E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4191.25, down 15.00
NQ, yesterday’s close: Settled at 13,529.25, down 144.50
Fundamentals: It is Jobs Friday and today’s Nonfarm Payroll report for May will prove pivotal. It comes on the heels of April’s disappointment and when those Federal Reserve officials who are more hawkish have again begun talking about, talking about tapering bond purchases. Analysts expect 650,000 jobs to have been added in May. Yesterday’s private ADP Payroll survey, which printed 978,000, along with weekly Jobless Claim data improving for five straight weeks point to a vastly better landscape than from one month ago. April’s disappointment was the byproduct of a labor shortage and not a stalling economic rebound. The data outside of jobs would agree; this week’s ISM Manufacturing and Services reads each topped lofty expectations. However, Employment components lagged whereas Prices remain elevated. This is the feared divergence; a continued rise in inflation that leaves those hardest hit by the pandemic behind.
This week, we heard from two prominent hawks. Dallas Fed President Kaplan is thought to be the most hawkish member of the committee and yesterday he said, from Reuters, “I think it would be wiser sooner rather than later to begin discussions about adjusting our purchases with a view to taking the foot off the accelerator gently, gradually, so we can avoid having to depress the brake down the road”. On Wednesday, Philadelphia Fed President Harker said it “may be time to at least think about tapering bond purchases”. It is important to understand that both Kaplan and Harker do not vote until 2023. We have discussed this before, we believe the Fed is using such to its advantage to probe the market’s resolve in digesting the inevitability of a taper. Two of the committee’s most prominent members behind Chair Powell, New York Fed President Williams and Fed Governor Brainard, two permanent voting seats, each struck a more dovish tone ultimately reiterating that the economy is far from the committee’s goals. At the end of the day, the Federal Reserve has not only told us they will be behind the curve and reactionary to proof in the data, but they also shifted policy last year to allow for inflation to run hot through Symmetrical Inflation Targeting. If they are going to be patient on the current rise in inflation and almost certainly wait for proof that it sticks through the end of summer, this absolutely ups the ante on jobs.
We will leave you with this. Our expectation is for a solid number. However, we believe many expect May’s job growth to rebound strongly. Therefore, although the expectation is for 650,000, the U.S. Dollar and rates may respond in a tame manner to anything under 1 million.
Bill Baruch covered the Federal Reserve and his market outlook through several media spots this week:
Technicals: Yesterday was certainly an interesting session, the U.S. Dollar strengthened and pressured risk-assets early, but buyers defended technical support levels in stocks. At the opening bell, the S&P pinged first key support at 4173.50 and rebounded by nearly 1% within an hour. We detailed this support here yesterday as a level that incurred tremendous volume and was the opening bell low on May 24th. Although price action stalled perfectly at major three-star resistance at 4202-4206, it managed to settle above our critical 4183.50-4186 pocket which acts as our Pivot today. A move above resistance today on a Goldilocks jobs report will pave the way to the highs of the week. To the downside, a break below 4173.50 is not a disaster buy at minimum we would then expect 4150-4154 to be tested. Similarly, the NQ stalled in front of major three-star resistance at 13,650-13,686 and has been tethered to our Pivot of 13,543-13,570. A move through 13,650-13,686 will invite a tailwind of buying. To the downside, price action responded perfectly to major three-star support at 13,460-13,493 on the open last night and a higher low overnight. A break below here is not disastrous as we see equally strong support just below at 13,363-13,405.
