Divergence and Once a Decade Move

E-mini S&P (March) / NQ (March)

S&P, yesterday’s close: Settled at 3779.25, up 35.00

NQ, yesterday’s close: Settled at 13,186, up 80.50

Fundamentals: U.S. benchmarks could not hold their rebound yesterday and were slammed into the close. This leaves a very uncertain and vulnerable landscape ahead of the weekend. In part, the violent swings from elevated levels are simply not conducive to higher prices. While GameStop, AMC, and hedge fund blowups have stolen the headlines, we must not forget that Washington delayed fiscal policy until mid-March at best. Furthermore, in a time of unprecedented stimulus measures, an upbeat prognosis by the Federal Reserve, despite the “long path to recovery ahead”, arguably left the market desiring more. This is fine with us; we have been Bullish in Bias through the best parts of the rally and raised caution by standing Neutral this week. Therefore, we welcome lower prices in order to go shopping.

Core PCE, the Federal Reserve’s preferred inflation gauge, is due this morning at 7:30 am CT. Expectations are for a dip from 1.4% YoY in November to 1.3% YoY in December. We have said here many times, inflation is showing up in parts of the economy that PCE certainly does not see and we believe CPI will soon respond to. This data point is accompanied by Personal Spending, Income, and Consumption. At 9:00 am CT, we look to final January Michigan Consumer data.

Technicals: Yesterday’s failure to hold gains out above the 3790 mark in the S&P after such a sturdy rebound exudes how vulnerable this market is. For the NQ, it could not break through major three-star resistance at 13,350-13,389 and likewise slipped into the close. In the aftermath, yesterday’s settlements align with previous levels to create major three-star resistance overhead in the S&P at 3779.25-3782.75 and in the NQ at 13,159-13,186; at a bare minimum, the bulls must achieve a close above here, such would paint a smoother picture to recovery to start next week. Our momentum indicator in the S&P aligns with our previous level 3758-3762.25 and this will be our Pivot today; continued action below here will begin to paint a path of least resistance lower. Furthermore, a close below … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.  

Crude Oil (March)

Yesterday’s close: Settled at 52.34, down 0.51

Fundamentals: Commodity prices for the most part have staved off equity market weakness. Crude Oil continues to hold ground in the middle part of its recent range, finding tailwinds from the large surprise U.S. draw on Wednesday and overnight news that stockpiles in China have also drawn down sharply. Ultimately, we are seeing an equation in China like that of the U.S.; an uptick in Refinery Utilization increasing the call for Crude. Between, China and India in Asia, and better than expected GDP data out of Germany this morning, there are certainly reasons to justify why Crude Oil is holding ground. However, if equities make the next leg lower, it is likely we see a break below major three-star support.

Technicals: Crude Oil traded to a low of 51.93 overnight and the bulls continue to defend major three-star support at 51.40-51.51. As we have noted many times go back through last week; we must see a break below this support or out above major three-star resistance at … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.  

Gold (April) / Silver (March)

Gold, yesterday’s close: Settled at 1841.2, down 7.7

Silver, yesterday’s close: Settled at 25.922, up 0.533

Fundamentals: For one second, forget the headlines: Gold and Silver are higher with the equity market lower, THEY ARE ACTING LIKE SAFE HAVENS! We have been waiting for this divergence for nearly a year when the metals complex got crushed due to deflationary fears at the onset of the pandemic and Saudi Arabia’s production decision. Now, we of course cannot ignore the headlines and we could be witnessing the start of the most coordinated short squeeze ever seen in commodities. The WallStreetBets Reddit forum, famed for GameStop, AMC and pushing hedge funds into liquidation, is now targeting Silver through ETF options. We do not like using ETFs because it is a derivative of a derivative and you are losing value relative to using futures on the CME (the underlying of the ETF). However, when SLV rises, the ETF manager must correlate buying in the futures market. If there is a squeeze in SLV, especially through options there is room for this market to rip higher. Furthermore, if people catch onto the futures options we use, and create large Open Interest in Call Options that then moves ‘In the Money’, this would create a generational short squeeze. Silver futures are physically deliverable and there could be more options in the money than could cover what is available for physical delivery; the only remedy would be higher prices.

Technicals: We remain outright Bullish in Bias as Gold and Silver are roar higher. First, Silver failed at major three-star resistance yesterday at 27.00-27.28 and has now cleared that level; continued action out above here ultimately paints a path of least resistance to 30.00. This round $30 mark will likely be pivotal due to the … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

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Originally Posted on January 29, 2021 – Divergence and Once a Decade Move