Market Overview – Morning Express

E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 3762.75, down 5.00
NQ, yesterday’s close: Settled at 11,565.75, down 11.50
Fundamentals: Fed Chair Powell continues his Congressional Testimony in the House at 9:00 am CT. However, it was one comment during his hearing in the Senate yesterday that has not been talked about enough. Has it been talked about at all, other than us? He said, “I would never want to compare myself to Paul Volcker in anyway.”
For a quick history lesson, Paul Volcker was the Fed Chair from 1979 to 1987 and an instrumental decision maker as the NY Fed President from 1975 to 1979. Inflation was at 10% and higher when Volcker took the helm in 1979. To battle this price rise, he raised the Fed Funds Rate from 10% to 20% over about 15 months. The initial damage in the stock market took place between 1973 and 1975, where the S&P fell about 50%. The market was actually in its repair phase when Volcker took over and although it remained somewhat buoyant during the period of these excessive hikes (1979-1980), there were corrections of 10% and 25%. After the Fed Funds Rate hit a 20% ceiling in 1980, GDP was at -0.3%, the Unemployment Rate rose to 7%, but inflation remained steady at 12% and higher. The Fed had to act, it cut the Fed Funds rate to 8.5% by June of 1980 and the market rallied 50% to a new record by November. Guess what persisted? That is right, inflation. Volcker had to re-tighten and hiked the Fed Funds Rate ultra-aggressively from 12% in October to 20% by December. As financial conditions tightened, Unemployment climbed to 8.5%. From November 1980 through 1982 the S&P fell nearly 30%, GDP was -1.8% and Unemployment was 10.8%, but inflation subsided back below 10%. It is widely agreed that outside of the Great Financial Crisis from 2007-2009, the period from 1981-1982 is the worst recession in history (the 1940’s was a depression). As the Fed again had to ease, beginning in August 1982 the S&P climbed about 70% over the next year. In the end, inflation dropped from 12% at the onset of 1981 to finish 1982 at 3.8%. By some, Volcker is thought to be a hero, but by many he is remembered for persistently high prices, multiple stock market crashes, and the worst recession in history.
What is embodied within Fed Chair Powell’s comment yesterday, he does not want to be remembered for multiple stock market crashes, and the worst recession in U.S. history. In the end, he may have no choice, people far less-smart but well above him geopolitically may have made his bed for him; energy prices could become very ugly this winter. However, for us as traders and investors, it tells me that he will use every opportunity to lift his foot off the gas in order to avoid over-tightening into a recession and that is tradable.
Do not miss our daily Midday Market Minute, from yesterday.
Technicals: Price action was a rollercoaster overnight, nothing new. First, it was a very positive sign seeing buyers show up at yesterday’s opening bell from the lower open. We will look to the opening bell range, and the volume at that time, as a critical support level in the case of a failure, listed below. Overhead, despite trading through last Wednesday’s gap settlement yesterday (the NQ also did on Tuesday), there is still a clear ceiling of supply. This will continue to be major three-star resistance in the S&P at 3795.50-3797.75. However, the NQ’s level of major three-star resistance has been 11,774-11,796. We will look to decisive price action above these levels as paving a path of least resistance higher. In the case of not decisively trading through these resistances, the market will remain very vulnerable to selling. In the case of a path of least resistance higher, we are targeting … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (August)
Yesterday’s close: Settled at 106.19, down 3.33
Fundamentals: Today’s weekly EIA report has been delayed due to a “systems issue”. We find it ironic, or coincidental, that yesterday the White House requested Congress to suspend the federal gas tax for three months, is running the Strategic Petroleum Reserve dangerously low, to the lowest level since 1987, and the private API survey printed the largest (surprise) Crude build since February yesterday at +5.607 mb, and now the official EIA report is delayed. We would never suggest a conspiracy theory here, or would we? Regardless, Crude Oil is saying “hold my beer” and is trading more than $4 off its overnight low, a higher low than yesterday.
Technicals: Price action stabilized out above support at 103.47-103.85 overnight and then above 104.67, to help stage a rally. The bulls have muscled to regain an upper-hand and we will look for them to maintain such with price action out above our Pivot and point of balance at 105.94-106.19. If this holds, we are targeting a direct test to major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!
Gold (August) / Silver (July)
Gold, yesterday’s close: Settled at 1838.4, down 0.4
Silver, yesterday’s close: Settled at 21.421, down 0.347
Fundamentals: Gold and Silver slipped overnight in light volume, despite strength in the Treasury complex and a U.S. Dollar that is not running higher. We do attribute part of the weakness to the failed technical landscape over the last week, distortions tied to the Japanese Yen, the upcoming expiration of July options. Regardless, we believe firmly that if the Treasuries remain firm and the U.S. Dollar Index does not make a new high above 104.55, that Gold and Silver are set to finish better on the week.
Technicals: Price action slipped early this morning to ping major three-star support in both Gold and Silver, listed below. They are both attempting to rebound at the onset of U.S. hours. Despite first key resistance overhead at 1848.4-1849.9 in Gold and 21.67-21.72 in Silver, what matters most is continued price action to trade above our momentum indicators that align with our Pivot and point of balance at … Click here to get our (FULL) daily reports emailed to you!
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