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This Bull-Run is at an Inflection Point | Actionable Ideas for Stocks, Crude Oil, Gold, and Silver

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

S&P, yesterday’s close: Settled at 3794.50, up 2.50

NQ, yesterday’s close: Settled at 12,890.25, down 6.75

Fundamentals: Markets have become more and more efficient in broadly pricing in expectations. Ultimately, that is why we witnessed record highs in the NQ, then S&P, Dow, and Russell 2000 in the heart of a pandemic. At this point in time, have markets priced in where they believe stocks and economic conditions should be in the second half of the year? Maybe so. Ultimately, as was reiterated in our 10-year Treasury videos provided here yesterday, yields bottomed ahead of QE1, QE2, and QE3, not in the aftermath of such. It is the old adage, buy the rumor, sell the news; the rumor is not so much a rumor but your hard-earned research and thesis. Once the news is front page, it is already priced in. Last week, risk-assets surged on the hopes of added fiscal stimulus after Georgia Democrats took both Senate seats. That rally found tailwinds from tremendously strong ISM data but was quickly exhausted as those expectations hit a roadblock; Nonfarm Payroll disappointed and amid new razor thin Congressional control one Democratic Senator said he is not willing to frivolously throw added stimulus to individuals. Something else took hold, new impeachment proceedings on President Trump. As markets price in tomorrow, next month and the second half of the year, the impeachment has added uncertainties and furthermore, given the market time to digest not only the hurdles to more stimulus, but the resulting unfavorable tax consequences from the victory itself. Where some find a second impeachment of the sitting President a heroic act, the market finds it a waste of time as he is already due to be gone next week. Simply put, this is us explaining the market’s exhaustion. Does it mean risk-assets are ready to roll over and correct 5-10%. It is our belief that a correction of that size, from these elevated levels is almost always a concern, but three out of every four people trying to predict that correction have been doing just that since the S&P was at 2300. There are certainly opportunities out there, but one must define their risk and their trade plan; a discussion we have had here before and one for another time.

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Today’s economic calendar brings U.S. CPI data. The Core read is expected to print +1.6% YoY and +0.1% MoM. Results in this ballpark certainly do not signal inflation that is running rampant. However, we believe that is coming. As we noted here yesterday, such inflation is one of four pillars to our bearish thesis on Treasury prices (bullish yields), along with new fiscal measures, bullish legs in risk-assets, and that aforementioned old adage on QE. For now, we have already called victory on our 1.25% target in the 10-year Treasury yield with yesterday’s high of 1.18%, as this was our target since 0.70%. However, as we noted, the pain would come in the wake of a move from 1.25% to 1.50%. By pain, we mean that 5-10% correction in equities becomes much, much more likely and easier to time.

Technicals: We have exuded caution in recent days, therefore this consolidation amid exhaustion is playing out perfectly within our narrative. Rally attempts in the S&P have failed at our next major three-star resistance upside target at 3817/75-3827.50 and a fresh wave of weakness this morning has broken below our momentum indicator at 3796. The good news is, the bulls are responding to the dips and as we pointed to here yesterday, the slightly lower lows and slightly lower highs coupled with last week’s surge can create a bull-flag pattern. In other words, contained selling is very welcomed as it sets up for a refreshed move higher. The NQ is waffling at a critical level at 12,897, trading decisively below there for extended periods of time since yesterday. This alone does not signal a correction is imminent, which is exactly what someone who has been fighting the tape for six months would say, instead, it simply tells us the next leg high is not imminent. Weakness yesterday responded against our next key support and traders must realize the massive levels of support below in each the S&P and NQ that we find value given aligning technical indicators coupled with a potential bull-flag in the S&P. As a reminder, a beautiful bull-flag formation is nice and all, but it is less about the formation and more about the market profile trapping shorts at lower levels that creates the breakout upon stops getting triggers and fresh buyers chasing the next bull leg.

