Market Overview – Morning Express
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4786, up 27.00
NQ, yesterday’s close: Settled at 16,485.50, up 164.75
Fundamentals: U.S. benchmarks are pointing higher with the S&P and Dow setting fresh records. Exuding a very risk on environment, the yield on the U.S. 10-year Treasury Note gained 11.7 basis points in the first trading session of the year and has extended those gains to a high yield of 1.675%. Previously, the Thanksgiving high yield, pre-Omicron, was 1.69% and the October risk-on rally tapped 1.70%. These were the highest since March’s peak of the year at 1.774%. Through the final trading days of 2021, we said risk-assets are in a holiday melt-up and not worried about the Federal Reserve’s tightening cycle, but when the calendar turns it will quickly become a reality. We find the market in between this reality and a FOMO momentum grab. In yesterday’s Midday Market Minute, Bill Baruch pointed to such ‘re-allocation’ taking the S&P to 4850. It is now becoming clearer that for this to happen, the overall risk-on landscape will be a massive tailwind to yields much more quickly than anyone could have foreseen.
The stage is now set for this week’s data dump. Today, we get ISM Manufacturing at 9:00 am CT. Tomorrow brings a glance at payrolls via ADP and the Minutes from the Fed’s meeting in December. We then look to ISM Non-Manufacturing on Thursday and the week culminates with Nonfarm Payrolls on Friday. Given new year ‘re-allocation’ tailwinds, we imagine good news will at least start as good news. However, the market will face two hurdles, the potential of a more hawkish than thought Fed in Wednesday’s Minutes and too much good news becoming bad news in the wake of a blowout jobs report. Such a combination could bring the 10-year yield out above 1.80% and begin to create real pressure on high growth Tech stocks.
Technicals: Yes, we have renewed our more Bullish Bias and price action in the S&P has broken out of a bull-flag like pattern that likely trapped shorts within the bottom half of the range. However, we must point out that this Bias was something that developed more Bullish amid yesterday’s perfect hold of our major three-star support levels and was highlighted in our Midday Market Minute. The S&P tested and held 4740.50-4744.50 and the NQ tested 16,312-16,330. As always, we are certainly not advising anyone to chase the tape. Our momentum indicators for each the S&P and NQ this morning align with yesterday’s settlements, which is denoted as first key support, but they are rising. To the downside, a break below these levels will encourage a consolidation that could retest into yesterday’s low range and force the bulls to once again defend this line in the sand. To the upside, the S&P does face major three-star resistance at 4809, a level already tested this morning. Although the NQ does not face major three-star resistance until a level aligning with the failed record spike at 16,768-16,800, is facing key resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (February)
Yesterday’s close: Settled at 76.08, up 0.87
Fundamentals: Crude Oil stuck its nose above $77 this morning before retreating as the OPEC+ policy decision quickly came and went. As expected, the cartel maintained its plan to add 400,000 bpd in February. The risk-on environment is very healthy, and Crude Oil is enjoying such tailwinds. Although markets broadly face the hurdles discussed in the S&P/NQ section and weakness in some risk-assets would create undertows for others, such as Tech stocks on Crude, we see a key driver of higher yields being higher Crude prices. Fundamentally, we believe the bullish components are here for Crude to work through such potential volatility as U.S. Crude stocks are well below their 5-year range and consumer demand remains strong as we move into the heart of winter demand. Headline case counts do pose a risk, but at the end of the day, we are moving into and through peak Covid which actually translates into stronger demand and higher energy prices.
Technicals: Price action has steadfastly been above our momentum indicator since yesterday’s late morning rebound and it has helped underpin the tape overnight. This indicator aligns closely with unchanged on the session as first key support. A decisive break below here and then below second key support at 75.75, old resistance, will signal a near-term failure to hold higher prices. Ultimately, the tape is again testing into our intermediate-term upside target at 77.44-77.81, a level that has already been achieved and one that the market must now chew through or face another near-term failure. We have increased our Bullish Bias, but a break below … Click here to get our (FULL) daily reports emailed to you!
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1800.1, down 28.5
Silver, yesterday’s close: Settled at 22.81, down 0.542
Fundamentals: Gold and Silver are facing a mounting hurdle, the elephant in the room, higher yields. As we highlighted in the S&P/NQ section: The yield on the U.S. 10-year Treasury Note gained 11.7 basis points in the first trading session of the year and has extended those gains to a high yield of 1.675%. Previously, the Thanksgiving high yield, pre-Omicron, was 1.69% and the October risk-on rally tapped 1.70%. These were the highest since March’s peak of the year at 1.774%.
One very smart person does not see this as a problem, legendary investor Byron Wien. In his annual “Ten Surprises” he said the Federal Reserve will have to hike four times in 2022 and the 10-year Treasury yield will rise to 2.75%. However, he also expects, “The price of gold to rally by 20% to a new record high. Despite strong growth in the US, investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility. Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.”
In his writeup, he does not discuss the U.S. Dollar. It is hard to imagine the U.S. Dollar much weaker with the yield on the U.S. 10-year higher by another 1%, unless yields in Europe re-emerge from negative territory. In conclusion, the U.S. Dollar may be the most important component in keeping a pulse on Gold. However, days in which the Bonds sell off as sharply as they did yesterday, Gold will face heavy selling.
Technicals: Despite heavy selling amid yesterday’s Bond bludgeoning, Gold and Silver did not close below crucial levels of major three-star support highlighted in our charts provided here yesterday. This has allowed for construction as buyers defended the pitfall, and the tape is in rebound mode. Even better, we are seeing momentum shift back to Neutral with price action handedly out above after the latest spike this morning. Look for continued action above our Pivots as healthy, but we must begin seeing a close back above resistance levels in order to … Click here to get our (FULL) daily reports emailed to you!
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