Market Overview – Morning Express
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4341.50, down 7.50
NQ, yesterday’s close: Settled at 14,158.50, up 17.50
Fundamentals: Whether deliberate or not, yesterday the Federal Reserve came across slightly more hawkish than expected. First, this can be seen through the rate markets, now showing nearly a 90% probability the Fed hikes a fourth time through December. Upon the statement release, equity markets popped. This can easily be attributed to Pac-Man searching for stops, he ate well. However, the committee did not speed up the taper to conclude in February, it remained on track for early March. The hawkishness actually came via Fed Chair Powell himself who held a tight line on inflation, exuding the uphill battle they face. Furthermore, the endless questioning he received on the balance sheet run-off certainly forced a narrative to unfold unnecessarily. However, journalists did a great job dictating the direction of the press conference and Powell did not care to avert. Amid all this worry for inflation, the one asset in the driver’s seat is making new swing highs: Crude Oil. Imagine a world where the Federal Reserve tightens policy and reins in assets broadly but whiffs on the most crucial component because of policy in Washington and around the world.
Regardless, here we are today, U.S. benchmarks bent, but they did not break overnight. In fact, the S&P held major three-star support when it seemed least likely. Today, we look to a jam-packed economic calendar and a deluge of earnings. The first look at Q4 GDP is due at 7:30 am CT, along with Initial Jobless Claims and Durable Goods. At noon CT we get the dreaded 7-year auction, we find it pivotal to the rate story. Amid a diverse group of companies reporting, Apple will be the most important when they release at 3:30 pm CT. McDonald’s missed top and bottom estimates. Many companies beat, such as Danaher, Mastercard, Comcast, Dow, Rockwell Automation, but the reactions due to sky-high expectations has been broadly mixed ahead of the bell. Another thing we noticed is the ongoing slew of downgrades. It would also seem that analysts are racing to cover themselves. Let’s remember, these men and women are not traders, the market has already downgraded these names for them. Maybe this is a sign of bottoming.
Lastly, after a streak of such poor economic data and the Fed holding their line of hawkishness, we see good news again being good news; economic beats should encourage higher equity prices.
Technicals: Price action tested major three-star resistance at 4429.50-4440 perfectly, and it failed. The test early in the session should have been enough to encourage longs to take profit. Remember, the buy was sub-4300, sprinkled with many trading opportunities in between. If you held longs through the Federal Reserve’s policy meeting and after the second test, those are not trades, those are investments. Similarly, the NQ spiked to a high of 14,639 post-Fed, after being contained by major three-star resistance at 14,501-14,532 before (has been modified slightly in details below). The reversals tested into critical areas of support and responded before the close yesterday. However, the real work came overnight, when the S&P held our rare major four-star support perfectly at the neckline of the inverse head and shoulders from Monday at 4260.50-4276.50. As Bill Baruch said in last night’s Midday Market Minute, trust the levels. We are seeing early strength as price action has rebounded from rare major four-star support. Price action is moving out above our momentum indicators, detailed below, and this is supportive. An unequivocally strong session can build as long as the tape holds above first key support at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (March)
Yesterday’s close: Settled at 87.35, up 1.75
Fundamentals: Crude Oil is stretching higher and nearing the $90 mark for the first time since October 2014 when OPEC+ decided to avoid production constraints. At this point we do not see anything slowing the rally ahead of the weekend as geopolitical tensions remain high and yesterday’s EIA report signaled ongoing tightening in the physical market. Yesterday, Cushing drew down 1.82 mb, bringing inventories at the crucial hub to 31 mb. In the last three weeks, Cushing inventories have fallen by 5.6 mb. With stocks at 31.7 mb right now, a drop by another 5.6 mb would take out the November low of 26.6 mb. U.S. GDP for Q4 came in at 7% versus the softening expectations of 5.5% through the month of January. This beat helps underpin the rally.
Technicals: This is a melt-up as price action has now cleared major three-star resistance at 87.13. This level now brings key support at 87.10-87.35. We have also increased our Bias to outright Bullish, now that we have gotten through inventories and the Fed, with a near-term objective of 90.00-90.30. However, prepare for volatility and allow yourself to be a buyer against major three-star support at .. Click here to get our (FULL) daily reports emailed to you!
Gold (April) / Silver (March)
Gold (April) / Silver (March)
Gold, yesterday’s close: Settled at 1832, down 23.0
Silver, yesterday’s close: Settled at 23.807, down 0.089
Fundamentals: Gold and Silver are under siege this morning after yesterday’s hawkish tone from the Federal Reserve bumped expectations for a 4th hike in 2021 to a probability nearing 90%. Also, a much strong than expected Q4 GDP has brought at 7% added tailwinds to the U.S. Dollar. The GDP results were more in line with the expectations at the onset of the year, before the deluge of poor economic data theoretically would have dragged it closer to 5%. Initial Jobless Claims and Durable Goods were broadly in line with expectations. At noon CT, we look to a 7-year auction that will have a great impact on rates. For now, the yield curve is flattening with the yield of the short-end higher and that of the long-end lower. While we find the Bond strength supportive, Gold will not be able to find footing until the U.S. Dollar stops rising. Remember, keep an eye on the German 10-year. Can it go into positive yield territory?
Technicals: Price action is ugly, but we are moving into pockets of support and volume that both Gold and Silver have consistently responded to. Regardless, the bears will attempt to gain the driver’s seat while holding below 1801-1806.5 in Gold and 23.08 in Silver. The next area of support in which the bulls must respond is … Click here to get our (FULL) daily reports emailed to you!
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