On Friday, we said do not trust the tape until Monday proves it. Opportunities have emerged at big levels of support across stocks and commodities.
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4146.25, down 37.25
NQ, yesterday’s close: Settled at 13,346, down 10.75
Fundamentals: Inflation is front and center, U.S. Core CPI will be released at 7:30 am CT. Due to the start of Covid lockdowns one year ago, the base comparisons for this April data are low and a rise of inflation through the summer is only expected to be transitory. The Federal Reserve has been steadfast in this notion, but rising prices have already affected our everyday lives. Commodities, like Lumber and Copper, have hit record highs, whereas others are the most expensive in years. Still, according to the Fed’s metrics, inflation is very contained, and they have exuded little concern that a rise through this summer will be anything but. Core CPI is expected at +2.3% YoY and +0.3% MoM. Given all the hype, we must agree, these consensus estimates are tame and certainly do not signal the ‘inflation boogeyman’ is lurking around the corner, forcing the Fed to speed up their timeline in tightening unprecedentedly lose policy. Regardless, inflation alone, unless it rose a meteoric amount very quickly is unlikely to force the Fed’s hand. Today’s data must be interpreted along with the other half of the Fed’s dual mandate, jobs. As you well know, jobs data for April was a complete whiff and this landscape is right where we thought it was after March’s results; an 8 million jobs deficit since the onset of the pandemic. Lastly, we cannot ignore Fed Chair Powell’s historic policy shift last year to symmetrical inflation targeting. Here, the Fed is welcoming inflation and telegraphing it can run just as hot as it was cold. Furthermore, they have said they expect to be behind the curve, they will be reactionary to data. Although financial media, as well as doom and gloom naysayers, want you to believe this single number could create a tectonic shift in Fed policy, the Fed, themselves, has repeatedly told you otherwise!
How do we interpret today’s results relative to stocks? It is our belief the market is preparing for a read above those consensus expectations of +2.3% YoY and +0.3% MoM. Therefore, a tenth or two above the YoY results should bring welcomed relief when coupled with the jobs landscape; the Fed has no reason to think about tapering bond purchases anytime soon. On the other side of the coin, a soft number is likely to signal the Fed is on hold for longer than thought one week ago and this could be very bullish for stocks, at least initially. All things considered, such an analysis must be coupled with our ongoing discussion of ‘a longer-term thematic divergence’ between value and growth stocks.
Of course, Fed speakers will help us digest today’s results. Fed Governor Clarida speaks at 8:00 am CT and Atlanta Fed President Bostic speaks at noon CT; both are 2021 voters. Philadelphia Fed President Harker follows at 12:30 CT. There is also a 10-year Note auction at noon CT. Traders want to keep an eye on CPI data that does come in above consensus expectations and a weak auction. This would help rev rates higher and thus bring added headwinds to growth stocks.
Technicals: Price action across indices broke sharply lower yesterday morning, but strong levels of technical support were defended. For the S&P, a critical level of major three-star support, one that has been tested six times now, at 4118-4120.50 ultimately buoyed the tape and the S&P has not settled below it, since rallying through it on April 14th. For the NQ, there was a trend line from the November low that could be drawn and aligned at major three-star support at 13,090. With the tape consolidating in a steady manner, our Pivots align as our momentum indicators and bring a point of balance; continued action above 4135-4137 in the S&P and 13,256 in the NQ through the first hour of trade will encourage added buying. With the S&P remaining extremely constructive through such weakness, it is the NQ that must close back above major three-star resistance at 13,336-13,356. To the downside, a decisive break below yesterday’s low, which held major three-star support in the S&P at 4099.25-4101.25 will encourage a move towards 4036.75 and 4010-4020. Stay nimble, be patient, and look for confirmations.
Resistance: 4146.25**, 4155**, 4171-4172**, 4183-4187***, 4200.75-4203.25***, 4228-4232**
Support: 4118-4120.50***, 4110-4113**, 4099.25-4101.25***, 4070***, 4052.25*, 4036.75***, 4010-4020****
Resistance: 13,336-13,356***, 13,414-13,446**, 13,564-13,597***, 13,682-13,722**, 13,790-13,818***
Support: 13,184*, 13,090***, 12,871-12,900****, 12,609**, 12,503***, 12,134-12,200****
Crude Oil (June)
Yesterday’s close: Settled at 65.28, up 0.36
Fundamentals: The ransomware attack on the largest fuel pipeline in the U.S. is creating the expected ripple effect; a gas shortage. The southeast U.S. is so far the hardest hit with stations from Georgia, North Carolina, Florida, and more reportedly out of gas. This news is not the only factor sending Crude Oil up by more than 1% today, the conflict between Israel and Palestine is escalating towards a full-scale war. With both narratives driving prices higher, EIA inventory data is also in the picture. Last night’s private API survey was muted and expectations for today’s report are -2.817 mb Crude, -0.60 mb Gasoline, and -1.08 mb Distillates. Refinery Utilization WoW is expected to have grown at a slower pace last week, +0.5%.
