expect prices to gravitate higher ahead of Wednesday FOMC meeting. Traders can look to buy the first test into 2650.25-2654 if on the 8:30 am CT floor open. Regardless, the market must maintain a close above this level or risks a consolidation lower.

Bias: Bullish

Resistance – 2666-2667.25***, 2681.50**, 2688**, 2694.50**, 2715.25***
Pivot – 2650.25-2654
Support – 2643.75-2644.75**, 2640.25*, 2630.50-2632.50**, 2622.50**, 2506.25**, 2596-2598****

Crude Oil (January)

Last week’s close: Settled at 57.36 up more than 1% but pared gains from session highs against key resistance at 57.71-57.92.

Fundamentals: Once again, Crude put in a strong Friday session and at one point gained more than $1 to a high of 57.79. Data from Baker Hughes that showed an increase of two rigs likely encouraged some selling ahead of settlement. We remain bearish and point to rising U.S production as a major factor overshadowing the OPEC production cap deal. U.S Production hit its 5th straight weekly record last Wednesday notching an estimated 9.7 mbpd. Gasoline demand also has traders on edge after a build of 6.78 mb, its fourth weekly build in a row.

Technicals: We were very clear on Thursday that we wanted to book gains against $56 and feared a rise into the weekend. This played out, and now we like repositioning short on a retest and hold against resistance at 57.71-57.92. Support at 57.04 held overnight and prices are rising back to resistance this morning. If prices get out above key resistance the short position should not be entered, or risk must be managed because this could signal a retest to 58.97 at a minimum. Prices settled Friday’s session at our 57.35 level and we want to maintain a close below here in order to press shorts. Friday’s Commitment of Traders showed that the net-long position in Crude Oil remains over-extended and near February’s record high at 395,080. Though this is a small reduction from the previous week’s 398,106.

Bias: Bearish

Resistance – 57.71-57.92**, 58.97***, 59.96***, 62.58**
Pivot - 57.35-57.36
Support – 57.04**, 56.80**, 56.57**, 55.82-55.95**, 55.00-55.25***

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About the Author

Bill Baruch is President and founder of Blue Line Futures, a leading futures and commodities brokerage firm. Bill has more than a decade of trading experience and focuses on developing trading strategies for both long and short-term trading approaches. Prior to Blue Line, Bill was the Chief Market Strategist at iiTRADER.  Bill is a featured expert on CNBC, Bloomberg and the Wall Street Journal as well as other top tier publications.