A Goldilocks Scenario to Record Highs? | Morning Express

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

S&P, yesterday’s close: Settled at 4477.50, up 15.00

NQ, yesterday’s close: Settled at 15,290.50, up 156.00

Fundamentals: Is this a Goldilocks scenario for record highs? Earnings have started on solid footing, it is early, but 80% of S&P 500 companies have beat so far. It would seem that only Congress, the Federal Reserve, and the potential of a new Covid strain could derail this one-way ticket to 4620 before yearend. If earnings momentum holds, risk-assets are very prepared for a bubble-wrapped taper announcement from the Fed in two weeks. However, Congress may leave markets with more to be desired if they cannot find common ground on even a watered-down infrastructure bill and again push the envelope on the debt ceiling. The good news, we do not have to worry about that for at least another month.

What about supply chain bottlenecks and soaring energy costs? The negative fundamentals have been here for months and already discounted the situation at hand. Remember, economic growth in the U.S. and globally has been a shell of what was anticipated at the year's onset. Analysts revised it lower and lower through the summer, and the average stock corrected 10-20% well before September’s healthy gyration. Supply chain bottlenecks have been budding for months; ruining Christmas is now clickbait. Why did the market perform so healthy last week? Of course, there was strong technical momentum, a great start to earnings season, and soothing FOMC Minutes separating the taper from rate hikes, but companies like Target and Walmart reassured customers shelves would be stocked. However, the media would rather talk about the potential of unstocked shelves. Goldman Sachs did revise their growth expectations lower, citing consumer spending. Rising energy costs would play a key role, but the consumer has never been so prepared; savings levels have lingered at record levels all year. We welcomed lower growth expectations since July, saying it would bring opportunity. Now, it is hard not to be bullish growth over the next several months from these pessimistic levels and with such liquidity across capital markets.

Sunday night brought a dismal slate of economic data from China, including GDP and Industrial Production (highlighted here yesterday). Yet, the Hang Seng is up 1.8% this week, and China’s Shanghai Composite is up 0.6%. The thing is, due to draconian restrictions to battle Covid this summer, Evergrande, and the energy crunch through the last month, China’s growth prospects were already expected to take a hit. Furthermore, it could pave the way for looser monetary policy, and things are expected to be quiet on the geopolitical front through the Beijing Winter Olympics.

Pessimism may have peaked, and repositioning tailwinds are carrying the market through critical areas of technical resistance. If earnings continue to be strong, we expect a swift move to record highs.

Johnson & Johnson is unchanged after reporting mixed earnings this morning. Walmart is up 2% after Goldman Sachs added it to their Conviction List. Netflix reports after the bell.

Technicals: The S&P and NQ are set to open higher and out above major three-star resistance levels in which they closed right at yesterday. There is certainly a strong undertone fundamentally, discussed above, but the technical momentum is also undeniable. We will now look to previous resistance as a floor in defining a leg to new record highs and our rolling target of 4620. For the S&P this is major three-star support at 4472-4478.50 and for the NQ it is 15,134-15,165; while out above here, we must be Bullish in Bias. As always, we do not advise chasing strength, first key resistance in the S&P comes in at 4509.25 and in the NQ at 15,400. You must pick your spots, but if our Pivots, detailed below, hold through the first hour, it is likely that price action will move to new session highs. At the same time, we cannot ignore recent volatility, a break below those supports detailed above would begin neutralizing this strength and a failure could be defined upon a break below major three-star supports at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning. Crude Oil (December) Yesterday’s close: Settled at 81.69, down 0.04 Fundamentals: Crude Oil is at it again, snapping back from yesterday’s wave of selling. Last week, we detailed how China’s Crude Imports for September fell below 10 mpbd to 9.99 mbpd, a 15% decline YoY and nearly a 5% decline MoM. Reuters reported the premium of Russian ESPO Crude hitting $6 per barrel, the highest since January 2020. Russian ESPO is a preferred grade among Chinese refiners, although cargoes are not detailed, it can be assumed China is ramping up purchases. Another tailwind is coming from over-compliance among OPEC+ members, we spoke of this yesterday, some members are unable to bring production back online. U.S. inventory data will come into the picture today and API is due at 3:30 pm CT. Early estimates are for +2.233 mb Crude, -1.0 mb Gasoline, -0.233 mb Distillates.

Technicals: Price action has firmed from yesterday’s loll but a measured move from last week’s consolidation (breakout Thursday) sets significant major three-star resistance at 83.38 and this was achieved yesterday with a high of 83.18. However, yesterday’s wave lower has built a nice floor in front of major three-star support at 80.77-81.17, and the bulls are clearly in the driver’s seat across all timeframes while out above here. Still, we have stepped aside and suggest taking profit on this run. We will look for an opportunity to re-enter upon a more substantial pullback or consolidation... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning. Gold (December) / Silver (December) Gold, yesterday’s close: Settled at 1765.7, down 2.6

Silver, yesterday’s close: Settled at 23.264, down 0.085

Fundamentals: Silver is leading the way higher this morning in the healthiest manner possible. This is exactly what the precious metals space needed, for Silver to wake up. The U.S. Dollar began selling off last night, providing a tailwind to metals and many commodities. Although rates are rising on the long-end, the short-end has stopped its rise. Remember, we highlighted the flattening yield curve yesterday, the 5-and 30-year spread reached the tightest since April 2020 and the yield on the 5-year hit the highest since February 2020. The November Fed meeting is quickly approaching, and it also makes sense for the metals to consolidate higher into the policy announcement in two weeks. Today, we look to comments from Fed Governor Bowman and Atlanta Fed President Bostic at 12:15 and 1:50 pm CT, both are 2021 voters.

Technicals: Price action is moving strongly to the upside, but whereas Silver is lead to new swing highs, we cannot ignore that Gold is still about 1% from a critical level in which it failed last week. Also, Silver is testing major three-star resistance this morning at 24.00-24.28 and you cannot chase it into here. This is exciting to see, yes, but stick to your gameplan; if you are not involved to the degree you want to be, then wait for today to finish, see where we close, and pick your spots. Remind yourself, this is not yet a breakout, but it could be a cornerstone day within a building one.... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

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