E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 4475.75, down 16.75
NQ, yesterday’s close: Settled at 14,559.75, down 125.75
Fundamentals: U.S. benchmarks again finished on soft footing. Friday’s strong midday rebound quickly sputtered out and yesterday’s strength couldn’t muscle the 4510 level in the S&P. There is nothing wrong with recent price action, in fact, this is what we want! The S&P rallied 120% from the March low with the Federal Reserve’s ever-expanding balance sheet being the major catalyst. The Fed is shifting policy and we have seen a measly 12% retracement. Why is this what we want? Because it creates emotion and when investors get emotional, those with a strong hand can find opportunity!
Going back two weeks, Jason Goepfert of Sentiment Trader has been tweeting on the evolving “carnage” and the emotion to follow. Investors purchased a record number of Put options in January and funds flowed into bearish derivatives. Today, Bloomberg highlighted his work, citing a sentiment gauge that reached the most bearish since April 2020. Can U.S. benchmarks trek to new lows? Absolutely, but let us remember, if everyone has sold, who is left to sell. By this we mean the lower we go, the less froth and the more opportunity. Remember the words of Baron Rothschild, the time to buy is when there is blood in the streets.
Rising yields have sucked multiples out of Tech stocks. Jason Goepfert cited the number of Nasdaq stocks that have lost more than 50% has exceeded the pandemic high and is reaching levels last seen during the Great Financial Crisis. Unprofitable and high-multiple companies have fallen victim to this rising yield environment. Now is neither the time to panic nor become bullish on yields; planning for such developments should have been part of your strategy going back to August of 2020. When yields rise, banks chirp and raise estimates. When this happens magazine cover pages are born. In comes one of the greatest contra-indicators of all-time, the Economist. They just printed the front cover of their February magazine saying, “HOW HIGH WILL INTEREST RATES GO?”. As the famous Bernard Baruch once said and Barron’s recently cited (on rates), “Something that everyone knows isn’t worth knowing”.
How is this tradable? Let us tie it back to those banks calling for five and then six, and now seven 25-basis point hikes this year. The market has priced in a five 25-basis point hikes by December with an 83.6% probability. We remain adamant for our two calls, the U.S. Dollar tops at the onset or early stages of a hiking cycle and the peak in the U.S. 10-year yield will be 2.00-2.15%. The only question is whether the opportunity arises after Thursday’s CPI print or after the Fed lifts off in March.
Technicals: Traders must keep a pulse on the S&P retesting what was rare major four-star support, now three-star due to multiple tests. This is not only crucial intraday, but also on a closing basis as it aligns the 200-day moving average with several other indicators. Volatility is not a surprise and we have exuded a patient approach, saying such patience brings opportunity. Yes, the January Week 3 Option Expiration breakdown (highlighted in our Special Report Weekend Midday Market Minute) paved the way for an epic rip. However, we have expected a similar response to that of September and December, where those rips led to continued volatility in the first week of October and January, now February. The best comparison is October’s selling that followed the September post-Quad Witching rip, where both the S&P and NQ traded to new lows. As a trader, or investor, one must plan for the worst. At the end of the day, either the S&P can close above … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (March)
Yesterday’s close: Settled at 91.32, down 0.99
Fundamentals: Crude Oil slipped to a low of 89.01 overnight but is climbing to retest $90. We began saying this to clients Sunday night, and reiterated here yesterday, it is time for Crude Oil to retrace slightly, at minimum, after a spike ahead of the weekend due to fears of a Texas freeze and geopolitics. There were no notable disruptions in Texas. Now, Iran Nuclear talks and a desperate White House ahead of midterms might be enough of a catalyst to bring prices in over the very near-term. However, this will not change how tight the physical market is, nor will it increase spare capacity in the U.S. and OPEC+. The EIA releases their Short-Term Energy Outlook at 11:00 am CT and API is due after the bell. Early estimates are for +0.675 mb Crude, +1.55 mb Gasoline, -1.8 mb Distillates. Remember, Cushing will be the major driver.
Technicals: Give the consistent trend of week-long consolidations and break to new highs, there are several strong floors of major three-star support that have developed underneath. Prices are going to find themselves tethered to the 89.72-90.30 level, now as resistance, but a close above here will work to neutralize early weakness. Our second wave of major three-star support was pinged at 88.40-88.85 and this has aided a snap back. Ultimately, given the mounting Managed Money Net-Long position in the products, if we see added weakness, it could work to exacerbate near-term selling. We find it to be a terrific buy opportunity at rare major four-star support at … Click here to get our (FULL) daily reports emailed to you!
Gold (April) / Silver (March)
Gold, yesterday’s close: Settled at 1821.8, up 14.0
Silver, yesterday’s close: Settled at 23.076, up 0.601
Fundamentals: Like clockwork, the U.S. Dollar gained ground when the yield of the German 5-year surrendered positive territory and the U.S. yields outpaced. This created overnight pressures on Gold and Silver, despite yesterday’s strong session. Precious metals are doing something they typically do not. Are they really acting like a leading indicator? Make no mistake, Gold and Silver are certainly not in the clear. However, their resilience amid mounting probabilities for Fed rate hikes absolutely signals smarter investors are doubting such sustainability and furthermore, that such rate hikes will weigh on economic growth.
Technicals: We remain upbeat, but as we noted above, Gold and Silver are certainly not in the clear. In fact, Silver is closer to a developing floor at $22.00 than a potential breakout above 24.75, nonetheless November’s 25.55 peak. The two-day climb has lifted our momentum indicators; Gold and Silver must hold at or above … Click here to get our (FULL) daily reports emailed to you!
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