Market Overview – Morning Express

E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4700.50, up 72.50.
NQ, yesterday’s close: Settled at 16,286.25, up 364.00
Fundamentals: Markets hate uncertainties and yesterday the Federal Reserve removed uncertainties. Volatility since Fed Chair Powell’s hawkish pivot on November 30th had been discounting a faster taper and pricing in the possibility of three rate hikes in 2022. In those weeks, the S&P held the utmost technical construction where leadership from companies like Apple helped maintain a broadly bullish undertone.
The Fed successfully landed a roadmap to their tightening cycle and markets rallied in relief. In yesterday’s post-close Midday Market Minute, Bill Baruch discussed peak hawkishness. We know this playbook and have seen it over the last decade. The Fed’s Dot Plot pointed to three rate hikes, but markets know their Dot Plot has never lived up to the hype and this, in and of itself, is bullish.
Today’s fresh record high in the S&P and budding breakout, if confirmed tomorrow, likely paves a quick path to 4850. However, as the New Year approaches, let us not get ahead of ourselves. Inflation is lurking, and as we have said many times this year, inflation muscles policy.
The Federal Reserve is the most powerful central bank in the world. Last year, the U.S. Dollar became the sacrificial lamb in stabilizing the global economy. The Fed’s direction matters most, but today three other top central banks are also in the spotlight. This morning, the Bank of England surprised markets by hiking rates 25 basis points in an effort to fight inflation. The bank was expected to hike in November but wanted to wait on fresh labor data. Today, they hiked despite a single day record for virus cases yesterday and being at the onset of new restrictions. As for the ECB, they stayed in line with dovish expectations, and we now await President Lagarde’s press conference. Tonight, we look to the Bank of Japan.
On the U.S. economic calendar, Philly Fed Manufacturing whiffed and Initial Jobless Claims came in a little higher than expected at 206k. However, Housing Starts and Building Permits both beat. We now look to Industrial Production at 8:15 am CT.
Technicals: Price action ripped into the close yesterday, extending gains overnight to where the S&P achieved a fresh record high. The tape is consolidating a bit ahead of the U.S. open and will need to establish footing out above major three-star support, a recurring level, now aligning with yesterday’s settlement at 4699-4701. While out above this level, the bulls are in the driver’s seat across all timeframes. A solid session today should set course for a strong finish to the week and a potential test of our next major three-star resistance above that aligning with the record at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (January)
Yesterday’s close: Settled at 70.66, up 0.14
Fundamentals: Crude Oil followed the risk-on landscape into the early part of the morning, but the surprise rate hike by the Bank of England batted price action from session highs. The energy complex certainly had some bullishness of its own, on the heels of yesterday’s EIA report. Although the tape waited on the Fed news, large headline draws and a new record for Oil demand at 23 mbpd are likely to bring powerful tailwinds. Yes, in our Midday Market Minute we noted how a large drop in Net Imports watered down the headline impact, but we view the landscape as very constructive. We now must see a solid finish to the week.
Technicals: On a positive note, our first layer of major three-star support at 69.49-69.52 held perfectly over the last two session, laying constructive groundwork for higher prices. However, we still have a ceiling of resistance $73 that price action must clear. Our momentum indicator comes in at 71.10 this morning and continued actin above here is supportive. First key resistance aligns multiple levels with the recent settlement high in February Crude at … Click here to get our (FULL) daily reports emailed to you!
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1764.5, down 7.8
Silver, yesterday’ close: Settled at 21.545, settled at 0.379
Fundamentals: Gold and Silver were squeezed lower into the Fed policy decision yesterday but with no surprises, they have enjoyed a relief rally into this morning. Barring a much steeper rise in inflation from current levels, we could be at the onset of peak hawkishness. A Fed that cannot hike three times next year and we believe Gold is sniffing that out. The U.S. Dollar is seeing added selling on the heels of Bank of England’s rate hike and the Euro is being underpinned by broad market forces and an ECB that was not more dovish than expected. Bringing an added tailwind was a whiff on Philly Fed Manufacturing and higher Initial Jobless Claims than expected. Industrial Production is next up at 8:15 am CT and the Bank of Japan meets tonight.
Technicals: Price action is very firm, but not in the clear. Gold is testing into a sticky area, but the real headwind comes just above at the 50 and 200-day moving averages aligning to create strong resistance right at the 1800 mark. Despite recent weakness, the 50-day moving average still crossed above the 200 last week. We now must see Gold close out above 1800 to bring an added tailwind to the Golden Cross, right at a very seasonally bullish time of year. As for Silver, it will try to establish a floor at the $22 mark as it attempts to clear first key resistance at … Click here to get our (FULL) daily reports emailed to you!
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