Setting Up for a Rebound | Morning Express
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4058.75, down 87.50
NQ, yesterday’s close: Settled at 12,998.50, down 347.50
Fundamentals: Yesterday’s CPI was hot, but it was only one number. The real inflation that everyone has been yelling about finally impacted a closely watched economic indicator, CPI. Guess what? The Federal Reserve expected it. With the committee right again and again, why should we doubt their belief that such inflation will be transitory? April’s base data was dismal, it represented the onset of Covid lockdowns. Yes, that wouldn’t explain the surging MoM results relative to March, but certain components certainly do. Look no further than a 10% one-month increase in the price of used cars. Let us get out of the inflation forest, to see the inflation trees, if you will. People want to travel! Extra money in people’s pockets over the last 12 months has created added spending, reinvigorating an inflationary environment, and cars were popular. Rental car companies also need to buy used cars to replenish their fleet. Spring break just passed, and supply was tight. These companies are preparing for summer demand. Will used car prices be up 10% in May from April? This would be extremely unlikely. Furthermore, what responded to the data yesterday? The U.S. Dollar, and the tradable Index is 1% from Tuesday’s new swing low. As Larry David would say, everyone has gotten pretty, pretty, pretty, bearish on the U.S. Dollar. Would it be a surprise to see it gain some value in the near term? Absolutely not. With the whole second half of May to go, this would suppress the commodity rally and keep a lid on the rise of inflation.
In conclusion, we will say it again, this was one number. March’s Nonfarm Payroll report was one number, and then look how April’s jobs data panned out. The Fed announced symmetrical inflation targeting last year and has told us they will be behind the curve. We expect them to remain patient with their policy. Why? Because, they have telegraphed this time and time again.
For us, we have been extremely cautious on equities. We have traded the market short, and we have hedged wealth portfolios. Considering all of this, and mounting pessimism after a little panic yesterday, we must trust the aforementioned narrative and our Technical analysis. Let us lean on the tremendous levels of support in which the S&P and NQ each tested into overnight.
The PPI inflation read is due at 7:30 am CT, along with weekly Jobless Claims data. We then look to a 30-year Bond auction at noon CT. Traders must keep a pulse on Treasuries, and rising yields could derail a bounce in equities. St. Louis Fed President Bullard, a 2022 voter, is scheduled to speak at 3:00 pm CT.
Technicals: As one might assume from the above commentary, we have introduced a cautiously Bullish Bias. Each the S&P and NQ tested into massive levels of technical support. For the S&P, this is major three-star support at 4036.75, with rare major four-star support coming in just below at 4010-4020, aligning the holiday March payrolls gap with the following Monday session low. Let us be clear in our caution: WE DO NOT WANT TO SEE A CLOSE BELOW HERE. For the NQ, it also tested rare major four-star support, coming in at 12,871-12,900. Each index has responded and is rising this morning. The NQ is testing into our momentum indicator and previous support this morning, this will act as our Pivot and point of balance; continued action above here will encourage a move to rare major four-star resistance 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.
Crude Oil (June)
Yesterday’s close: Settled at 66.08, up 0.80
Fundamentals: Crude Oil ignored a broader risk-off move yesterday and gained as much as 2%, not due to a bullish inventory report, but as uncertainties lingered relating to the Colonial Pipeline. It became apparent late yesterday that some flow would restart, and Crude Oil began playing catch-up to that broader risk-off move overnight. Price action has been down as much as 3%, now back to battling at a critical level of technical support. This is great! Yesterday, in our Midday Market Minute, Bill Baruch said we have pulled our long September futures. Although we remain Bullish in Bias, we are taking a more cautious approach, in part due to the broader moves and risk premium associated with Colonial. We are welcoming this weakness and will look for a potential reentry soon. Both the IEA and OPEC, believe the second half of the year will bring increased demand due to a global economic rebound. We absolutely agree with this narrative but will keep a pulse on whether OPEC+ plans on increasing production at a faster rate. This would invigorate waves of selling, thus creating a better buying opportunity.
Technicals: Yesterday, price action began struggling again at major three-star resistance at 66.45-66.60 and given the broader risk-off move, we took a more cautious approach. Furthermore, we did revise back our more Bullish Bias ahead of inventory data and due to such broader moves. June Crude is now sharply below our momentum indicator at 65.50 and has chewed through major three-star support at 64.41-64.55, a level it has yet to close below since the May 3rd rally. While we watch this level closely on a closing basis, there is another wave of very strong technical support 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 (June) / Silver (July)
Gold, yesterday’s close: Settled at 1822.8, down 13.3
Silver, yesterday’s close: Settled at 27.244, down 0.423
Fundamentals: Gold and Silver are under pressure as the U.S Dollar and rates rise. This is the type of weakness that we are welcoming; constructive and refreshing. Still, we remain very cautious as it is our belief many could be offsides to a U.S. Dollar rally, exacerbating a bounce that would pressure commodities. Today’s PPI data shows a continued increase in inflation above some near-term expectations. Additionally, both Initial and Continuing Jobless Claims came in at a new pandemic low. This data gives credence to continued strength in the Dollar and rates, therefore, we will remain cautious in the near-term, but optimistic over the longer-term.
Technicals: Gold failed perfectly this week at rare major four-star resistance at 1843-1850, just as Silver has struggled against major three-star resistance at 27.63-27.68. It also tested major three-star support perfectly overnight and has so far responded. Gold is trading below our momentum indicator that now aligns with the 1817.6-1822 support pocket, right where it settled yesterday; continued action below here will encourage a retest into the overnight lows and deeper into major three-star support 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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