Morning Express

E-mini (S&P)

Last week’s close: Settled at 3186.75, up 76.25 on Friday and up 144.75 on the week

NQ, last week’s close: Settled at 9808.50, up 182.25 on Friday and up 248.25 on the week

Fundamentals: Melt-up? You ain’t seen nothing yet! On Friday, the BLS reported 2.5 million jobs were added in May, yes added. The organization that produces Nonfarm Payroll said not all respondents in the survey who are “employed but absent from work” were classified as unemployed, although they should be. The results of the survey were distorted, and economic bears will certainly scream this from the hills, but it does signal a reality not as dismal as projections. Analysts had expected eight million jobs lost. PMIs continue to contract, but by less than feared. Coupled with a better job situation and of course more than $7 trillion of Fed liquidity sloshing around, there is likely a faster than expected recovery right around the corner.

U.S benchmarks surged higher on Friday, keying off the better jobs data. Price action has held ground overnight and the better economic landscape continues to paint a path of least resistance higher. The Federal Reserve begins their two-day policy meeting tomorrow. There is not yet enough proof to force the Fed to dial back their dovish narrative, but this quarterly meeting will display economic projections. However, there is no reason for the Fed to rush pulling the Kool-Aid away, they can let “free-floating” Treasury yields do the job for them. The yield of the U.S. 10-year Note is now above 90 basis points and the highest since mid-March. Last week, we characterized the stretch for yield and how institutions bought $10 billion worth of 3-year debt from Amazon for a meager 40-basis points. At the time, this was less than 20-basis points better than the U.S 3-year Note.

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With the market snowballing higher into and through a dovish Federal Reserve, barring a geopolitical disaster, there would seem to be nothing that could knock it off course ahead of quadruple witching June 19th. Investors are screaming for stocks and call options premium is bloating. Amid last week’s steady rally, the VIX dropped 10%, but Implied Volatility rose, a rare occurrence. As investors buy calls to squeeze every bit of juice out of the market, market makers selling those calls are laying off risk by buying stocks. We see a potential atom bomb developing into the June 19th expiration when all of this unwinds.

Combine this quadruple witching unwind with a U.S. 10-year Treasury yield at 1%, 40 basis points better than the start of June, with a quarterly rebalancing. The S&P 500 has gained nearly 50% from the March 23rd low, when institutions rebalanced in favor of stocks. Now, they are expected to sell stocks in favor of bonds, yes the same bonds that now have a higher yield.

Technicals: The path of least resistance is higher and in the section above we discussed how fundamentals and technicals will work together to not only pave this path, but also stop it in its tracks in two weeks. Between now and then though, there is no reason to not think the S&P will trade to 3339.50; the gap close from February 21st. The NQ has broken out above its previous record high and there is no reason to not think it will achieve 10,000, actually 10,035 to be exact. Major three-star support in the S&P aligns Friday’s close with our momentum indicator and above here the bulls are in the driver’s seat across all time frames. For the NQ, a similar level of key support comes in at 9782.75-9808.50. Ultimately, after the opening bell, can the bulls hold price action decisively above these supports? If so, we expect the session to finish higher.

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Bias: Neutral/Bullish

Resistance: 3212.75***, 3258.75** 3312**, 3339.50****

Support: 3186.75-3189***, 3169.75***, 3107-3114.75***

NQ (June)

Resistance: 9843***, 9875.50-9900**, 10,035***

Support: 9782.75-9808.50**, 9736.25**, 9626.25***, 9560.25-9586.25**, 9479.75-9481***

Crude Oil (July)

Last week’s close: Settled at 39.55, up 2.14 on Friday and up 4.06 on the week

Fundamentals: Front month July Crude Oil surged above $40 as OPEC+ agreed to cut output through the end of July. The cartel was close to a deal early last week before data showed under-compliance from several producers. Iraq was the most talked about. With Crude Oil testing a critical technical breakdown point from March 9th just as the extension becomes official, it increases the likeliness of a “buy the rumor, sell the news”. For now, risk-assets remain bid, but this is certainly not the time to be chasing strength. Economic data is not as bad as feared and the Federal Reserve will remain accommodative. We noted in the S&P section that stocks will likely continue melting higher into June 19th (see the section) and the expiration of July Crude Oil closely aligns with a topping narrative into that timeline. On Friday, Baker Hughes data showed another drop in Rigs, the largest elephant in the room would be U.S. production coming back online at these levels.

Technicals: We turned cautiously Bullish in Bias Friday given the broad melt-up in risk-assets and the technical floor built at $35. Overnight, the psychological $40 mark was achieved. We see absolutely no value in being long Crude Oil without a pullback to major three-star support at 36.87 at minimum. Our Pivot is 39.19-39.55 and encompasses several technical indicators including our momentum indicator; continued price actin below here leaves the door open for lower prices in the near-term.

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Bias: Neutral

Resistance: 40.00**, 41.05-41.28****

Pivot: 39.19-39.55

Support: 38.18**, 36.87***, 35.79**, 34.69-35.18***

Gold (August)

Last week’s close: Settled at 1683, down 44.4 on Friday and 68.7 on the week.

Fundamentals: Gold was hammered Friday after Nonfarm Payroll showed jobs were created. Although the headline read weighed on the tape to close out the week, the failure that developed as the week unfolded helped provide that path of least resistance lower. With the BLS saying the reporting survey was distorted, Gold has bounced back a bit. Overall, we find the entire move more about positioning as the longs overcrowded the trade and this was a healthy washout in order to rebalance. Wednesday is the big day, U.S. CPI is due early, and the Federal Reserve concludes a two-day policy meeting in the afternoon. If inflation begins to show up, it will help offset a slightly less dovish Fed in the wake of better that feared economic data. We expect Gold to recover into Wednesday.

Technicals: Gold slipped sharply and neared rare major four-star support at 1661.3-1669 with a low of 1671.7. The good news is that price action is back above our momentum indicator at 1691 which fuels the bull camp. A close above major three-star resistance at 1705.8 is extremely encouraging and neutralizes last week’s weakness.

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Bias: Neutral/Bullish

Resistance: 1705.8***, 1714.2-1716.6*, 1725.6-1726.8***

Pivot: 1691

Support: 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.