US Crude rallies continue to face stiff resistance

The week kicked off on a bullish note, as the recovery in US treasuries, and the retreat in US yields help boost appetite in major US indices. The S&P500 rebounded 0.39%, while Nasdaq added 0.71%, supported by a more than 5.5% jump in Tesla shares on rumours that Trump administration wants to make a federal framework for fully self-driving vehicles one of the Department of Transport’s priorities. And remember, Elon Musk’s robotaxis is one of the company’s priorities for the future development and had helped – earlier this year – revive appetite for Tesla despite the slowing sales of EV sales. So yes, the news couldn’t come at a better time for Tesla. News were not as good on the Nvidia front though, as Nvidia’s Blackwell chips – you know the next generation chips that see an insane demand according to the CEO Jensen Huang – reportedly overheat, requiring redesign and delay for deliveries. Of course, you can argue that this type of adjustments are standard for such large-scale tech releases, and they should not have a material impact in the long run, but the delay in the short run mean that the big customers like Meta, Google and Microsoft won’t have their chips on time, the latter will extend the payoff period on their investments at a time investors can’t wait to see these investments bear fruit.

Nvidia retreated 1.30% yesterday, as the news that the company is now working with Google to design its next generation quantum computing devices helped countering the negative vibes of the overheating Blackwell chips. The Blackwell news triggered a 3% rally in AMD that also sells high capacity chips for AI applications. ‘The MI325X is expected to begin production by late 2024, while the MI350 series aims for up to 35 times better inference performance compared to its predecessors and is set to launch in 2025’​, according to ChatGPT. Any misstep from Nvidia could help AMD gain market share. For now, investors are focused on the next earnings report from Nvidia that will land on Wednesday, after the closing bell, and will hopefully put a number on how insane the demand for these Blackwell chips, whether they are overheating or not.

Beyond tech, the Dow Jones index was not cheery, yesterday, the index closed the session slightly lower, while small caps were slightly up on lower yields, but the direction of the yields are not encouraging the small cap investors given that these companies have smaller margin to deal with higher borrowing costs. As such, the buyers are seen more crowded in big caps, and even the most bearish of the bears on the Wall Street are busy lifting up their PT for the S&P500. The 6500 is increasingly pronounced for the S&P500, while gold is also among the top picks at Goldman Sachs, apparently, which sees the precious metal top the $3000 per ounce next year. In the short-run, the retreat in the US yields helped throw a floor under the gold’s retreat. We see a beautiful support forming near the minor 23.6% Fibonacci retracement and the 100-DMA – that’s around $2550 level.

In Europe, the Stoxx 600 index was flat, the Chinese stocks are lower as the Chinese authorities gather in Hong Kong to discuss the latest developments in China’s financial sector, while the Japanese Nikkei is under the pressure of a rebound in the Japanese yen against the US dollar, on the back of a broadly softer US dollar – a move that I believe is just a correction of the past few week’s rally on political developments and the hawkish shift in Federal Reserve (Fed) expectations.

The EURUSD tested the 1.06 psychological resistance yesterday, supported by the weak dollar and also the news that Greece will repay 5 billion euros of long-term debt before time. But outlook for the EURUSD remains negative on divergence between the European Central Bank (ECB) and the Fed, Hence, price rallies in the EURUSD will soon create interesting opportunities for the euro bears to come back in and give an other try to breaking the 1.05 offers’ back.

In energy, US crude posted a 3% rally yesterday, but the bulls could find the $70pb offers hard to clear, as the amply global supply / weak global demand outlook remains supportive of the bears. The short-end of the market shifted into contango, another signal that investors price in an oversupplied oil market, which could cap the upside potential of short-term price rallies. Solid resistance is seen between $70/72pb range. The key resistance to the actual negative trend – that has been building since summer – stands at the $72.85pb level – which is the major 38.2% Fibonacci retracement on summer decline.