Morning Express | China Dominating Headlines

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

S&P, yesterday’s close: Settled at 3898.75, up 89.50

NQ, yesterday’s close: Settled at 13,279.75, up 368.75

Fundamentals: U.S. benchmarks, as expected, surged to start the month and snapped a two-day break, but the road ahead is not clear just yet. In the Technicals section below, we discuss significant levels of overhead resistance and what supports the indices must hold in order to build for fresh record highs.

After yesterday’s rebound, China’s top bank regulator threw cold water over the rally by warning of a bubble in foreign markets, i.e., U.S. and Europe. The comments dragged global equity markets lower through the night and the S&P lost as much as 1% before snapping back. The Shanghai Composite finished down 1.2% and after last week’s loss pins the index only 1.5% from its summer surge. To us, these comments feel as if China is justifying the underperformance of the country’s benchmark. Bloomberg is certainly playing along, their headline article this morning that reads, “Wall Street Bullishness Is Becoming a Contrarian Sell Signal”. Wait a minute; U.S. benchmarks just started the month off with a bang after battling to hold the utmost technical construction and the entire board was green yesterday. It is comments and headlines like this that encourages us to stary the course.

Yesterday’s ISM Manufacturing exuded everything we have pointed to; a sharp increase in economic activity, a surge in prices, and a drawdown of inventories. Inflation is coming, but last week’s capitulation in Treasuries allows for relief from the rise in rates and paves a path of least resistance higher in stocks. Today, we look to Fed Governor Brainard at noon CT and San Francisco Daly at 1:00 pm CT. Services data is in the picture tomorrow, but the most pivotal data point this week is of course jobs. Fed Chair Powell has said the real Unemployment Rate is closer to 10% and this narrative keeps the stimulus pumping, both fiscal and monetary. Although the market may react bullishly in the near-term to a strong Nonfarm Payroll report, such would give credence to inflation and thus reinvigorate rates. In the end, this would pose a tall hurdle for our rally to fresh record highs.

Technicals: Despite overnight weakness, the tape has done everything perfect. Yesterday’s ‘rip your face off rally’ was slowed by major three-star resistance in the S&P at 3899-3903 and that for the NQ at 13,281-13,353. Last night’s pullback held above major three-star support in the S&P at 3858.50-3863.50 and first key support in the NQ at 13,135-13,178. The rebound ahead of the U.S. hours pins each above our momentum indicators, these will be crucial levels as the early part of the session unfolds, while above here the path of least resistance is imminently higher, for the S&P it is ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Crude Oil (April)

Yesterday’s close: Settled at 60.64, down 0.86

Fundamentals: Crude Oil is rebounding from an overnight test of major three-star support. In fact, the risk-landscape is broadly snapping back from bubble comments out of China that came on the heels of their underwhelming Manufacturing PMI data over the weekend. China has been a bellwether for the rebound in energy prices, partly because they were the first to come out of the pandemic. Also, they are stocking up on many commodities, especially energies. However, yesterday’s blowout U.S. ISM Manufacturing PMI at 60.8 exudes everything you need to know about where the U.S. economy is heading. It might be stimulus driven and there are further tailwinds in energy due to policies in Washington, but ISM Manufacturing’s only miss versus expectations since last March has come via 55.4, 57.5, and 58.7; that is how strong the economic rebound has been, and it is bullish Crude Oil. Regardless, we see little value at these levels ahead of OPEC+ Thursday and before we have a better understanding of production in Texas coming back online. We maintain the rhetoric that patience here pays.

Technicals: Price has responded to two waves of major three-star support at 59.75-59.82 and 59.12. The market profile was able to refresh and tailwinds from the immense uptrend are carrying the market higher. The tape is back above our momentum indicator which aligns as our Pivot at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Gold (April) / Silver (March)

Gold, yesterday’s close: Settled at 1723, down 5.8

Silver, yesterday’s close: Settled at 26.678, up 0.238

Fundamentals: Another poor trading session for Gold yesterday dragged down Silver from what had started to be a rebound. In the end, this encouraged another flush for Silver overnight as it traded to the lowest level since the January 28th spike. The good news is, as risk-assets rebounded into the morning, so did the metals complex. Has all the selling been absorbed? Maybe not. The continued increase in economic activity and drawdown of inventories is creating pricing pressures, or inflation, that makes Gold unattractive. A rebound in Treasuries, rates backing off, has yet to trickle in to help the metals complex and that is likely because traders and investors alike fear a better than expected jobs report Friday. That is what it comes down to; Gold will only be able to have a serious rebound in the very near future if the jobs picture remains poor because such would keep the Fed on deck for continued support.

Technicals: The metals are bouncing back from another overnight flush, although this one less severe. The muted severity allows us to believe a rebound from near-term oversold territory, and from our next rare major four-star support at 1704-1710, is in order. Also, Silver’s quick low of 25.82 never really spent time below 26.00 and responded to our next major three-star support at 25.968-26.15. This level aligns with the spike settle from January 28th before it surged again. Gold must decisively trade above our momentum indicator at ... Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

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