Strong earnings have offset some of the weakness from the Coronavirus outbreak, reports Bill Baruch.
E-mini S&P (ESH)
Yesterday’s close: Settled at 3278.25, up 38.75
Fundamentals: U.S. benchmarks are set to open higher and pare all of this week’s losses. Our cautiously optimistic outlook is playing out well, but this certainly does not mean close your eyes and get long ahead of the Federal Reserve’s policy meeting at 1:00 pm CST. In fact, this pre-Fed ramp after strong Apple (AAPL) earnings announcement is a perfect opportunity to capitalize on such a trade. Given recent poor manufacturing data and uncertainties regarding the Coronavirus on an already vulnerable global growth landscape, we expect the Fed to stay patient. Traders will be watching closely for any indication in their statement or from Fed Chair Powell in his press conference on dialing back repo operations as liquidity seems healthier over the last 30 days.
Apple crushed earnings estimates after the bell in a well-rounded report. The stock gained 2.83% yesterday before earnings and is up another 1.70% premarket. Starbucks (SBUX) beat estimates after the bell but warned of the Coronavirus weighing on 2020. The outbreak comes amid the heart of earnings season and uncertainty as to the impact is arguably at a peak. It gives executives a reason to water down 2020 expectations, something that could become a bullish factor as the year unfolds and if the virus dissipates more quickly than expected. Advanced Micro Devices (AMD) also notched earnings estimates yesterday but is down sharply premarket. There is a long list ahead of the bell today, to name a few; McDonalds (MCD) topped estimates but is trading lower, Boeing (BA) missed estimates but is gaining and GE has surged by 7% after reporting. Behemoths Microsoft and Facebook headline reports after the bell.
With the Fed and earnings dominating headlines, traders must not sleep on developments in the impeachment of President Trump. Remember, the stock market likes President Trump and we view a move to acquit as bullish.
Technicals: Price action in the S&P 500 and Nasdaq 100 has completed a hold of major three-star support.
Crude Oil (CLH)
Yesterday’s close: Settled at $53.48, up 34¢
Fundamentals: Crude oil is trading higher this morning and being supported by the broader risk-environment, API draws and now small headline risk after Houthi rebels claimed responsibility for an attack on a Saudi Aramco facility. We said here yesterday, “the downside in energy has been exacerbated”. Furthermore, we noted Monday that although the trend is down, there is long-term value in positioning; Gasoline being a focal point of ours. Last night’s API data posted a surprise draw of 4.27 million barrels of crude. This was offset by an addition of 3.27 million barrels of gasoline. Distillate inventories were down 0.141 million barrels. Analyst estimates for today’s official EIA report are +0.482 million barrels of crude, +1.32 million barrels of gasoline and -1.095 million barrels of distillates.
Technicals: Although we had seen long-term value at some of the lower levels of the week, it never changed the fact that the bears are in the driver’s seat as long as price action remains suppressed.
Gold (GCJ)
Yesterday’s close: Settled at $1,575.8, down $7.90
Fundamentals: Gold settled in yesterday, it was expected, this is what gold does; exacerbates risk events to the upside. Thus, when everyone is screaming for gold, that is when you want to be capitalizing. The last wave of selling came after a much stronger than expected read on Consumer Confidence, the highest since August. Richmond Fed Manufacturing was also a bright spot. However, the slumping manufacturing sector cannot be ignored as seen through yesterday’s Durable Goods results. Overall, this is enough of a reason to keep the Fed patient and especially so when coupled with the uncertain impact of the Coronavirus. The Fed releases their policy decision and statement at 1:00 pm CST and Fed Chair Powell follows with a press conference at 1:30 pm CST. Topics of interest outside of the virus are IOER and the Fed’s repo path. The Treasury complex remains firm, but the Dollar has been broadly strong all year and is clearly holding back Gold at times.
Technicals: Gold barely settled below major three-star support at $1,576 to $1,578.2 and as we noted here yesterday, this opens the door to waves of selling.
