On Friday and Monday, the Morning Express will only include updated levels. We will leave you with this ahead of next week’s Federal Reserve policy meeting.
U.S. equity benchmarks find themselves on a slippery slope ahead of next week’s Federal Reserve policy meeting. First, high multiple growth stocks were the target, but investors found refuge in cyclicals and value. This week, something changed, and the Dow has shed more than 2%, along with the Industrial sector broadly. Soft earnings and a flattening yield curve have hurt Financials. Even Utilities are down by 0.75% this week. Investors are not only managing risk, but the economic data has also been poor. Going back to December’s Nonfarm Payrolls two weeks ago, only 211,000 jobs were created. Okay, the jobs market is distorted, and people are not coming back to work. Last Friday, Retail Sales, Industrial Production, and Michigan Consumer data all whiffed. Retail Sales was especially bad, Core was -2.3% MoM and headline -1.9% MoM. This was a December read, the holiday season. At the onset of December, the Atlanta Fed GDPNow real GDP estimate for Q4 was nearly 10%. As of today, it is 5.1%. Business Inventory data released last Friday among the deluge was only for November. We are eager to see such data for December when retailers, wholesalers, and manufacturers bought everything they could get their hands on due to those supply chain bottlenecks that were supposed to ruin Christmas. They are likely left with massive inventory, creating a tremendous drag on GDP. The Federal Reserve finds itself in a tough spot, but they made their bed. With slipping GDP and a flattening yield curve, they are about to embark on a hiking cycle as the economy is clearly slowing. Regardless of our disagreement with their policy from time to time, especially the fact we believe they should have begun the taper last August, we have applauded their steady hand. They cannot succumb to political pressure and cut their hand off; a hike in March is a foregone conclusion, but patience must be steadfast through this year. Inflation is high and it is likely to remain persistent, but we are at the onset of higher base comparisons and the rate of change will slow. Yes, the Fed would find itself in a much better position if it had begun tapering last August, but they justified it by wanting to be behind the curve, waiting on jobs that never showed up. The mistakes are not coming from the Fed, yet, and the committee must not allow itself to fall scapegoat to an inflation narrative that both sides of the political isle are looking to blame ahead of midterm elections. The mistakes are coming from energy policy around the world.
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4524.25, down 47.00
NQ, yesterday’s close: Settled at 15,033.50, down 172.50
Fundamentals: Price action is attempting to find stable footing ahead of the bell and the bad economic data has been so steadfast, we may be turning a corner; bad news may become good news. Initial Jobless Claims spiked to 286k versus 220k expected, the highest since October 21st due to the surge in virus cases. This certainly does not give the Federal Reserve ammo to build a narrative for a second hike in May. It is almost a foregone conclusion they liftoff in March, but the path of hikes from there is what matters most. Philly Fed Manufacturing did beat at 23.2 versus 20.0. If the market can hold good technical groundwork, we find reason for losses to be pared into next Wednesday’s policy decision.
Technicals: Good technical groundwork begins with holding out above rare major four-star support in the S&P at 4485-4500, aligning with those December lows. As for the NQ, it would mean holding out above rare major four-star support at 14,975-15,025, a pocket of multiple technical indicators that align with the 200-day moving average. The Dow is also testing its 200-day moving average perfectly at today’s session low. Seemingly, such groundwork opens the door for buyers to take the S&P back above 4558.50-4560, a critical level that was violated decisively yesterday. At minimum this should allow price action to consolidate as high as major three-star resistance in the S&P at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (March)
Yesterday’s close: Settled at 85.80, up 0.97
Fundamentals: It is easy to think of Crude Oil as Gasoline, but most everyone ignores petroleum’s broad importance. We cannot emphasize enough that “Life Runs On Energy” and petroleum products are everywhere. Today, EIA data is front, and center and prices are coming in slightly after last night’s private API survey printed what would be the first build in two months at 1.404 mb. However, the survey did show a -1.496 at the pivotal Cushing hub, while reporting +3.463 mb Gasoline and -1.179 mb Distillates. Expectations for today’s official report are -0.938 mb Crude, +2.634 mb Gasoline, and -0.850 mb Distillates. Within the report, we want to watch Cushing closely, Net Imports and estimated production. Traders also want to keep an ear to the ground for developments with Russia on the Ukrainian border and within the Middle East.
Technicals: Yesterday’s fresh high has backed off and consolidated ahead of today’s fundamental data. Rare major four-star resistance at 85.41-85.55 will remain critical and a close above here after a bullish report would pave the way for a continued melt-up. We remain more Bullish in Bias, but feel that buyers won’t find near-term value until major three-star support at … Click here to get our (FULL) daily reports emailed to you!
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1843.2, up 30.8
Silver, yesterday’s close: Settled at 24.231, up 0.739
Fundamentals: This is what we have been waiting for and it was no coincidence the U.S. Dollar Index halted Tuesday’s face ripping rally on a dime when the German 10-year yield touched 0%. It is now a reality the most important economy within Europe will likely see positive yielding debt. This encourages flows from the U.S. Dollar to Europe and we have been talking about it for weeks. Price action got a boost this morning after Initial Jobless Claims came in at a three-month high on the heels of a streak of poor economic data. Remember, the U.S. Dollar and rates typically find a peak at the onset of a hiking cycle; this is bullish Gold and Silver.
Technicals: Silver is leading the way a bit, but as we always say, Gold and Silver work best when they work together. Silver found tailwinds after clearing the 50-day moving average, a crucial indicator for Silver. This dragged Gold through rare major four-star resistance at 1829-1835. Now Silver, faces a trend line dating back to May and is relying on strength in Gold to help pull it through. Gold does have major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!
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