Morning Express

E-mini S&P (June)

Last week’s close: Settled at 3034.50, up 24.50 on Friday and down 152 on the week

NQ, last week’s close: Settled at 9645, up 24.25 on Friday and down 163.50 on the week

Fundamentals: U.S. benchmarks opened sharply lower Sunday night and the weakness continued into Europe’s open after a slew of weaker than expected economic data from China. Price action bottomed at 1:00 am CT with Europe once again bringing a wave of buying, losses were trimmed in half. Last week, the Federal Reserve and Chair Powell emphasized a “long road ahead” while dialing back the certainty of additional policy measures. Despite an overall dovish narrative, his comments spooked investors right as reports began to show a reemergence of Covid-19.

Late last week, new Covid-19 cases were reported in China for the first time in nearly two months. The fresh outbreak was traced back to a massive fruit and vegetable market. The government quickly moved to lockdown more than a dozen districts in what has been characterized as a wartime lockdown. Tokyo, Japan confirmed a rise in new cases and nearly half of U.S. states have also. This takes wind out of the market’s Fed-driven sails. Although the latest leg of the rally has been attributed to irrational retail buying, institutions who purchase that order flow are riding retail’s coattails with sophisticated systems. Coattails that the institutions created. As the market peels back sharply, it forces an unwind and creates pockets of illiquidity.

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This brings us to quadruple witching Friday. The S&P has lost nearly as much as 10% from its peak. Without a fresh virus narrative or the Fed exuding fears, such record Call Option Open Interest typically does not allow the market to turn direction ahead of expiration. However, when it does, for whatever fundamental tape bomb reason, there becomes an adverse unwind; repositioning/downside-hedging. What were worthless Puts now bloat in value.

A trio of economic data from China last night did not do the tape any favors. Each read was below expectations; Industrial Production, Fixed Asset Investment and Retail Sales. Fresh June NY Fed Manufacturing data is due at 7:30 am CT. Dallas Fed President Kaplan speaks at 10:00 am CT and San Francisco Fed President Daly speaks a 10:30. Tomorrow, we look to April Retail Sales, May Industrial Production and Fed Chair Powell gives his semiannual Congressional testimony.

Technicals: Price action opened sharply lower last night but has pared the most dramatic of losses. The S&P stuck its nose through a range of major three-star support at 2940.25-2965 and is battling there at the onset of U.S. hours; a decisive break below and continued price action below opens the door for a path of least resistance to rare major four-star support at 2827-2845.50. There is support between here and there, aligning the 50-day moving average with the overnight low. The NQ’s weakness traded into major three-star support at 9323.25-9345.50 but did not violate it; this brings a similar line in the sand where a break below and continued price action below opens the door to a path of least resistance to 9096.25. A move out above major three-star resistance and each at 2995.75-3010.25 in the S&P and 9585.50-9604 in the NQ will neutralize this week’s weakness and garner legs on the session. We will hold a cautiously Bearish Bias until such a move our above resistance happens, targeting that rare major four-star support.

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Bias: Neutral/Bearish

Resistance: 2995.75-3010.50***, 3034.50***, 3044-3051.24*, 3086**, 3107-3114.75***

Support: 2940.25-2965***, 2905.75- 2923.75**, 2827.25-2846.50****

NQ (June)

Resistance: 9585.50-9604***, 9645-9673***, 9780-9811***

Pivot: 9548

Support: 9323.25-9345.50***, 9174**, 9096.25****

Crude Oil (July)

Last week’s close: Settled at 36.26, down 0.08

Fundamentals: Crude Oil is sharply lower along with other risk-assets. The reemergence of Covid-19 cases and potential havoc on the demand landscape has pressured commodities. OPEC+ has organized a panel to monitor compliance with the extension of pandemic cuts through July. Compliance will be on of the largest questions over the next 45 days and something that could fracture the cartel. Another is the whether we see U.S. supply come back online after the price rally. For now, rigs continue to fall off, Baker Hughes reported a drop of 5 Oil rigs on Friday.

Technicals: Price action is attempting to chew through major three-star support at 34.69-35.18, a wide range that became a floor for the latest leg. Still, continued price action below 36.55-36.87 and furthermore our momentum indicator at 35.67 leaves a door open down to 30.72-31.14. A close above 36.55-36.87 will encourage a fresh wave of buying.

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Bias: Neutral/Bearish

Resistance: 36.55-36.87***, 37.20**, 37.83***

Pivot: 35.67

Support: 34.69-35.18***, 30.72-31.14***

Gold (August)

Last week’s close: Settled at 1737.3, down 2.5

Fundamentals: Gold is fighting a fresh wave of liquidation this morning, losing 1.5%. Deflationary fears tied to weaker Crude and Copper prices are weighing on the precious metal complex rather than it finding support as a safe-haven. Treasuries are firmly higher on the heels of virus fears, leaving Gold behind. Another factor weighing on Gold is the Fed’s balance sheet only marginally expanding last week due to roll-offs. NY Empire State Manufacturing was better than expected this morning which helped push Gold to fresh session lows. Tomorrow will be more pivotal with Retail Sales, Industrial Production and Fed Chair Powell’s semiannual Congressional Testimony. However, we do look to comments from Dallas Fed President Kaplan, a 2020 voter, and San Francisco Fed President Daly today at 10:00 an 10:30 CT.

Technicals: Gold has spent a lot of time over the last two months in the mid-1700’s which has created a thick area of tight resistance. Despite sticking its nose above, Gold could not settle above major three-star resistance at 1737-1743 and failed here again last night. The weakness slips the metal all the way back for a test against major three-star support at 1704-1705.8, a level in which in must respond against today. Only a close back above 1723-1726.8 and furthermore our dropping momentum indicator that is at 1734 this morning will neutralize the latest wave of near-term weakness.

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Bias: Neutral/Bullish

Resistance: 1723-1726.8**, 1734*, 1737-1743***, 1760.1-1761**, 1785-1800***

Pivot: 1714.2-1716.6

Support: 1704-1705.8***, 1683.3**, 1661.3-1669****

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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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