Inflation is Here, More is Coming | Morning Express | Equities, Energies, and Metals

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

S&P, last week’s close: Settled at 3880.25, up 15.75 on Friday and 175 on the week

NQ, last week’s close: Settled at 13,598, up 50.50 on Friday and 686.75 on the week

Fundamentals: Three of four U.S. benchmarks, the S&P, NQ, and Russell 2000, finished at a record high Friday. The Dow was not far behind, achieving such already to start the week. The move comes on fiscal stimulus progress in Washington and certainly not because of January’s job growth. Treasury Secretary Yellen said yesterday the U.S. could see full employment next year if President Biden’s $1.9 trillion fiscal stimulus package is passed. Upon a marathon of votes Thursday night, into Friday morning, Democrats in the Senate have pieced together Biden’s plan through the budget reconciliation process. The news began lifting risk-assets late Thursday and those tailwinds carried into the weekend. As for Nonfarm Payroll on Friday, only 49,000 jobs were added in January, versus 50,000 expected, but December’s job losses mounted and were revised from 140,000 to 227,000. The $900 billion in fiscal spending passed by Congress in December is buoying the deteriorating jobs landscape and it has certainly become clear that continued support is needed amid this Covid-19 pandemic. However, to what length is the dire question. Obviously, risk-assets are feasting on the $1.9 trillion price tag.

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There are some distortions within Friday’s data. Wage growth for December was revised from +0.8% MoM to +1.0% as some low paying jobs fell off the map. For January, the YoY read climbed to +5.4%, matching that from December. Regardless of such distortions, the data does support the inflation narrative and we believe inflation is showing up. There is no need to look further than our call to be short 10-year Treasury Note futures playing out; Bill Baruch has been mapping this out on CNBC since October when the 10-year was trading at 60-70 basis points. Today, the 10-year yield hit a new swing high, the highest since March 20th, and touched 1.20%. Furthermore, the 30-year Bond has achieved 2%, the highest since February 20th, last year.

Bill Baruch talking the 10-year in October on CNBC

In November on CNBC

Ahead of the Fed January 22nd

Following up again last Thursday

Larry Summers, the former Treasury Secretary under President Obama, seems to agree that inflation is and will show up. Last week, he said that President Biden’s $1.9 trillion plan is three times larger than the shortfall in output and could seriously overheat the economy. We can all agree that this administration, like its predecessor, wants to get the ship of to sea on the right course and is willing to take extravagant measures. Again, the question is whether it is too extravagant. Fed Chair Powell seems to think that some inflation is easier to control than no inflation at all. Last year, they made the historic commitment to symmetrical inflation targeting; allowing the economy, after a lengthy period of low inflation, to symmetrically run hot above 2%.

We have said it before and will say it again; the pain trade is for the 10-year yield to move above 1.25% and quickly achieve 1.5%. Markets cannot ignore a high velocity move to 1.5%.

Technicals: We increased our Bullish Bias last week upon U.S. benchmarks setting themselves on course for their next bull leg. The S&P has stuck its nose out above our next major three-star resistance level at 3894, but ultimately, while trading out above previous resistance and now clear support at 3860-3865, the S&P is on course for 3965-3976 and potentially 4000, in short order. As for the NQ, similarly, it is holding out above 13,523-13,583 and as Bill Baruch said last week on CNBC; such a weekly close above here (which was sort of achieved, but not decisively) will bring 14,000+. The floors are defined, and the tape is bullish. However, as always, we are ready for a gyration back near unchanged after the opening bell, a hold of supports through such will then invite fresh buying.

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Bias: Bullish/Neutral

Resistance: 3894***, 3910.75**, 3940.75**, 3965-3976***, 3989.50-4009***, 4068****

Pivot: 3889

Support: 3880.25**, 3860-3865***, 3849-3853.75**, 3842-3843.50**, 3818.25-3824.75***

NQ (March)

Resistance: 13,805**, 13,932**, 14,035***, 14,274****, 14,472***

Pivot: 13,625

Support: 13,523-13,583***,13,450-13,480**, 13,350-13,389***, 13,236-13,266**, 13,159-13,186***

Crude Oil (March)

Last week’s close: Settled at 56.85, up 0.62 on Friday and 4.65 on the week

Fundamentals: Crude Oil is enjoying the broad risk-on move as well as continued tailwinds from a breakout of its month-long consolidation. Today, Brent achieved $60 for the first time since gasping for air mid-February. President Biden’s $1.9 trillion fiscal package is a clear driver, but his tough comments on Iran over the weekend have brought added support; the administration will not lift sanctions until Iran halts uranium enrichment. Furthermore, they have already taken steps to choke supply. Given the narratives here and our rhetoric that inflation is showing up in the S&P section coupled with a higher call for Crude by refiners at the onset of Gasoline season, until something changes, we believe that all pullbacks in Crude present a buying opportunity over the long-term.

Technicals: The tape is Bullish, and we noted the fundamentals above, however, price action is already testing our next upside target, major three-star resistance at 57.52. We do not believe this is the time to chase Crude Oil, but traders should look to pullbacks as a buying opportunity. Our momentum indicator is trailing the tape and comes in at 57.22, a trade below there today will help signal some near-term exhaustion. Ultimately, we would love to be a buyer upon a retest to $54.

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Bias: Neutral/Bullish

Resistance: 57.52***, 58.94**, 59.04-59.27**, 60.00***

Pivot: 57.22

Support: 56.55-56.85**, 55.39**, 53.60-53.94***

Gold (April) / Silver (March)

Gold, last week’s close: Settled at 1813, up 21.8 on Friday and down 37.3 on the week

Silver, last week’s close: Settled at 27.019, up 0.785 on Friday and up 0.105 on the week

Fundamentals: Gold and Silver were able to shake off their sharp reversal through midweek and finish on a positive note Friday. Progress on fiscal stimulus in Washington helped buoy the complex amid a dire time; it was just what the doctor ordered. Furthermore, a poor jobs report that showed some signs of inflation also added a tailwind as the U.S. Dollar finished on soft footing. Today, Treasury yields are finding new swing highs upon pricing in the added supply, but Gold is able to shake it off; we have said that as long as the main driver in the Treasury complex is fiscal stimulus and not only inflation than Gold can track a weaker Dollar more closely. Silver and Platinum are outperforming Gold, as we would expect and this sets the stage for higher prices as long as the U.S. Dollar finds renewed selling.

Technicals: Silver and Platinum held terrific ground amid last week’s bloodbath, and one week ago we said you cannot live in a YOLO/HODL dream, we are traders here. If you had taken profits last Monday, it set you on a path to capitalize on last week’s weakness. Listen, there is tremendous damage in Gold and Silver from last week’s bloodbath and it would be smart to book some gains on this rebound; each will have to chew through overhead supply. However, Platinum is breaking out of its recent range and trading at the highest level since August 2016; we have said we believe Platinum and Silver outperform Gold this year and it is happening before our eyes as it reaches our first upside target of 1190. For now, Gold is sticking its nose above major three-star resistance at 1829.9-1831 and this is good, a close above here should pave a path of least resistance to 1854.2. As for Silver, there was much less damage last week, and continued price action above major three-star support at 26.91-27.01 is supportive and should attract added buying.

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Bias: Neutral/Bullish

Resistance: 1829.9-1831***, 1854.2***, 1866**, 1875***

Pivot: 1813

Support: 1807**, 1784.8-1791.2***, 1767.2-1770****, 1753***, 1732.9**, 1704-1710****

Silver (March)

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

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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