Crosswinds, Trading the Inflationary Environment | Morning Express

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

S&P, last week’s close: Settled at 3903, down 6.50 on Friday and 28.00 on the week

NQ, last week’s close: Settled at 13,576, down 57.00 on Friday and 228.75 on the week

Fundamentals: U.S. equity markets are starting the week on their back foot as rising Treasury yields weigh on the risk-landscape. Although last week’s push and pull held a floor of support, both the S&P and NQ came to an unenthusiastic finish after again decisively breaking below our momentum indicators midday Friday (discussed in the Technical section). The soft finish paved the way for added selling; overnight the S&P and NQ pinged two and a half week lows. Since October, when the U.S. 10-year Treasury was at 60 basis points, we have steadfastly called for a move to 1.25%. This could not have played out more perfectly, however, the backend of our prediction was a breakdown within the complex; this is exactly what we are beginning to see now. Although two weeks ago U.S. CPI didn’t show any inflation in January, real prices have risen just about everywhere else. PPI for January last week surged by the most since 2012, Retail Sales crushed expectations and PMIs are displaying a steady increase in economic activity. These tailwinds, coupled with President Biden’s massive $1.9 trillion spending package, have opened a trap door in the Treasury complex. In other words, inflation and added supply are weighing on Treasury prices, which inversely means yields are rising. The backend of our prediction called for a high velocity move from 1.25% to 1.50% that begins to tap a pain threshold within markets. The 10-year Treasury yield has already risen by as much as 32 basis points this month.

Bill Baruch talking the 10-year in October on CNBC

In November on CNBC

Ahead of the Fed January 22nd

Pressing the trade again on February 4th

Although today’s economic calendar from the U.S. is rather quiet, the week picks up quickly beginning tomorrow. ECB President Lagarde is in the spotlight at 8:30 am CT and Fed Governor Bowman speaks at 2:30 pm CT. China is officially back from the Lunar New Year and the metals markets are exuding the added attention. Tomorrow, we look to CPI data from the Eurozone and U.S. Consumer Confidence. More importantly, Fed Chair Powell begins his two-day Congressional testimony. He recently said the real Unemployment Rate is closer to 10%. The state of the economy, the need for added stimulus measures, inflation and even the rise in yields will all be topics. Lastly, but certainly not least, this week boasts a deluge of small and midcap earnings.

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Technicals: The S&P failed at our major three-star resistance early Friday and this set a soft tone through the session. One that quickly chewed through our Pivot and then our momentum indicator before noon Friday. To sum it up, there was one last gasp for air overnight and the overhead supply, especially that intraday, rejected the attempt. The S&P now finds itself testing what has been our third wave of major three-star support at 3860-3865. Typically, we do not back one major three-star support with a series just below, however, the market is in such an uptrend and the BTD narrative is so alive that every piece of support within the near-term uptrend must be respected. Therefore, we have added waves just below. Similar, the NQ, failed in front of 13,769-13,805 early Friday and decisively traded below our momentum indicator at 13,625 before clinging to major three-star support at 13,523-13,583 into close. With 13,523-13,583 now major three-star resistance, the NQ is testing into 13,313-13,350 major three-star support. Continued weakness and a close below 3860-3865 in the S&P and 13,313-13,350 in the NQ would open the door to a retest of the 50-day moving averages that happened to align with trend lines from October 30th lows. Only a close back above 3900-3903 and 13,523-13,583 will neutralize today’s weakness.

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Bias: Neutral

Resistance: 3880.25**, 3894-3896.75**, 3900-3903***, 3928-3931***

Support: 3860-3865***, 3843.50***, 3807.75-3811.25***

NQ (March)

Resistance: 13,523-13,583***, 13,650-13,699**, 13,769-13,805***

Pivot: 13,452-13,468

Support: 13,313-13,350***, 13,175-13,236***, 13,000

Crude Oil (April)

Last week’s close: Settled at 59.26, down 1.27 on Friday and 0.12 on the week

Fundamentals: Crude Oil is rebounding from Friday’s losing session despite equity markets trading sharply lower. A six-week decline in Covid-19 cases and outages in Texas have certainly buoyed prices, but traders should keep a close eye on a slow developing rift between Saudi Arabia and Russia as next week’s OPEC+ meeting nears. Saudi Arabia’s decision to return in April the 1 mbpd of production they cut in February and March largely was digested by broad market tailwinds last week. Given Saudi’s maneuver coupled with Brent steadfastly above $60, Russia is arguing its time to bring previously cut production back.

Technicals: We have maintained a Neutral outlook, but one that welcomes lower prices. Friday’s mini washout to 58.60 was defended well in front of our major three-star support at 58.18 and the bulls have all but completely pared those loses as price action tests key resistance at 60.44-60.53. A series of higher lows beginning late Thursday night and into early Friday morning provided a nice floor at 58.80 through late Friday and Sunday night used to surge from. The market is still in a sharp uptrend and today’s rebound exudes such. Our momentum indictor comes in at 59.70 this morning and while above here, the path of least resistance remains higher.

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Bias: Neutral

Resistance: 60.44-60.53**, 60.87**, 61.42-61.68**, 62.50***

Pivot: 59.70

Support: 59.38-59.46**, 58.82**, 58.18***, 56.91-57.31***

Gold (April) / Silver (March)

Gold, last week’s close: Settled at 1777.4, up 2.4 on Friday and down 45.8 on the week

Silver, last week’s close: Settled at 27.254, up 0.176 on Friday and down 0.074 on the week

Fundamentals: Gold and Silver are gaining ground ahead of U.S. hours and like clockwork as China comes back form the Lunar New Year. Gold shrugged off a move lower in Treasuries overnight and is using the rebound in that complex this morning as a tailwind to retest $1800. Today’s economic calendar is quiet, and it makes sense to see Gold and Silver rebound from Thursday night’s quick washout ahead of Fed Chair Powell’s two-day Congressional testimony that begins tomorrow. Furthermore, there is no arguing that sharp gains in Copper as well as the energy complex this month have helped Gold hang by a thread and Silver hold a more constructive path. Still, traders must understand the technical damage in Gold; the metal certainly has its work cut out for it.

Technicals: Gold has stuck its neck above major three-star resistance at 1790-1796, but it must close above here to merely set the wheels in motion to begin repairing last week’s damage. Furthermore, key resistance at 1800.2 is sticky and Silver has been unable to provide the necessary tailwind with a decisive move out above its own major three-star resistance at 27.62-27.88, a level it has failed at countless times since the February 2nd reversal from $30. Our momentum indicator comes in at 1784 for Gold and 27.44 for Silver; continued action above here is healthy.

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Bias: Neutral/Bullish

Resistance: 1790-1796***, 1800.2**, 1807.8**, 1819-1823****

Pivot: 1784

Support: 1767.2-1770****, 1753***, 1732.9**, 1704-1710****

Silver (March)

Resistance: 27.62-27.88***, 28.15**, 28.67***

Pivot: 27.44

Support: 26.91-27.01***, 25.92-26.25***, 24.71-25.15***, 23.92-24.04***

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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.

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