Every Rally Starts With A Short Cover | Morning Express 07/21/2022

Posted: July 21, 2022, 9:44 a.m.

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

S&P, yesterday’s close: Settled at 3962.50, up 25.00

NQ, yesterday’s close: Settled at 12,465.25, up 191.25

Fundamentals: U.S. equity benchmarks secured the elusive encore yesterday. Each of the four major indices gained at least 2% on Tuesday and managed to settle higher yesterday, occurring for only the second time this year. The rebound began brewing last Thursday when price action had every reason to break lower after the hot CPI read but rejected support. A similar phenomenon happened after PPI Friday and upon the negative Apple news Monday. One of the greatest technical indicators is a fundamental rejection.

Another attractive statistic comes from Jason Goepfert of Sentiment Trader, who we have referenced here before. He noted the S&P has never lost ground over the following year when advancing volume was 87% or more of total volume for 2 out of 3 days coming off a 52-week low.

The ECB raised rates by 50 basis points this morning, bringing the main deposit rate to 0%. In their first hike since 2011, consensus expectations had leaned on a 25 basis point move. Bringing further pressure to the bank’s decision is evolving turmoil in Italy. Mario Draghi, the former ECB President, resigned as Italy’s Prime Minister overnight after losing coalition support. The move hung in the balance for weeks, spiking Italian yields to uncomfortable levels. The ECB announced a new program aimed to counter fragmentation across sovereign debt. The maneuver has so far been well received with equity markets setting fresh session highs and the U.S. Dollar sinking back to swing lows. ECB President Lagarde is set to speak at 7:45 am CT.

From the U.S., Initial Jobless Claims came in higher than expected for the seventh week in a row. At 255k, this was the highest level since the final week of January. Also, Philly Fed Manufacturing for July came in at -12.3. Before June’s -3.3, this read has not been in negative territory since May 2020. Within the Philly Fed set, Price Paid dropped from 65.5 in June to 52.2 in July. This is a one-two-three punch of a cooling job market, demand, and prices. The weakness in data has added further pressure to the U.S. Dollar.

Also buoying the market has been a solid slate of earnings beginning with Tesla last night. Danaher, AT&T, Philip Morris, Union Pacific and Blackstone Group also all beat top and bottom-line estimates this morning. However, some of the individual stock reactions were mixed upon their respective reports.

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NQ (September)

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Crude Oil (September)

Yesterday’s close: Settled at 99.88, down 0.86

Fundamentals: Crude Oil slipped sharply overnight in a broad commodity rout due to demand fears tied to China’s virus testing, something we have been noting for over a week now. Libya returning production and an overall bearish EIA report yesterday has also overshadowed the energy complex. At the end of the day, we find the slip exacerbated due to the failure at overhead technical resistance, but make no mistake, this would continue amid a broad risk-off scenario.

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Gold (August) / Silver (September)

Gold, yesterday’s close: Settled at 1700.2, down 10.5

Silver, yesterday’s close: Settled at 18.668, down 0.045

Fundamentals: Gold and Silver flushed out overnight with Gold trading to the lowest level since March 2021. They began a turn higher after the ECB hiked rates by 50 basis points, more than the 25 expected. Despite a spike in the Euro to 1.0320, volatility remains high through ECB President Lagarde’s press conference and the Euro has surrendered the entire spike. Also supportive to Gold was the U.S. economic data slate. Initial Jobless Claims came in higher than expected for the seventh week in a row. At 255k, this was the highest level since the final week of January. Also, Philly Fed Manufacturing for July came in at -12.3. Before June’s -3.3, this read has not been in negative territory since May 2020. Within the Philly Fed set, Price Paid dropped from 65.5 in June to 52.2 in July. This is a one-two-three punch of a cooling job market, demand, and prices. The weakness in data has added further pressure to the U.S. Dollar and helps to signal the Fed’s tightening is working.

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Silver (September)

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