Themes in 2020 that will Carry to 2021 | Actionable Analysis for Stocks, Crude Oil, Gold, and Silver
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 3720, down 7.50
NQ, yesterday’s close: Settled at 12,841, up 8.25
Fundamentals: U.S. benchmarks were unenthusiastically bid into record highs early yesterday. Although the ensuing consolidation was healthy amid a buoyant risk-environment and a path of least resistance that remains higher, the Russell 2000 quietly finished 3.7% from the record it set Monday. Are small caps a canary in the coal mine for a broader de-risking at yearend? We think such is too early to say and hold the belief that dips are a buying opportunity. To put the 3.7% pullback into perspective, even at this morning’s trading level, the Russell 2000 is still up 30% from its late October low. Furthermore, IJR, the iShares Small Cap ETF, arguably broke out above its 2018 record just last week. It too has enjoyed nearly a 30% rally over two months and IJR’s more meager 2.4% consolidation has held out above that 2018 record.
In a very fitting manner, Washington’s divide is at the forefront. On Monday, the House took President Trump’s rhetoric and passed a bill increasing stimulus payments to individuals from $600 to $2,000. The bill was blocked by Senate Majority Leader McConnell yesterday. Instead, he plans to add line items repealing liability protections for social media companies and funding to study election fraud. In other words, Washington is doing what it does best. This is not the only bill in question as the House overrode President Trump’s veto of the National Defense Authorization Act and the Senate may look to do the same.
The vaccine news-drip has brought supportive tailwinds after AstraZeneca’s vaccine, as expected, was approved by the U.K. Although less effective than those developed by Pfizer and Moderna, rampant outbreaks have maybe forced their hand. That is right, one could consider the Covid-19 pandemic to be at its worst point yet, but the stock market is essentially at record highs. This is not new, markets are looking six, twelve, and eighteen months out.
Technicals: Yesterday morning, we said, “Today, we will reduce our Bias from outright Bullish to Bullish/Neutral as we want to invite some caution; if you were not long yesterday or were not buying last week’s pullback, this is us saying your timing is off.” Yesterday morning, at 3745, was not the time to be a buyer, plain and simple. The S&P pulled back nearly 1% and battled perfectly at our first level of support, a major three-star at 3714.75-3718.75. You are very happy this morning if you followed that swing as the S&P has retested yesterday’s Pivot, what was our near-term upside target, at 3735.50-3737.50. Similarly, the NQ slipped from fully achieving major three-star resistance at 12,861-12,897 with a Pac-Man of the overnight high on the opening bell, trading to 12,918.25. After an overnight rally into Tuesday’s bell, the reversals showed up right at 8:30 am CT. This signals some exhaustion and with another firm overnight tape on our hands, we are again cautious, curious to see how the tape is treated by the intraday session. Regardless, while out above ... 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 (February)
Yesterday’s close: Settled at 48.00, up 0.38
Fundamentals: Crude Oil has followed the broader risk-environment higher, but it also comes on the heels of last night’s inventory draw. The private API survey said Crude inventories fell by 4.785 mb, much more than analysts’ prediction of -2.583 mb. Today’s report is front and center and expectations are also for +1.662 mb Gasoline and +0.529 mb Distillates. Traders also look forward to tonight’s slate of Chinese data that includes Manufacturing for December. We have continued to highlight here how China remains the steadfast bellwether for driving Crude prices higher since the historic fallout. With that said, traders want to keep an eye on news flow pointing to worries in Beijing due to an uptick in Covid-19 cases, the first in months.
Technicals: We have not been shy in our long-term view that Crude Oil prices are going higher, however, it may not be the time to buy with leverage today. On the wealth management side, we remain allocated to energy stocks such as Chevron, Pioneer, and Marathon Petroleum. We further have a large allocation into midstream names collecting a dividend of more than 10%. However, our near-term caution has encouraged us to buy puts in names we do not favor as much, such as Exxon. Regardless, within the futures space, there certainly have been opportunities for traders to capitalize against our support levels. Given today’s data, the session will be more fundamentally driven. Considering our more near-term ... 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 (February) / Silver (March)
Gold, yesterday’s close: Settled at 1882.9, up 2.5
Silver, yesterday’s close: Settled at 26.217, down 0.322
Fundamentals: Gold and Silver are climbing this morning with tailwinds from a weaker U.S. Dollar. The Dollar Index has set a new low and the Chinese Yuan against the Dollar is right at its December 9th high, each the lowest and highest level since April and June 2018, respectively. The Dollar’s demise has been a major theme throughout 2020 and it is certainly setting up to be one again in 2021. Furthermore, a theme not discussed enough is China’s new five-year plan, set to begin next week. Although they already are adding to their strategic metal reserves, this is one of three headline themes for the foreseeable future. We expect Silver and Platinum to become key beneficiaries of such. Chinse Manufacturing is due tonight at 7:00 pm CT.
Technicals: Gold and Silver have each responded very well to major three-star support levels and lows that were created Sunday night before the overnight rally attempts. This is extremely constructive, and amid U.S. Dollar weakness, paves the way for a breakout above major three-star resistances. For Gold, this is 1900-1904, a level aligning with the trend line from the August record, and 1915, a level recently aligning with such a trend line but also added technical indicators; a close above here is likely to bring a tailwind of buying. For Silver, this is major three-star resistance at 27.12-27.28. Silver, a more volatile contract did trade to a high of 27.63 on Monday, however, quickly slipped back as there is a ceiling of supply in that region. Silver broke out above its August trend line two weeks ago, and has consolidated above such since in an extremely constructive manner, laying groundwork for a run above ... 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.