Market Overview – Morning Express
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4349.00, down 54.75
NQ, yesterday’s close: Settled at 14,140.75, down 360.25
Fundamentals: U.S. benchmarks are pointing sharply higher after extreme volatility. We are not only talking about the S&P’s 4.5% rebound on Monday and 2.9% drop yesterday before paring losses, but the meltdown into the electronic close and ensuing rip after today’s reopen at 5:00 pm CT. From yesterday’s late peak, the S&P dropped 2.4% and the NQ 3.5% precipitously, there were no bids. What happened? After a soft close and a failure at Monday’s high, Microsoft released what was interpreted as an unenthusiastic earnings report. The stock fell more than 5% despite beating estimates for the previous quarter, however, market participants queued off the lack of clarity on future guidance. Those worries were soothed on the earnings call and Microsoft is now up more than 4% ahead of the bell, the S&P 1.5% at the highest level since before Monday’s bell, and the NQ more than 2%. It cannot go unnoticed that ushering this volatility is today’s Federal Reserve meeting. Monday’s washout and bounce brought some of the most volume in months for the S&P and since March 2020 for the NQ. Institutional players are largely on the sidelines ahead of today’s policy decision and this has created a yo-yo market. With that said, the conclusion of today’s meeting can bring a massive directional move due to such whipsaws.
Yesterday, the IMF slashed its global GDP by 0.5% to 4.4% for 2022. The Atlanta Fed GDPNow real GDP estimate for U.S. Q4 2021 is 5.1%, down from about 7% at the onset of this year. The economic data has been atrocious, and we believe there is a real concern for a big inventory build beginning in December. Today’s preliminary Wholesale Inventory data for January came in at 2.1% versus 1.3%, a big miss and a GDP drag. Also, the CME’s FedWatch Tool, which extrapolates probabilities within rate markets, tells us there is only a 5.6% chance the Fed hikes today. Furthermore, it already shows a 97% probability they hike in March and a 91% probability they hike three times through December. Considering all of this, the perceived path of the Federal Reserve is fairly hawkish, especially relative to the slowing growth. The Fed wants to fight inflation, but asset prices via the stock market have already corrected drastically. A surprise hike today or a more hawkish rhetoric would be completely unnecessary even before considering their goal of being behind the curve. If they did such, equity prices would likely slip further, and there would be no guarantee it would stave off the near-term inflation coming from rising Crude Oil. Remember, “Life Runs on Energy”. Therefore, if the Fed surprises today, we expect it to be dovish.
Technicals: Yesterday, we again gave you the buy. After Monday’s strong close faltered, we wrote, “during the December 2018 post-Quadruple Witching washout that we have commonly referenced, the S&P finished 6.8% from the low that Monday, only to drop as much as 3% on Tuesday, before finishing at new swing highs and forming a generational-like bottom.” Although we said we will not have an answer on whether it brings a generation-like bottom because of the Fed meeting, and we overall expect volatility to continue. However, within the context of yesterday’s selloff of 2.9% matching that from December 2018 and the market a little oversold give the Fed meeting, the tradable opportunity was there. This is something we highlighted in our Midday Market Minute. This morning, the S&P and NQ each find themselves trading against strong waves of resistance. First key resistance in the S&P comes in at 4412.50, although it stuck its head above here, it has not done it intraday; let us see how it is welcomed. Our Pivot and point of balance is Monday’s settlement at 4403.75 and a level price action failed yesterday. However, the true test is major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (March)
Yesterday’s close: Settled at 85.60, up 2.29
Fundamentals: Trading to an early high of 87.20, Crude Oil has again hit the highest since October 2014. EIA inventory data is front in center today, especially given how tight the physical market is. Yesterday’s API was fairly in line with analysts expectations for EIA at -0.728 mb Crude, +2.548 Gasoline, -1.26 mb Distillates. Cushing continues to underpin this rally and API estimated a drop of 1 mb at the crucial hub. Traders want to keep a close eye on the confirmation of a third straight weekly draw. Additionally, geopolitical tailwinds and the broad risk-environment due to the Federal Reserve cannot go ignored.
Technicals: We have been and remain Bullish. Price action closed yesterday at 85.60, another attempt at a decisive break above rare major four-star resistance at 85.41-85.55. Given the early look at today, we will now use 85.41-85.55 as support and the market can be in a melt up mode targeting … Click here to get our (FULL) daily reports emailed to you!
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1852.5, up 10.8
Silver, yesterday’s close: Settled at 23.896, up 0.096
Fundamentals: Gold is under pressure early this morning and it is no surprise on a technical or fundamental basis. We have had major three-star resistance standing at 1851.5-1854.3, a level tested perfectly yesterday. Also, Gold has been choppy with broad indirection for many months, fundamentally it makes sense for it to retreat ahead of the Fed. Silver is battling to hold well and follow the lead of industrial metals; Copper, Platinum and Palladium are all surging. As the session unfolds, today’s Federal Reserve meeting is what matters, traders must understand the committee’s path relative to current expectations. Also, how do Treasuries and currencies react?
Technicals: Gold has slipped back to major three-star support at 1829-1831. If it can hold this level through the electronic close, we imagine it signals higher prices to come. However, a break below here would open the door to … Click here to get our (FULL) daily reports emailed to you!
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