|E-mini S&P (June) / NQ (June)|
S&P, yesterday’s close: Settled at 4058.75, down 87.50
NQ, yesterday’s close: Settled at 12,998.50, down 347.50
Fundamentals: Yesterday’s CPI was hot, but it was only one number. The real inflation that everyone has been yelling about finally impacted a closely watched economic indicator, CPI. Guess what? The Federal Reserve expected it. With the committee right again and again, why should we doubt their belief that such inflation will be transitory? April’s base data was dismal, it represented the onset of Covid lockdowns. Yes, that wouldn’t explain the surging MoM results relative to March, but certain components certainly do. Look no further than a 10% one-month increase in the price of used cars. Let us get out of the inflation forest, to see the inflation trees, if you will. People want to travel! Extra money in people’s pockets over the last 12 months has created added spending, reinvigorating an inflationary environment, and cars were popular. Rental car companies also need to buy used cars to replenish their fleet. Spring break just passed, and supply was tight. These companies are preparing for summer demand. Will used car prices be up 10% in May from April? This would be extremely unlikely. Furthermore, what responded to the data yesterday? The U.S. Dollar, and the tradable Index is 1% from Tuesday’s new swing low. As Larry David would say, everyone has gotten pretty, pretty, pretty, bearish on the U.S. Dollar. Would it be a surprise to see it gain some value in the near term? Absolutely not. With the whole second half of May to go, this would suppress the commodity rally and keep a lid on the rise of inflation.
In conclusion, we will say it again, this was one number. March’s Nonfarm Payroll report was one number, and then look how April’s jobs data panned out. The Fed announced symmetrical inflation targeting last year and has told us they will be behind the curve. We expect them to remain patient with their policy. Why? Because, they have telegraphed this time and time again.
For us, we have been extremely cautious on equities. We have traded the market short, and we have hedged wealth portfolios. Considering all of this, and mounting pessimism after a little panic yesterday, we must trust the aforementioned narrative and our Technical analysis. Let us lean on the tremendous levels of support in which the S&P and NQ each tested into overnight.
Don’t miss our daily Midday Market Minute.
The PPI inflation read is due at 7:30 am CT, along with weekly Jobless Claims data. We then look to a 30-year Bond auction at noon CT. Traders must keep a pulse on Treasuries, and rising yields could derail a bounce in equities. St. Louis Fed President Bullard, a 2022 voter, is scheduled to speak at 3:00 pm CT.
Technicals: As one might assume from the above commentary, we have introduced a cautiously Bullish Bias. Each the S&P and NQ tested into massive levels of technical support. For the S&P, this is major three-star support at 4036.75, with rare major four-star support coming in just below at 4010-4020, aligning the holiday March payrolls gap with the following Monday session low. Let us be clear in our caution: WE DO NOT WANT TO SEE A CLOSE BELOW HERE. For the NQ, it also tested rare major four-star support, coming in at 12,871-12,900. Each index has responded and is rising this morning. The NQ is testing into our momentum indicator and previous support this morning, this will act as our Pivot and point of balance; continued action above here will encourage a move to rare major four-star resistance at 13,346-13,888. We believe that given the NQ’s larger-scale selloff, it could be a leader for a rebound. Both indices face tremendous damage overhead, and we imagine this takes some time to repair, traders should not chase rallies into resistance. For the S&P, our momentum indicator comes in as second key resistance at 4079. A move through here is bullish on the session, but as we stated, strong resistance comes in overhead.
Resistance: 4070**, 4079**, 4103.75-4109***, 4118-4120.50***, 4133.75***
Support: 4051-4052.25*, 4036.75***, 4010-4020****
Resistance: 13,184-13,231*, 13,346-13,388****, 13,489**, 13,543**, 13,625-13,657***, 13,790-13,818***Pivot: 13,075-13,090
Support: 12,998**, 12,871-12,900****, 12,609**, 12,503***, 12,134-12,200****
Fundamentals: Yesterday’s WASDE report was not enough to feed the Bull and has prompted not only long liquidation, but likely new shorts (back)into the market. 2020/2021 ending stocks came in at 1.257 billion bushels, near the middle of estimates. World ending stocks came in at 283.5 little changed from the previous report and above the average estimate. New crop carryout estimates for US and World were on the high end of estimates which put a lot of pressure on December futures. Traders are also expecting to see next month’s report show a jump in US acres. Not to mention that weather has been reasonable, outside of some isolated areas.
Technicals: July futures are nearly 35 cents off the contract highs, which looks like a blip on the chart. This should act as a caution flag for the bull camp, we can trade another 25+ cents lower and still hold trendline support, so managing your position and expectations are important. Our pivot pocket has been tested overnight and has so far held, that comes in from 698-701 ½. A break and close below here opens the door for a leg lower, with the next support pocket coming in near 670 ¾-676.
Previous Session Bias: Neutral
Resistance: 714*, 735 ¼**
Pivot: 698-701 ½
Support: 670 ¾-676***, 652-657***
Fundamentals: July soybean futures made new contract highs before the report and held their own, post report. The USDA showed US ending stocks for old crop and new crop were little changed. World ending stocks for 2020/2021 were inline with estimates, but 2021/2022 came in above trade expectations.
Technicals: Soybeans are under pressure this morning but have not even given up all of yesterday’s gains. First technical support today comes in from 1615-1617 ¾. A break below here could take us back to the psychologically significant 1600 handle, which will be the bigger inflection point.
Previous Session Bias: Neutral
Resistance: 1645-1650**, 1667 ½**
Support: 1574 ¾-1577 ¾**, 1535 ¾-1540 ½***
Chicago Wheat (July)
Technicals: Wheat futures were under pressure yesterday after failing against our pivot pocket for the second consecutive session. The market has now retreated near 3-star support, 711 ½-717. A break and close below there could take us considerably lower, so the Bulls MUST defend this pocket.
Previous Session Bias: Neutral
Resistance: 769 ½-775**
Pivot: 746-753 ½**
Support: 732-735***, 711 ½-717***, 700-701 ¾**
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