Yesterday’s close: Settled at 2980.75, up 8.75 on Friday and up 56.00 on the week
Fundamentals: U.S benchmarks are holding at the highest levels in more than a month. Friday’s Nonfarm Payroll report was mixed and despite heightened anticipation as usual, stronger than expected wage growth did not sour the week’s strength. Traders and investors alike continue to hold high hopes for U.S and China trade talks in October. Additional tailwinds last week were found through unprecedented easing measures announced by the People’s Bank of China on Friday or late Thursday night U.S hours. They plan to cut the Reserve Requirement Ratio to the lowest level since 2007 beginning September 16th. In stages, this move will release 900 billion yuan of liquidity. The Shanghai Composite gained 3.93% last week and in hindsight maybe the broader global strength was due to clues of these measures coming down the pipeline rather than just another undefined meeting between the U.S and China on trade after the October 1st tariffs are expected to be announced. Weak Chinese Trade Balance data over the weekend that showed Exports slipped has acted as a headwind for further gains and traders should keep a close eye on this benchmark as it nears the 200-day moving average and July 1st peak. Make no mistake, Central Banks are in the driver’s seat. Whether it be the moves by the PBOC or expectations for the ECB to cut their Deposit Rate by 10 basis points and deeper into negative territory to -0.50% on Thursday. The Federal Reserve is set to meet next Wednesday and the odds for a 25-basis point cut hold at 91.2% with the rest of the pie being the probability they leave rates unchanged. Although Average Hourly Earnings beat expectations coming in at 0.4% on Friday and Core CPI has been stronger than anticipated as of late, inflation is not running away and given the deteriorating Manufacturing data, the Federal Reserve has the gunpowder to justify a cut. However, is it in their best interest to use what little powder they have instead of taking a more patient approach?
Technicals: We are not one to fight momentum and the tape has clearly found a path of least resistance higher. We noted here last week that continued constructive closes will pave a path of least resistance in the S&P and NQ to 3004 and 7960.25-7963.25 respectively. We have first waves of support in each aligning with Friday’s settlement for the S&P and a little bit of a wider range that also aligns with such for the NQ. The bulls are in the driver’s seat out above these levels and traders can look to buy the first test to each. Markets extended gains on the bell last Thursday and Friday’s price action held that 8:30 am CT spike in a very constructive manner. Those lows, although not precise, do align closely with major three-star support at 2969.75-2975.25 in the S&P and 7789.50-7808 in the NQ; a close below here will take the wind out of the bull’s sails in the near term. Furthermore, as with any highly volatile elevation, there will be room for a sharp swing lower upon such.
Support: 2980.75**, 2969.75-2975.25***, 2952-2958**, 2938.50-2946.50***
Resistance: 7960.25-7963.25***, 8014.50***
Support: 7856.50-7866.75*, 7789.50-7808***, 7751.50**, 7690.75-7722.75***, 7599.25-7617.75***