Market Overview – Morning Express
E-mini S&P (December) / NQ (December)
S&P, yesterday’s close: Settled at 4678.25, down 15.75
NQ, yesterday’s close: Settled at 16,212.75, down 115
Fundamentals: U.S. benchmarks are holding a soft path and consolidating from last week’s record run. When stocks broadly pull back as little as 1%, we get the sense that many are ready to stick a knife in them. Therefore, it’s important to always take a step back from the forest, so you can see the trees. Our theme, aside from an ultra-dovish Federal Reserve, has been it is not about resistance anymore, it is about defining the next floor. In our Technical section below, we strive to do just that.
Inflation, via headline metrics, remains at the forefront and U.S. CPI data is due at 7:30 am CT. Yesterday, PPI was in line to a touch under expectations. For all intents and purposes, these headline metrics are telling us inflation is contained. Albeit contained from very elevated levels. The Core CPI read is watched most closely as it excludes the volatile food and energy components. In other words, the essentials, what hits your pocket. Expectations are for CPI to rebound to a three-month high at 4.3% YoY and at the fastest pace MoM since June. The economy is seeing renewed inflationary tailwinds, but the Federal Reserve remains steadfast in their analysis, inflation is transitory. Yesterday, U.S. Treasury Secretary Yellen reiterated the same rhetoric, this is not 1970’s style inflation. A hot read today would likely weigh on sentiment, but something broadly in line with expectations or a touch below would re-invite last week’s enthusiasm.
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Last night, inflation data from China was higher than expected on a YoY basis. The Producer Price Index matched the 1995 record, rising by 13.5% YoY due in part to the energy crunch. Consumer Prices rose by the fastest pace in a year at 1.5% YoY and since February MoM at +0.7%. The data dump weighed on risk assets as higher than expected inflation would constrain the People’s Bank of China from providing looser policy in the wake of a slowdown.
Technicals: Yes, we remain outright Bullish in Bias, and this healthy pullback from record levels is not concerning, but potentially an opportunity to buy. ‘Defining the floor’ has been our theme and overnight the S&P essentially tested into the level that could prove to be the next floor at 4650.75-4654.50. The NQ has done the same, testing into 16,143-16,157. Yesterday, we referenced a pennant in the S&P and a bull-flag in the NQ. The soft tape has elongated these patterns, but both are now holding what could be a bull-flag. If today’s price action responds with strength, we will have our answer and we are likely to see strong technical tailwinds behind it. A decisive move back through yesterday late swing high and first key resistance in the S&P at 4678-4680 and in the NQ at 16,240 is likely to invite added buying. However, if today’s tape does not play out as constructively, it does not mean the trend is broke. Remember, rare major four-star support sits below at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (December)
Yesterday’s close: Settled at 84.15, up 2.22
Fundamentals: Crude Oil had a day and solidified its rebound from the $80 mark, now setting its sights on $85 and higher. Yesterday’s EIA Short-Term Energy Outlook was released yesterday and had a larger impact than usual after the Biden Administration said it would use the EIA’s forecasts to determine whether to release Oil from the SPR. The report said it expected Gasoline prices to moderate and this staved off any move by the administration. We also believe there is an undertone within the President’s impending social spending bill that would further hamper producers and is driving prices higher. Added tailwinds are coming from last night’s private API inventory survey that showed a surprise draw of 2.485 mb of Crude. Today’s official EIA data is due at 9:30 am CT. Analysts expect +2.125 mb Crude, -1.193 mb Gasoline, and -1.133 mb Distillates. Traders must keep a close eye Cushing after four weeks of draws totaled 9.1 mb and put inventories at the lowest level in three years.
Technicals: Price action roared higher late yesterday and tested directly into major three-star resistance at 84.60-85.00. After peeling back slightly, we view stable action at and above previous major three-star resistance and a recurring level that now aligns with our momentum indicator as very bullish at … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1830.8, up 2.8
Silver, yesterday’s close: Settled at 24.318, down 0.224
Fundamentals: Inflation was higher than expected with Core CPI at +4.6% YoY and +0.6% MoM, but Gold and Silver are ripping! Is this counterintuitive? Not so much. Remember, we are coming out of three months of a subdued rise in inflation. This is only one month now hotter. Furthermore, we are beginning to see some of the previously hot components recede and new ones begin to show inflation that is not yet hot. At the end of the day, what really matters is that this is only one number and does not change the Federal Reserve’s trajectory exuded at their meeting last week. This is bringing bullish tailwinds to Gold and Silver, helping them breakout technically.
Technicals: This is a massive pent-up breakout in Gold from a downtrend dating back to its record high last August. The move surged through a strong ceiling of resistance at 1836 and faces the next level at 1868.4. Although Gold is not in uncharted territory, due to the expected increase in volatility, our narrative is somewhat similar technically to what it has been in equities; it is less about resistance and now more about defining a floor. Gold must now hold above the previous ceiling at 1836 as a new floor and the bulls are in the driver’s seat from there. Silver has also surged higher and through resistance at 24.95-25.17. This was a level that price action previously failed at; we must see Silver hold and close decisively out above. At the end of the day, we want to see Gold and Silver work together, this is how they perform best. We are outright Bullish in Bias from a long-term sense, and do not suggest chasing price action; stick to your gameplan…. Click here to get our (FULL) daily reports emailed to you!
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