Market Overview – Morning Express
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4568.00, up 31.50
NQ, yesterday’s close: Settled at 14,985.25, up 229.50
Fundamentals: Stock market euphoria has arrived in 2022. A relentless bid post-FOMC, through Quadruple Witching, and since last week has carried the S&P 11% to two-month highs, all in just two weeks. The latest tailwind comes from peace talks between Russia and Ukraine in Turkey. It was reported yesterday that Ukrainian President Zelenskyy was ready to discuss a “neutral status” and compromise over Ukraine’s eastern Donbas region, while Russia was no longer demanding Ukraine to be “denazified”. Seen as opening the door to significant progress, U.S. equity benchmarks surged into the close, pinning the S&P back to the February 2nd and 9th highs in which it failed.
Early headlines are pointing to the talks yielding a ceasefire and opening the door for a Zelenskyy-Putin meeting. These developments on both a geopolitical and humanitarian front are significant, and we do not want to take away from that. However, we find it ironic that today is National Smoke and Mirrors Day. To be honest, we have no clue how we even know this, but it certainly seems fitting. Will these peace talks deteriorate, and the enthusiasm quickly fade? Maybe, maybe not. However, the true illusion, or smoke and mirrors, if you will, is the irony between now and Monday December 3, 2018. Over that weekend President Trump and Chinese President Xi met in Buenos Aires and agreed on a lauded deal to suspend new tariffs. Prior to this, the S&P sold off 13% from its September record high to October low, chopped around and left a significant double top aligning with the thick of the October selloff, seen in the chart below. Just two weeks before that meeting in Buenos Aires, the S&P traded to a higher low and rallied as much as 7% on anticipation of positive news. The only problem, it became one of the biggest “buy the rumor, sell the news events” of all time. The S&P then collapsed for what was a total of 21.5% from its September high to a low on December 26th.
Why are today’s Russia-Ukraine peace talks so strikingly similar to the Trump-Xi trade talks? Because on National Smoke and Mirrors Day, we are reminded that neither meeting was the catalyst for the initial sell off. For both 2018 and 2022, it was the Federal Reserve tightening monetary policy. During this current two-week rally, odds for the Fed to hike 50-basis points in May and another 50-basis points in June have risen to 80.5%. Furthermore, the odds of finishing the year at 2.50%, or what equates to nine 25-basis point hikes has risen to 73.4%. In 2018, it was Fed Chair Powell referring to the bank’s path to tightening as being on “autopilot”. If anything sounds like autopilot, it is the expectations of a 2.50% rate at yearend.
Lastly, the U.S. 2-year yield has risen from a low of 1.263% on March 1st to touch a high today of 2.445%. The U.S. 10-year yield has risen from a low in March of 1.668% to a high yesterday of 2.414%. This is a high velocity move that risk-assets, stocks, have only been able to ignore due to the steepening in the 3-month versus 10-year yield. However, it may have peaked yesterday. The 2-10 spread is 7.5-basis points and gearing to invert. Similarly, in 2018, the surge in Treasury yields peaked during the November stock market rebound from the October low. However, the 2-10 spread reached a low of 8.9-basis points on December 6, 2018, not inverting until 2019 due to the selloff in stocks. Maybe today the war in Ukraine finds the beginning of the end but let us not forget why the 2022 stock market correction truly began.
Technicals: The Monday melt higher continues, and the S&P is testing 4600 for the first time since collapsing through it on January 18th. The NQ is testing a significant gap from its February 2nd close at 15,115. The enthusiasm and strength are very clear, but can these levels hold through today’s session? This will be the test and a defining moment for this market in order to diverge from 2018, at least technically. However, a failure to hold and close out above 4568-4577.75 in the S&P will be extremely significant and likely open the door to continued selling. To the upside, a firm tape opens the door to major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (May)
Yesterday’s close: Settled at 105.96, down 7.94
Fundamentals: Progress on peace talks between Russia and Ukraine has propelled Crude Oil to trade below $100, mounting as much as a 13.5% loss on the week. Though significant, questions do lie ahead. So far, Russia has maintained it wants payment for Oil and Gas in Rubles. Will the U.S. and countries from around the world continue to reject Russian Oil and Gas? In fact, Russia’s Transneft capped intake earlier today due to brimming. In other words, a lack of demand. Let us not forget, yesterday’s early weakness was not on Russia-Ukraine progress, but due to lockdowns in Shanghai. Analysts expect fuel demand during lockdowns to drop by 200,000 bpd in Shanghai. With many moving parts, and a highly volatile landscape traders must stay nimble.
Technicals: Price action was stable overnight, but directly at the previous floor of support, now major three-star resistance at 107.01-107.30, though it did trade to a session high of 107.84. In yesterday’s Midday Market Minute, we discussed the market’s date with 101.53-101.65. It quickly broke below here on the news of Russia-Ukraine progress. This will serve as our Pivot and point of balance. Continued action below this mark will leave the tape vulnerable to major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Gold (June) / Silver (May)
Gold, yesterday’s close: Settled at 1944.7, down 15.1
Silver, yesterday’s close: Settled at 25.196, down 0.419
Fundamentals: Progress with Russia-Ukraine has taken the wind from the precious metals complex. We maintain our previous statement, that we are bullish Gold due to the broader landscape of slower growth, Fed tightening, and inflation, and Russia-Ukraine was merely a near-term supportive factor, pulling forward some gains. However, we do advise caution in trying to pick a bottom in the near-term. Traders must stay cautious as they navigate not only today’s news flow, but the economic data as the week unfolds, culminating with Nonfarm Payrolls on Friday.
Technicals: Gold has decisively broken below support aligning with its 2011 record high and recent retracement at 1923.7-1924.9. This level is now major three-star resistance and a close above here is needed in order to neutralize the selling. Similarly, Silver must close above 25.19-25.25. Our Pivot and point of balance on the session comes in at 1900.4 for Gold and 24.47-24.55 for Silver. Continued action below here will leave the door open to where long-term value begins to come in for Gold, at major three-star support at … Click here to get our (FULL) daily reports emailed to you!
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