E-mini S&P (September) / NQ (Sept)
S&P, yesterday’s close: Settled at 4394.50, down 19.75
NQ, yesterday’s close: Settled at 14,947.75, up 170.00
Fundamentals: It is Fed Day, and the bank faces numerous crosswinds. Their policy statement is released at 1:00 pm CT and Fed Chair Powell will hold his conference at 1:30 pm CT. First and foremost, committee members struck a more hawkish tone at their last meeting. They raised inflation expectations for 2021 from 2.4% to 3.4%, paved the way to start tapering bond purchases before yearend and marked the realization of a rate hike as early as late 2022. Although we have since voiced our expectation that inflation will be much more than transitory, given the Fed’s prior messaging, we remain adamant they caved to critics. The Bond market certainly agrees as the yield of the 30-year collapsed by nearly half a percent, and the curve has steadfastly flattened. The long-end of the curve is telling us the Fed will not be able to slow their support and if they do it will crush growth. However, the short-end was a different story, 2-year yields rose briefly. A flattening curve exudes slower growth, and this coupled with the reemergence of Covid cases has created a wall of worry. This provides the clearest hurdle for the Fed to stay the course with the direction set just one month ago. Is the economy at the onset of stagflation? This means slower growth amid rising inflation. One reason we wanted to remain patient in calling inflation more than transitory is that we do expect that rate of change to slow through July and August. Base comparisons for inflation one year ago were higher and as we voiced previously, the rate of change experienced from April through June is unsustainable indefinitely. What does this mean? We expect inflation to appear heading in a transitory direction over the next 60 days, however, for it to come back firmly around Labor Day, just when financial pundits call it transitory. How is this significant for today’s meeting? The Federal Reserve’s credibility is in its messaging. They surprised markets by jumping their inflation expectations from 2.4% to 3.4%. Although we do not get economic predictions this round, and despite mounting growth worries associated not only with Covid but geopolitics, they would do themselves a disservice by flopping their messaging back to sounding too dovish. The best thing the committee can do for itself is keep this meeting as quiet as possible. They can do so by simply acknowledging the recent shift in the pandemic, reiterating their patience, and shifting focus to Jackson Hole as well as their September quarterly meeting. At that time, there should be more ‘hard evidence’. Remember, the Fed has messaged they want to be behind the curve by evaluating hard evidence.
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. The trio of Mega-Cap Tech, Apple, Alphabet, and Microsoft all reported blow quarters after the bell yesterday, combining for profit of $57 billion. Alphabet and Microsoft are both trading higher by more than 1%, whereas Apple is down by about 1%. These stocks began pricing in lofty expectations after Snap and Twitter earnings last Thursday. As for Apple, the chip shortage and lower guidance overshadows their results. Starbucks also reported yesterday, the company is down 3% premarket. The deluge of earnings continues this morning with McDonalds, Shopify, Thermo Fisher and more. After the bell, we look to Facebook, PayPal, and Ford.
Global markets were stable overnight after China laid out positive messaging. The Hang Seng pared early losses to gain 1.5% on the session and the Shanghai Composite set a new low but rebounded to lose only 0.6%.
Technicals: In yesterday’s daily Midday Market Minute, we gave you the range to know heading into the final hour. It was major three-star support in the S&P at 4355.75-4359.50 and resistance at 4384.50-4390; a close outside of their will encourage a directional move, barring Mega-Cap Tech earnings of course. The S&P traded to an overnight high of 4404.50 and the NQ is now back above the 15,000 mark. Today’s session will trade very fundamentally given China’s soothing, the deluge of earnings ahead of the bell, and the Fed at 1:00 pm CT. Still, we will look to our Pivots and point of balance that align with 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. Crude Oil (September)
Yesterday’s close: Settled at 71.65, down 0.26
Fundamentals: Crude Oil seemed vulnerable along with markets broadly early yesterday, but a weakening U.S. Dollar held things together. Crude then found added tailwinds from a bullish API report after the bell. The private survey posted -4.7 mb Crude, -6.23 mb Gasoline, and -1.88 mb Distillates. This was much more than analysts’ expectations across the board, which are for -2.928 mb Crude, -0.916 mb Gasoline, -0.435 mb Distillates. Remember, last week’s report showed Net Imports increasing by 2.5 mbpd. As we noted then, this exudes expectations for strong demand. We agree with this and expect the month of August to show heavy draws in stocks. In today’s report, traders want to keep an eye on this Import figure as well as Refinery Utilization.
Technicals: The overnight strength traded to an stopped directly at major three-star resistance at 72.64 with a high of 72.60. The slight pullback battled at our momentum indicator at 71.95 to ultimately hold the market and responded in front of developing 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 (August) / Silver (Sept)
Gold, yesterday’s close: Settled at 1804, up 0.6
Silver, yesterday’s close: Settled at 24.649, down 0.669
Fundamentals: Gold has done very little over the last week, but this is viewed as healthy given the sharp decline in Silver. U.S. Dollar weakness yesterday bolstered Gold, whereas Silver traded to the lowest level since April 1st. Precious metals will face a crosscurrent of winds today as we look to the FOMC policy decision at 1:00 pm CT. Our discussion in the S&P section goes into further detail, but what it does come down to is whether the committee stays on a hawkish course set in June or flops back to become more dovish in the wake of rising Covid cases and expectations of slower growth. The currency and rate dynamic and the reaction of such will be absolutely crucial for the precious metals camp. Remember though, Bonds traded sharply higher following the June meeting, however, Gold traded lower, tracking U.S. Dollar strength.
Technicals: Price action in Gold remains stable and has been attempting to build a floor at the 1793-1796 mark. Indirection has left our momentum indicator stagnant at 1800.5. The tape dipped below there overnight but such has been common over the last week in a waffling market. We need to see it clear yesterday’s high at 1805-1807.5 and then 1815 to show signs of strength and the potential of breaking outside of this recent range to the upside. It is interesting to note that Gold has traded below 1800 for six of the last eight sessions but has not settled below since its July 6th rally. Therefore, to lay groundwork for a rally, we do not want to see a new low settlement below the 1793-1796 support. In the case of such, it will likely pave the way for a move into the ... 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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