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Bias: Neutral/Bullish

Resistance: 3817.75-3827.50***, 3865***, 3894***, 3976-4009****

Pivot: 3794.50-3796

Support: 3773-3775**, 3758.75***, 3738.50-3740.75***, 3728-3730**, 3718**, 3699-3703***

NQ (March)

Resistance: 12,948**, 13,118-13,156**, 13,300-13,369***, 13,583**, 14,274****

Pivot: 12,861-12,897***

Support: 12,780-12,808**, 12,726-12,733**, 12,616-12,646***, 12,434-12,462***, 12,368-12,388***

Crude Oil (February)

Yesterday’s close: Settled at 53.21, up 0.96

Fundamentals: Looking back, the move in Crude Oil since the second trading day of the year has been a melt-up. At 53.93, price action overnight reached the highest levels since February 20th last year, when Crude gasped for air after plummeting from 65.65 to 50.00. We all know what happened next and despite the historic selloff, we find the recovery equally as historic. Today, EIA inventory data is front and center. Last night, the private API survey printed a much larger draw of Crude than expected at -5.821, +1.876 mb Gasoline, and +4.433 mb Distillates. Analysts’ expectations for today’s official report are for -2.266 mb Crude, +2.695 mb Gasoline, and +2.671 mb Distillates. Traders will be looking at the composite results with Imports and Exports being and integral part, especially Imports from Saudi Arabia which hit zero for the first time in 35 years on last week’s report for the last week of 2020. End of the year balancing can certainly shift this landscape as well as Refinery Utilization. Speaking of such, will the two-week surge in Run Rates continue?

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Another factor to watch closely is this melt higher ahead of the expiration of February options tomorrow and the February futures contract later this week. Open Interest in Crude Oil has steadily increased since the end of October with a large jump in recent weeks. Although February’s Open Interest is now less than March and June, such an expiration can bring a defining moment for directional markets, allowing them to stay directional into such. Also, in the case of consolidating markets, keep them within a very tight range until the expiration has passed.

Technicals: Price action is continuing strongly higher and has decisively cleared our next upside target at 52.95. There is no signal that this market is exhausted or intends to turn around, however, we are curious to see how the expiration shifts the market profile. For now, today’s session is more fundamental and although we are very, very Neutral, we can find value in very cheap put spreads out to April. Feel free to contact our trade desk at 312-278-0500 to discuss ideas.

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Bias: Neutral

Resistance: 53.60-53.93***, 54.66**, 57.52***

Pivot: 53.38

Support: 52.75-52.95***, 51.50**, 50.65-50.83***, 49.83-50.00***

Gold (February) / Silver (March)

Gold, yesterday’s close: Settled at 1844.2, down 6.6

Silver, yesterday’s close: Settled at 25.435, up 0.151

Fundamentals: Yesterday, 10-year Treasury yields slipped back from nearly 11-month highs and this quickly provided a tailwind to the precious metals complex. The reversal came as St. Louis Fed President Bullard and Boston Fed President Rosengren, both non-voters in 2021, pointed to the Fed not being close to tapering their bond purchases. This was a discussion that began at the onset of the week with comments from other officials including, 2021 voters, Atlanta Fed President Bostic and Richmond Fed President Barkin. At the least, officials are trying to tame exuberant asset prices.

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Much of the move in Gold took place post-settlement and therefore Gold at its high of 1863 today is up 1% on the session. Each Gold and Silver find themselves at a critical level of technical resistance, one we will describe in more detail in the Technical section below, but one we have characterized as needing a move above in order to begin repairing the damage from last Friday. Holding the complex back from added gains is a slightly stronger U.S. Dollar. U.S. CPI data this morning was overall in line with expectations. We look to additional comments from St. Louis Fed President Bostic at 8:30 am CT, Fed Governor Brainard at noon CT, and there is a 30-year auction also at noon CT. At 1:00 pm CT, the Fed releases their Beige Book and Philadelphia Fed President Harker speaks. Lastly, Fed Governor Clarida speaks at 3:00 pm CT.

Technicals: Price action is working higher but faces strong overhead major three-star resistance at 1859-1864.9 in Gold and 25.75-26.09 in Silver. Still, the tape is battling at our momentum indicators this morning instead of decisively trading out above them at 1853 for Gold and 25.55 for Silver. This means that some exhaustion is setting in as we run into resistance, not a perfect scenario. Regardless, a close out above those resistance, a very possible achievement today, will encourage added buying and being repairing the damage from Friday. However, a move below first key support will invite fresh liquidation and lower price action.

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Bias: Neutral/Bullish

Resistance: 1859-1864.9***, 1873-1875.9**, 1887.9-1895.1***

Pivot: 1853

Support: 1835-1841**, 1813-1820***, 1800**

Silver (March)

Resistance: 25.75-26.09***, 27.00-27.28***

Pivot: 25.55

Support: 25.03-25.12***, 24.30***, 23.41-23.63***, 21.93-22.00***

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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.

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