Defining a Bullish Narrative; Stocks, Crude, Gold | Actionable Analysis and Levels | Morning Express
E-mini S&P (December)
Yesterday’s close: Settled at 3568, up 27.00
NQ, yesterday’s close: Settled at 11,886, up 267.75
Fundamentals: The S&P 500 is holding ground in positive territory for the week. This is our key takeaway as we head into the back half and a busy economic calendar. Last week was strong, uncertainties were removed. The week before, the S&P won a battle at unchanged for the year. These are constructive feats for the intermediate-term and exude the market’s desire to perform. Unprecedented stimulus measures and a glimmer of light at the end the Coronavirus tunnel have brought bullish tailwinds.
How could this landscape sour? With winter approaching, we could be facing some of the darkest days of the virus. The U.S. has seen a record number of cases for weeks and more than one million in the last ten days. Surges in New York and New Jersey have caused state and local governments to reintroduce restrictions. This alone could encourage some de-risking ahead of the weekend.
We say last week’s election seemingly removed uncertainties because the market has so far ignored noise around President Trump’s election fraud allegations and furthermore, has ignored the Georgia runoff. Strength Sunday night, before the Pfizer news, was the market turning a blind eye and focusing on 2021. Furthermore, the constructive pullback through Tuesday exuded the market’s desire to perform; the S&P held our rare major four-star support. With those unprecedented stimulus measures sloshing around, markets have looked past the virus all year, planning on future earnings growth. Now, the market is planning for Congressional gridlock. Historically, in the new year following a presidential election, the S&P has vastly outperformed during years of gridlock compared to sweeps. Think about this for a moment; stimulus, a vaccine, gridlock, and bullish momentum, all during a seasonally strong time of year.
Still, within this narrative, we must not ignore several headwinds. First, the type of damage a second wave of Covid-19 could inflict on the economy. How a contested election creates friction within Congress and slows the ability to achieve much needed new fiscal measures. Thirdly, if the Senate flips Democrat due to runoffs. This all ties together. If the U.S. economy is again locked down, the government must provide new stimulus measures. Furthermore, deadlock due to a contested election slows government to a halt; we have not heard a whisper on a Coronavirus Aid bill this week. Lastly, if the Senate flips Democrat, it reinvigorates the fear of higher taxes, corporate layoffs, and tighter restrictions across many industries, but most importantly Big Tech.
On today’s packed economic calendar, U.S. CPI and Jobless Claims are due at 7:30 am CT. Inflation data brings two sides to the coin. On one hand, an uptick will not fret economists because the Federal Reserve will allow inflation to symmetrically run hot above 2%. On the other hand, low inflation could weigh on the market, but also pave the way for the Fed to do more. It is no secret that jobs data has broadly outperformed expectations, the market must continue to see this. At 10:45 am CT, Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey will speak at a virtual event. Chicago Fed President Evans speaks at noon CT, he is a 2021 voter, and there is a 30-year Bond auction also at that time.
Technicals: Despite extremely constructive groundwork at our rare major four-star support at 3498.75-3500.75, the S&P is struggling to trade out above major three-star resistance aligning with the previous record high at 3568.75-3576.25. The bulls must defend waves of selling back into first key support at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and techincal outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
Crude Oil (December)
Yesterday’s close: Settled at 41.45, up 0.09
Fundamentals: We cannot say we are surprised to see Crude Oil slip from a strong rare major four-star technical resistance level yesterday. We even revised our Bullish Bias to be cautious. We said longs who followed our narrative should take profit and not chase the strength. Tuesday night’s API report certainly added a bullish tailwind to a tape with strong momentum, but price action got out ahead of itself with the EIA inventory data not due until 10:00 am CT today. Yesterday’s OPEC Monthly Report was not optimistic, and neither was this morning’s IEA Monthly Report. Despite a vaccine, the IEA does not anticipate a significant impact in the first half of 2021. However, they did revise higher their demand forecast for 2021 to 5.8 mbpd from 5.5 mbpd. They added that global supply would rise in November as the U.S. recovers from hurricanes. All in all, the market faces an OPEC+ meeting at the end of the month. In the near-term, today’s EIA data must come within the ballpark of Tuesday’s API in order to feed the bullish narrative. Analysts expectations are far from such at -0.913 mb Crude, -0.263 mb Gasoline and -1.86 mb Distillates.
Technicals: Price action has come in sharply from yesterday’s 43.06 high, just shy of our rare major four-star resistance at 43.56-44.33. The tape is battling at a critical picket at 41.50-41.74, on that had contained previous rally attempts since the early September selloff. Still, price action is below our momentum indicator at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and techincal outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
Yesterday’s close: Settled at 1861.6, down 14.8
Fundamentals: Gold has defied probabilities, so far holding our rare major four-star support, a critical technical level. The selling in Gold abated just as the rise in the Dollar stalled. We cannot emphasize it enough; Dollar strength will weigh on Gold during this technically and seasonally vulnerable period. The first glimpse of data being released right now; CPI was light across the board, however, both Weekly and Continuing Claims came in at new pandemic lows. Overall, Gold is trading like a risk-asset and as long as the slew of central bankers today (Fed Chair Powell and ECB President Lagarde at 10:45 am CT, among others) give no reason for the Dollar to rise, Gold can battle to hold this critical area of technical support. Lastly, traders must recognize the delay of new fiscal measures has weighed on Gold’s near-term sentiment.
Technicals: We have been Neutral in Gold all week and this came on the heels of advising to take profits into major three-star resistance at 1962.1-1970 ahead of Nonfarm Payroll Friday. What a timely recommendation. Yesterday’s win for the bulls has slowly reinvigorated a cautiously optimistic framework in the near-term. Still, we remain Bullish in Bias over the longer term as we focus on renewed seasonal bullishness in late December. Gold did not make a new low yesterday and has regained our momentum indicator this morning at 1865. Continued action above there and furthermore a close above ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and techincal outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.
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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.