Core CPI data this morning at +3.0% YoY was the highest since December 1995 and has created a whipsaw across markets. Ahead of inventory data this morning, this gives more credence for day traders to remain extremely nimble. Regardless, maintain a Bullish Bias, although more cautious since the Sunday night spike, and expect $70 to be in the cards soon enough.
Technicals: Price action is testing major three-star resistance at 66.45-66.60 for the second time in a week. This comes on the heels of a very constructive pullback. One that never settled below 64.41-64.55 and where buyers responded to our next major three-star support at 63.43-63.69. Our momentum indicator is rising, encouraging us to create a large pocket of first support, at least for this morning, that comes in at 65.30-65.75. This aligns our momentum indicator with the Sunday night high; the tape is bullish across all timeframes while out above here, regardless of major three-star resistance overhead.
Resistance: 66.45-66.60***, 67.98**, 70.00***
Support: 65.30-65.75**, 64.41-64.55***, 63.43-63.69***, 62.91-63.04**, 62.47***
Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1836.1, down 1.5
Silver, yesterday’s close: Settled at 27.667, up 0.175
Fundamentals: Gold and Silver are both back in positive territory ahead of the NYSE bell, after whipsawing lower immediately follow the CPI read. The data was well above expectations with Core CPI YoY at +3.0% and MoM at +0.9%, headline data (including food and energy) was +4.2% YoY and +0.8% MoM. Markets are so far digesting it as simply one number amid transitory expectations due to low base comparisons from one year ago. It certainly will be interesting to see how things unfold this morning, because one asset class is not ignoring it, and maybe the most important; Treasuries. The 10-year yield has hit a high of 1.66, ahead of today’s auction and this brings a pivotal inflection point to finish out the week. Although the Dollar Index quickly pared gains, and this has provided support to Gold and Silver, it will be tough for precious metals to ignore a steadfast rise in rates. As for the Dollar, German 10-year yields traded to new highs for the second straight session and the tightening of the spread between U.S. and German debt does suppress Dollar gains.
Of course, Fed speakers will help us digest today’s results. Fed Governor Clarida said he expects inflation to run above their 2% target over the next few months. and Atlanta Fed President Bostic speaks at noon CT; both are 2021 voters. Philadelphia Fed President Harker follows at 12:30 CT.
Technicals: We maintain a cautiously Bullish outlook for both Gold and Silver, but believe the real value is buying at better levels. Therefore, we are welcoming and hoping for some weakness in order to capitalize. First key support in Gold has been tremendous so far at 1817.6-1822, but we find the real value at major three-star support at 1798.4-1806. We cannot ignore rare major four-star resistance overhead at 1843-1850, Gold must close above here which paints a path of least resistance to 1894.5-1900. As for Silver, it continues to struggle against major three-star resistance at 27.63-27.68. Our Pivots represent our momentum indicators and a point of balance; continued action above or below here over the next hour will likely set course for the session.
Resistance: 1843-1850****, 1881**, 1894.5***
Support: 1817.6-1822**, 1798.4-1806***, 1781.7****
Resistance: 27.63-27.68***, 28.47-28.55***, 29.36***
Support: 27.00** 26.76**, 26.10-26.39***, 25.90-25.97***
Fundamentals: The USDA announced another flash-sale yesterday, this time to the tune of 680,000 metric tons, to China for the 2021/2022 marketing year. CONAB released estimates for Brazilian production, that came in at 106.4mmt, down from the 108.9mmt we saw in April. That is a very lofty number, with many analysts believing it is closer to 100mmt. This morning’s USDA report is the big-ticket item this week, that will be out at 11:00 am CST. The USDA does not typically change estimates on planted acres, but never say never (most analysts do not expect a change). Click here for the WASDE estimates.
Technicals: July corn futures traded in a 19-cent range yesterday, testing and holding our pivot pocket from 698-701 ½. A break and close below this pocket could spur additional long liquidation. First resistance comes in from 618-620. A conviction close above this pocket would likely open the door for a retest of contract highs and possibly beyond.
Previous Session Bias: Neutral
Pivot: 698-701 ½
Support: 673 ¼-676***, 652-657***
Fundamentals: July soybean futures made new contract highs yesterday and that momentum has carried into the early morning trade on continued supply concerns. CONAB released their production estimates, they have that at 135.4mmt, down from 135.5mmt. All eyes will be on this morning’s WASDE report, that will be out at 11am CST. Click here for the WASDE estimates.
Techncials: Prices are as much as 80 cents off yesterday’s low, which will likely keep emotions high and trading ranges wide, following today’s USDA report. We are back in uncharged territory, which makes the task of finding the next meaningful resistance point extremely difficult (Sorry for sounding like a broken record)
Previous Session Bias: Neutral
Support: 1574 ¾-1577 ¾**, 1535 ¾-1540 ½***
Chicago Wheat (July)Technicals: Chicago wheat futures continue to chop around in wide ranges. The market tested our pivot pocket in the overnight trade, 746-753 ½, but has so far failed. This pocket will continue to act as first resistance, a break and close above this pocket could open the door for another run at the contract highs 769 ½.
Resistance: 769 ½-775**
Pivot: 746-753 ½**
Support: 732-735***, 711 ½-717***, 700-701 ¾**