Bias: Neutral/ Bullish (NFP update, Bullish/Neutral)
Resistance: 4202-4206***, 4213-4215**, 4226.75-4230**
Support: 4173.50**, 4163.25**, 4150-4154***, 4142.50-4142.75**, 4122-4123***
Resistance: 13,650-13,686***, 13,712**, 13,790-13,818***
Support: 13,460-13,493***, 13,363-13,405***, 13,233-13,267***
Crude Oil (July)
Yesterday’s close: Settled at 68.81, down 0.02
Fundamentals: Crude Oil has so far ignored a potential undertow from other commodities. Yesterday, metals from Copper to Gold were tagged significantly and early gains in Agricultures turned into losses. Still, Crude Oil held near unchanged and out above a technically significant level of support. Although there is a fear OPEC+ will bring back more production beginning in August, there are several narratives underpinning the market. The pandemic has drastically improved around the globe. The 7-day moving average of Covid cases in India is now at the lowest level since April 12th. There has certainly been a tailwind around reopenings in summer travel in both the U.S. and Europe. Maybe most important was the inability for officials to strike a Nuclear Deal with Iran. At the same time, added supply from Iran is being priced in and OPEC+ is considering such in mapping out bringing production back. Iranian officials have said that as much as 6 mbpd could be brought back upon sanctions being lifted, however, we find this number to be closer to 2 mbpd once they are back to full capacity. Furthermore, it could be likely that no more than 1 mbpd is added this year even if a deal is struck soon. For now, the timeline for those ongoing discussions has been kicked out to next week and this has buoyed the tape.
Tepid job growth for May has crushed the Dollar, lifting commodities. The stage is now set for $70.
Technicals: The overnight high coming into yesterday was 69.40, and we have this as first key resistance. It has so far kept a lid on rally attempts given its proximity to the psychological $70 mark. Crude Oil settled at our Pivot and point of balance from yesterday, we have left this unchanged; continued action above 68.78-68.87, which aligns with our momentum indicator is very supportive to higher prices. To the downside, strong support is building at 67.98, but we are fully prepared for a break to 66.45-66.70. At this level, Crude Oil can work to fortify a floor for a potential run to $80.
Resistance: 69.40**, 70.00***
Support: 67.98**, 66.45-66.70***, 66.00**, 65.25-65.36**, 64.45-64.62***
Gold (August) / Silver (July)
Gold, yesterday’s close: Settled at 1873.3, down 36.6
Silver, yesterday’s close: Settled at 27.477, down 0.727
Fundamentals: Gold, Silver, and the metals sector all got hammered yesterday ahead of today’s Nonfarm Payroll report. Better ISMs this week, a strong ADP, and pandemic low Initial Jobless Claims all forced managers and traders to unwind U.S. Dollar and rate related risks in fear of a hot number. Well, today’s Nonfarm Payroll was certainly not hot and May’s job growth came in below expectations at 559,000 versus 650,000. Think about it this way, those managers and traders were pricing in not only a number topping 750,000 but something in the ballpark of 1 million. Gold, Silver, Copper, Crude Oil, and stocks all spiked on the release. There was certainly some technical damage yesterday, but we expect the metals sector to pare the worst of yesterday’s selloff and finish the week with enthusiasm. Still, next Thursday is lurking around the corner; ECB, CPI, 30-year auction and Jobless Claims.
Technicals: We view today’s fundamental developments on jobs and Gold’s test and hold of major three-star support at 1843-1850, now rare major four-star support, as a green light into the start of next week. Last night, Gold broke to a low of 1855.6 and was quickly bought; this exudes the strength of a now fortified floor. Overhead we see tremendous resistance at our recurring 1894.5 level which now aligns with 1896 as major three-star resistance; a move above here today is very bullish. Our momentum indicator now comes in at 1875 and will rise; this creates first key support and Gold must stay out in front of here. As for Silver, it traded to a low of 27.09 yesterday, and turned in front of major three-star support at 26.94. Today’s low has held strong support at 27.36 and our momentum indicator is turning higher from 27.50. We will look to previous support at 27.63-27.68 as a point of balance and continued action above here paves the way to unchanged on the week at 28.01 which aligns with a trend line from the high of the week as resistance.
Resistance: 1894.5-1896***, 1903-1905.3**, 1912-1914.3***
Support: 1875-1877**, 1862-1864** 1843-1850***
Resistance: 28.01-28.10**, 28.47-28.55***, 29.36***, 30.00
Support: 27.36***, 26.94***
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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.