The Pain Threshold has been Tapped | Morning Express

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

S&P, yesterday’s close: Settled at 3828, down 94.50

NQ, yesterday’s close: Settled at 12,831.75, down 470.25

Fundamentals: The pain threshold has been tapped and U.S. benchmarks are taking it in stride. The move in rates, particularly the 10-year Treasury Note out above 1.5%, has weighed heavily on risk-assets this week. We have covered this extensively, detailing how investors must now choose between higher risk-free return and expensively priced stocks. Tech is broadly the most expensive and thus has taken the largest beating. The important thing to understand is, at lower levels of risk-free return it encourages a path of least resistance for money to flow into stocks. In other words, investors have an easier decision to make when rates are tethered to zero and this is especially so given the momentum in those riskier assets.

Bill Baruch joined CNBC's Halftime Report to breakdown the Treasury move and how to play it.

Budding inflation has been one of the largest tailwinds for higher rates. Although headline data components such as CPI and Core PCE have yet to signal rising inflation, the real price of everyday goods and services has increased. There is no need to look further that commodity prices. Everyone knows that Crude Oil is already up 30% this year but look at the Softs commodity complex where each asset is at multiyear highs. Today, the Core PCE, the Federal Reserve’s preferred inflation indicator, is due at 7:30 am CT. It is expected at 1.4% YoY for January, down from 1.5% YoY for December and +0.2% MoM, down from +0.3% MoM. This is accompanied by Personal Income and Personal Spending; both are expected to surge by 9.5% and 2.5% respectively given the stimulus many individuals received in January. Also, fresh Michigan Consumer data for February is due at 9:00 am CT.

For now, the Treasury complex is receding but a hot read on PCE and to a lesser degree Michigan data will reinvigorate yesterday’s weakness (higher rates). The best case for stocks today is data that is in-line to soft. This would remind market participants of the stimulus dependent economic rebound instead of highlighting the steadfast uptick in economic activity exuded by PMIs.

Technicals: U.S. benchmarks sold off sharply yesterday and the bears are attempting to take the wheel, but we cannot ignore the massive levels of technical support being tested. Upon yesterday’s bloodbath, the NQ did not close below our rare major four-star support, however, it stuck its neck below last night. The good news is that just below our monumental level at 12.727-12,767, there is another wave of major three-star support at 12,616. Last night’s selling into a low of 12,662 was certainly slowed by this wide region of support and the tape responded trading back up to first key resistance that aligns with our momentum indicator this morning at 12,911-12,958. Similarly, the S&P has multiple waves of strong technical support just below the tape; for both this is a byproduct of such a strong uptrend. We now have major three-star support in the S&P 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 (April)

Yesterday’s close: Settled at 63.53, up 0.31

Fundamentals: Crude Oil is retreating from a lower high overnight as the U.S. Dollar gains ground and the rise in rates weighs on the risk-landscape. Additionally, a still very uncertain U.S. production outlook due to the deep freeze in Texas is bringing a crosscurrent to next week’s OPEC+ meeting. The U.S. outages could pave the way for OPEC+ to give into Russia’s demand to increase production. Furthermore, the 30% rise in Crude already this year pins Brent well above the psychological $60 mark and up near $65. These price levels alone give credence to OPEC+ bringing production back online. As the day unfolds, Crude will be affected by the equity markets to some degree, although it has broadly ignored weakness in recent days.

Technicals: Price action was flirting with out momentum indicator through much of yesterday before decisively breaking below around midnight last night. This level comes in at 63.05 today and continued action below here leaves the market vulnerable to further consolidations lower. The first wave of weakness tested and held 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.

Gold (April) / Silver (May)

Gold, yesterday’s close: Settled at 1775.4, down 22.5

Silver, yesterday’s close: Settled at 27.685, down 0.243

Fundamentals: Gold and Silver were slammed yesterday and overnight. It has been a one-two punch, yesterday’s bloodbath in Treasuries dragged Gold and the ensuing rebound in the Dollar slammed both metals. Today, Core PCE was not hot, it came in just a tenth better than expected on each YoY and MoM for January and on par with December’s data. The result has been a strengthening risk-landscape as market participants certainly feared a hot read. This has allowed Gold and Silver to dig off their overnight lows, but make no mistake, each is still very vulnerable below technical support. Fresh Michigan Consumer data for February is due at 9:00 am CT and will also have an impact.

Technicals: Gold and Silver are both below crucial levels of technical support and both failed at crucial levels of technical resistance earlier in the week. We still like the metals from a longer-term perspective, but it must be known that each is very vulnerable and a close below rare major four-star support in Gold at 1767.2-1770 and major three-star support in Silver 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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