E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4127.75, down 37.00
NQ, yesterday’s close: Settled at 13,750.25, down 169
Fundamentals: Yesterday began as a rebound and U.S. benchmarks were poised to close in on fresh record highs, but a Bloomberg report releasing details of President Biden’s capital gains tax hike had other plans. Although the new President ran on a campaign that promised to increase taxes on the wealthy, many did not expect the potential of a swift increase given the administration’s pleas for added government support amid the Covid “crisis”. The report suggested the marginal rate of capital gains tax could double from 20% to 39.6%. Yesterday’s selling did not follow through overnight, and critical levels of technical support have so far held. The calm reaction comes as many expect drawn out negotiations in Congress and the headline number to only be a starting point. However, it is times like this that big breaking news can garner 100% of the attention, while leaving the market’s recent roadmap to be forgotten. We must not forget the melt-up through last week into our target, a market that ran a little too far, a little too quick, and the expected volatility heading into next week’s Fed meeting. Furthermore, there are two sides to such a coin, and the previous administration used this tactic to its advantage. Whereas the tax hike could certainly be the straw that breaks the camel’s back and sparks a very healthy 5% correction, it could also have created a headline reaction that absorbs all the selling and a watered-down plan then becomes very bullish.
Flash PMIs are in focus today and those from Europe were again better than expected as Manufacturing reached a record expansion. Services PMI came in mixed as Germany, the Eurozone’s largest bloc, slumped to 50.1 due to pandemic restrictions. The U.S reads are due at 8:45 am CT.
On the earnings calendar, Intel disappointed after the bell yesterday and lowered its outlook for Q2. Additionally, it reiterated a warning tied to the global chip shortage that overshadows both the chip and auto space. At Blue Line Capital, we are awaiting a negative reaction in autos over the coming months to find a buying opportunity. This morning, Honeywell, American Express and Kimberly Clark also disappointed, but Schlumberger beat.
Technicals: Yesterday’s failure, although due to the tax headlines, not so coincidentally came at a very crucial level of technical resistance for each U.S. benchmark. The S&P traded to a high of 4171.75, just in front of our major three-star resistance at 4172.50-4176.25 and the gap from Friday’s settlement. For the NQ, it was a failure in front of the round 14,000 and our big 14,035 resistance level. Maybe most crucial was that for the Russell at 2270. This area of resistance not only posed the ‘right shoulder’ of the dreaded ‘head and shoulders’ top, but also a trend line from the March 16th high. All in all, this week’s volatility comes after the market ran a little too far, a little too quick, ahead of next week’s Fed meeting and at month end, a time that has proven to bring added volatility for at least a short period. Considering all of this, coupled with our proprietary technical models, we will turn slightly Bearish in Bias for the time being. This does not change our longer-term Bullish outlook, as we view it as a tradable correction. Both the S&P and NQ are trading below our momentum indicators, which come in as first key resistances at 4142 and 13,800; continued action below here through today will invite added selling. What becomes most crucial is major three-star support in the S&P 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 (June)
Yesterday’s close: Settled at 61.43, up 0.08
Fundamentals: Although holding constructively in front of support, Crude Oil has struggled to respond despite a broad commodity rally; strength in both Agricultures and Metals sets those sectors at multi-year and multi-month highs. The U.S. Dollar is again down sharply, and it would seem the underwhelming call for Crude from refiners last week and global Covid worries have held the energy space from rebounding. Additionally, President Biden’s plan to double the capital gains tax encouraged selling across equity markets, a risk-off scenario would only pose added headwinds to Crude. Market participants are also gearing up for next week’s OPEC+ meeting. However, all is not dull as Manufacturing PMI in Europe came in at a record expansion, the U.S. data is due at 8:45 am CT, and price action has so far responded steadfastly to the psychological $60 level.
Technicals: This is the weakness we welcomed. Although it has not been a quick response to support, it has so far been a constructive one. To the upside, price action has struggled to clear first key resistance at 62.05 and to the downside, we have seen buyers respond to first key support which comes in front of major three-star support 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.
Gold (June) / Silver (May)
Gold, yesterday’s close: Settled at 1782, down 11.1
Silver, yesterday’s close: Settled at 26.18, down 0.39
Fundamentals: Gold and Silver are keying off U.S. Dollar weakness and steadfast Treasury strength. All were performing in such a direction ahead of Bloomberg’s reporting of President Biden’s plan to hike capital gains taxes, but the news has certainly proven to so far be a tailwind for all. First, per our discussion in the S&P section, selling across U.S. equity benchmarks came on the news, which also aligned with strong technical resistance. The move has helped bid Treasuries and now the precious metals are acting as the safe-haven they are. Furthermore, this underpins potential U.S. Dollar outflows for tax reasons and bringing a tailwind to the theory that the worst of the global pandemic fears may be priced in following today’s Eurozone Flash PMIs. All things considered; U.S. Dollar weakness is dually a tailwind to the metals that can act as a tax haven overseas. Regardless of all these potential narratives, the reprieve in rates has certainly been the largest supportive factor in recent weeks.
Technicals: Gold and Silver are off to a firm start this session and look to close out a strong week. Each is teetering on the edge of really beginning to repair the February and March damage. Pullbacks yesterday responded to crucial levels of first support and today’s rebound pins each back above our momentum indicators. Continued action above ... 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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Blue Line Futures
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.