E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 3905.50, down 2.50
NQ, yesterday’s close: Settled at 13,680.25, down 2.75
Fundamentals: U.S. benchmarks mustered another firm session yesterday and are pointing higher for an eighth straight trading day. The inflation narrative is front and center; first with U.S. CPI at 7:30 am CT, followed by a 10-year Treasury auction at noon CT, and wrapped up with a speech from Fed Chair Powell at 1:00 pm CT. The U.S. Consumer Price Index (CPI), an inflation gauge, comes on the heels of China’s read last night. Whereas China’s CPI came in soft at -0.3% YoY versus -0.1% expected and down from +0.2% in December, PPI, the Producer Price Index broke a string of 11 straight contractions at +0.3%. Earlier this morning, Germany confirmed CPI for January rose on the fastest pace YoY since March 2020 and MoM since April 2019. The Federal Reserve’s preferred inflation gauge is the Core PCE Index. Nearly two weeks ago, it hit 1.5%, the highest since August after receding a bit. We watch the Core CPI read most closely, it measures the change in the price of goods and services, excluding food and energy. Analysts expect it to continue its recession from a 1.7% peak in August to 1.5% for January.
Although we do not find inflation a headwind, in fact, it is a tailwind from many perspectives, signaling an increase in demand and economic activity in the later innings of the pandemic. At levels of a mere 1.5% - 1.8% it is not inviting any concerns that the Federal Reserve will have to tighten policy. Remember, last year, the Fed committed to symmetrical inflation targeting; after years of inflation persistently below their 2% target, they will symmetrically allow it to run how. However, the fear is a quick jump in the coming months, a cause for concern. On the other side of the coin, a soft read on inflation will bring added bullish tailwinds.
The added layer here is the rise in Treasury yields. With Congress releasing details of their spending plans, President Biden’s lauded $1.9 trillion fiscal package is within reach. In order to cover the added costs, the Treasury will print more debt; the larger supply of Treasuries could open a trap door in prices, inversely lifting yields quickly from 1.25% to 1.50%. We have said for weeks, that upon a high velocity move, 1.5% in the 10-year will become a pain threshold for this market. This certainly pins today’s 10-year and tomorrow’s 30-year auction in the headlines. Coupled with comments from Fed Chair Powell of course.
Technicals: Price action across U.S. benchmarks continues to do absolutely nothing wrong. In fact, yesterday the tape was again perfect; never violating any levels of technical support, inviting fresh buying ahead of the bell. Still, as traders, we hold a cautiously Bullish Bias after dialing back a stronger one yesterday; we find the easier money to have been made. On yesterday’s opening bell, the S&P pinged major three-star support at 3894 and worked back to its 3913 record set on the reopen the night before. The NQ barely spent a second below our 13,660 Pivot, which was our momentum indicator, and used it as a rising support as the session unfolded. All things considered, it was a very constructive session and there is no surprise to see price action at fresh records this morning. The S&P is now trading out above first key 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.
Crude Oil (March)
Yesterday’s close: Settled at 58.36, up 0.39
Fundamentals: Crude Oil is right back to fresh swing highs and the Brent contract held $60 as a floor of support at 8:30 am CT yesterday. Inviting the wave of buying early this morning was an overall sense of tightening stocks upon a favorable technical landscape. Added tailwinds, of course, also came from the broader risk-environment with equity markets trekking to fresh records. However, API after the bell yesterday reported a surprise drop of 3.5 mb of Crude and reports this morning said stocks at the Fujairah facility in Saudi Arabia fell to a two-month low. OPEC compliance, backed by the Saudi’s self-imposed cut, has brought a massive tailwind to start the year. However, it is important to note that Gasoline stocks on last night’s API report showed a surprise build of 4.81 mb. What this means though is refinery runs were likely up again last week; the call for Crude by refiners has been a bullish tailwind since mid-December.
Expectations for today’s official EIA data are +0.985 mb Crude, +1.814 mb Gasoline, and -0.79 mb Distillates.
Technicals: Yesterday’s early pullback is working to create a new floor of support in what has been a steady climb since breaking out from the weekly bull-flag pattern last week. There is no arguing, the tape is bullish, however, we are Neutral in Bias as Crude runs ever closer to a ceiling of resistance at $60 dating back through 2019. We are very Bullish in Bias over the long-term and will patiently await a pullback to reposition long. Ideally, we will find that opportunity in the 53.50-54.00 ballpark, or lower, but first Crude must chew through a strengthening region of 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 (March)
Gold, yesterday’s close: Settled at 1837.5, up 3.3
Silver, yesterday’s close: Settled at 27.402, down 0.174
Fundamentals: Gold has held ground very well this week given the rise in Treasury yields. However, whereas Silver has softened in the last 24 hours, Platinum has surged to six-year highs. Due to last week’s sharp reversals, Gold and Silver seem to be finding their point of balance and there is not doubt that U.S. Dollar weakness going back to late last week has buoyed the complex.
The first glimpse at U.S. Core CPI data for January coming out right now shows 1.4% YoY and flat MoM. Gold jumped on the news and we expect it to bring a continued tailwind. With no increase in inflation, there is zero reason for the Fed to be forced to make any difficult decision anytime in the near or intermediate future; it paves a path of least resistance higher for risk assets. Furthermore, the soft data weakens the Dollar and there may now be calls for the Fed to do more!
Technicals: The initial reaction to CPI is terrific, but we cannot ignore strong overhead resistance coming in at 1854.2 in Gold and 27.62-27.88 in Silver. Today’s evolving landscape, now a rise in Treasury prices and softening U.S. Dollar, could be just what is needed for each Gold and Silver to work through overhead supply and begin repair. It will be ever important to achieve a close above such levels and a must for each to hold above our momentum indicators 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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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.