E-mini S&P Futures (September)
Yesterday’s close: Settled at 2938.50, up 32.50
Fundamentals: U.S benchmarks are roaring higher on news the U.S and China will meet in early October. With a firm tape in the front half of the week, we don’t believe this sole piece of news is the ultimate catalyst for the rip. Do not misinterpret that statement though; a bullish breakout is developing. However, we find the move much more technical in nature. Although the likeliness of a meeting in and of itself sparked the last leg of this rally, it occurred during low liquidity hours which can easily exacerbate a reaction. Furthermore, there has been a ceiling of resistance at 2932-2946.50 and clearly stops were triggered above here during those hours fueling such an exacerbation.
As for the meeting itself, both sides are reportedly rolling out the red carpet for the verbiage by agreeing to take “actual actions”. Adding those low-level representatives will work diligently to lay the groundwork ahead of this early October meeting. What has changed from two weeks ago? Fresh tariffs were levied by both sides on September 1st, planned to be levied by the U.S on October 1st and again by both sides in December. Additionally, there is no longer a meeting in September. Instead, there is a tentative meeting early in October, but China is asking for U.S concessions. What are the odds this meeting truly takes place if fresh tariffs are in fact levied on October 1st? Oh yeah, and the S&P is about 2% higher over those two weeks and we are seeing further signs of economic deterioration in the data.
Ahead of a crucial Nonfarm Payroll report tomorrow morning we have a deluge of data through today. German Factory Orders slipped more sharply than anticipated at -2.7%. ADP Payrolls are released at 7:15 am CT. Weekly Jobless Claims and Nonfarm Productivity are due at 7:30 am CT. Services and Composite PMI reads are at 8:45 am CT. At 9:00 am CT there is a slew of data including Durable Goods, Factory Orders, and the closely watched ISM Non-Manufacturing. We still hold the belief that bad data will weigh on market sentiment due to budding recession fears while better data will help lift the tape. However, if the data is overall good today followed by a hot read on wage growth in tomorrow’s Nonfarm Payroll, we are likely to see the odds of even a 25-basis point hike become not fully priced-in. Combine that with a questionable timeline for trade talks and the S&P may not secure a bullish weekly close.
Technicals: You cannot fight this tape in the near-term. Might there be quick swing trade opportunities to the downside? Absolutely, but there is nothing technical saying this rally must be faded other than the fact it has not secure a breakout upon a closing basis. The S&P must close out above 2938.50-2946.50 and the NQ above 7789.50-7808. Each level provides a different scenario. For the S&P to pare gains and simply close hugging its breakout level, now that would become a disappointment. In order to maintain this overnight momentum, the S&P must secure a closeout above 2952-2958 at a minimum. For the NQ, it is still flirting with its breakout level this morning. Each index must be monitored closely in order to better understand how the landscape is unfolding. To the upside, price action in the S&P has been kept in check by major three-star resistance at 2969.75-2975.25; a close above here paves the way to 3004. For the NQ, a close above 7789.50-7808 should pave a path of least resistance to 7960.25-7963.25 although there are other tradable resistance levels between here and there. However, each could feed upon themselves if moving higher and that is why their respective levels are crucial. For the downside, first major three-star supports aligns with yesterday’s settlement, if this market reverses and takes those levels out, we are then talking about potential large-scale failure.
Resistance: 2969.75-2975.25***, 3004***
Support: 2938.50-2946.50***, 2921.50-2926.50**, 2916.75*, 2906**, 2889-2894.50***
Resistance: 7789.50-7808***, 7843*, 7865.25-7866.75**, 7960.25-7963.25***, 8014.50***
Support: 7751.50**, 7690.75-7722.75***, 7599.25-7617.75***