Upbeat Despite China Headwinds

We continue to believe that the domestic economy is not as bad as many make it out to be, states Bill Baruch of BlueLineFutures.com.

Protests and lockdowns in China are seen as a headwind to start the week. Hang Seng–1.57% today, but still +17% on the month.

The Atlanta Fed GDPNow Q4 estimate is 4.3%. Black Friday sales hit a record $9.1 billion, rising 2.3% versus 1% expected by Reuters and Adobe Analytics. Even before Black Friday, according to Visa volume of credit and debit card transactions is very robust and has been all year; +11% in Q3 y/y, +9% in November y/y, and +146% in Q3 versus 2019, +147% in November v 2019. According to Goldman Sachs data.

Credit usage at a record high does signal individuals are becoming exhausted, but we don't find it the precursor to a steep recession that many doom-and-gloomers are calling for. In fact, delinquencies remain very low. The broader investing public acknowledges the Fed's tightening but does not acknowledge recession precursors are also engineered. Odds favor a 50bps hike each December and February, slower will stoke bullish tailwinds. Regardless, the 2s10s spread broke hard into Wednesday to -0.80bps, a record.

3m10yr hit a new low of -0.72bps, only December 2000 was lower. Light at the end of the tunnel, many inflation components have peaked and begun to roll over. Earnings may compress in the coming two quarters, but we believe estimates have overcompensated, now a lower bar to beat. Excessive negativity is a bullish tailwind, institutional Put-Call ratio is at a record.

90% of S&P 500 (SPX) stocks are above the 50-DMA, not a sign to chase strength, but a sign that stocks are not going down like many believe. Portfolio management side, we remain active, fully invested, and trimming some on this rally, downside protected with Puts ahead of the holiday.

A commodity fund is short stocks for a trade in the near term from post-FOMC Minute’s strength. US Dollar Index is back to an 11/15 low, the lowest since 8/15. A bludgeoning across the energy complex is helping to underpin strength in the Euro, lifting its growth prospects. At the same time, a slower pace of Fed hikes is being discounted. The Economic calendar has a slow start to the week, with only Fed speak in focus, which leads into Nonfarm Payrolls Friday. Today, St. Louis Fed President Bullard and New York Fed President Williams speak at 11:00 am CT.

E-mini S&P (December) / NQ (December)

The S&P settled at 4032.50, down 0.50 on Friday and up 58.50 on the week. 

NQ close: Settled at 11,782.75, down 80.00 on Friday and up 74.75 on the week.

• Bull-flag-like breakout played out through Friday, and both the S&P and NQ struggled at critical levels of resistance.
• A battleground of support around the recurring 4000 mark, now aligning with Tuesday’s pattern breakout, brings major three-star support at 3997-4003.25.
• Similarly, the NQ is again hugging the slightly readjusted and narrowed but recurring 11,729-11,747 level.
• Multiple levels of support are highlighted below.
• Close below, or decisive break intraday of, this major three-star support opens the door to major three-star support in the S&P

Crude Oil (January)

Settled at 76.28, down 1.66 on Friday and down 3.83 on the week.

• A surge in virus cases in China has deteriorated its growth prospects, bludgeoning the energy complex.
• January WTI is trading at its lowest since January and continuous front-month lowest since December.
• Precipitous drop felt the most in the front month, removing backwardation and reestablishing contango in front end of the curve.
• A massive level of rare major four-star support is down

Gold (February) / Silver (March)

Gold settled at 1760.4, up 5.6 on Friday and down 0.2 on the week. 

Silver settled at 21.609, up 0.083 on Friday and up 0.413 on the week.

• US Dollar Index is down, but Dollar is 0.37% stronger than the Chinese Yuan. Off its best levels of the day, helping to underpin the rebound in metals from session lows.
• Yields edged lower with US ten-year at 3.67%, helping to stave off added weakness in precious metals.
• A big week of economic data to unfold, culminating with Nonfarm Payrolls on Friday, will move the Fed expectations meter.
• Cleansing of the December contract roll-off is taking place. A consolidation is healthy.
• Washout low of 1733.5 in February Gold helped clean stops and brings a line in the sand.
• Though price action has been in rebound mode, thick resistance persists in the near term.
• Pivot and point of balance for each is crucial in holding ground

Learn more about Bill Baruch at Blue Line Futures.