A Near-Term Inflection Point, Here is Why

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

S&P, yesterday’s close: Settled at 3927.75, down 3.25

NQ, yesterday’s close: Settled at 13,767.75, down 37.00

Fundamentals: U.S. benchmarks erased their holiday session gains early yesterday and battled at unchanged before finishing slightly lower. Only halfway through the month and even after yesterday’s soft tape, the S&P and NQ are up 6% and 6.6%, respectively. The rebound from January’s late swoon has been miraculous and we must acknowledge that some degree of perfection, for the landscape we have, is already priced in; an accommodative Fed, $1.9 trillion in fiscal, and improving vaccine rollout. For at least one of those narratives, the stage is set today. At 1:00 pm CT, the Federal Reserve releases the Minutes from their January 27th meeting, which ultimately set the wheels in motion for a healthy pullback.

Yesterday, on CNBC’s Trading Nation, Bill Baruch revealed a rolling target of 4625 in the S&P but emphasized you must capitalize on rallies.

All three of those narratives have invited inflation and a tailwind to Treasury yields. Today, the 10-year Treasury hit 1.33%. There is no doubt in our mind that rising Treasury yields will be a headwind to this market. We have discussed here before that a quick move from 1.25% to 1.50% is possible and would tap a pain threshold for risk assets. Bringing added support to this narrative today is blowout Retail Sales and PPI data. Core Retail Sales for January, excluding autos, came in at +5.9% versus +1.0% expected. Also, headline PPI at +1.3% MoM (versus +0.4%) is the best since September 2012. The strong consumer and inflation will be on traders’ minds this afternoon upon the release of the FOMC statement.

Technicals: The S&P traded just shy of our next intermediate-term upside target of 3965-3976 with a high of 3959.25 ahead of Tuesday’s intraday. The NQ also traded shy of the big round 14,000 mark by about 100 points. These are big levels, and it is no surprise to see some technical weakness after last week’s chop and some overexuberance through the holiday session. Today, the most crucial levels are our Pivots, a point of balance, that aligns multiple technical indicators. For the S&P, this is … 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 60.05, up 0.58

Fundamentals: Crude Oil spiked again this morning as disruptions due to extreme cold continues to rattle the energy landscape. Furthermore, the steadfast grind higher in Treasury yields has impacted risk assets broadly. Along with the rise in yields, comes U.S. Dollar strength and the combination much be watched closely through today’s FOMC Minutes and Crude, despite the weather disruptions, will not be immune. Early estimates had the U.S. losing 1 mbpd, but this has increased to about 3.5 mbpd with analysts calling for as much as 16 mbpd being lost through this time. Inventory data is delayed due to the holiday and will be released tomorrow. For now, we will be watching front-month Crude versus the curve and use that as a sign of upside exhaustion. The price of April Crude has now exceeded the expiring March contract, now in contango. We are monitoring the April-December at about 4.25 this morning and will look for an opportunity to fade this spread; selling the April and Buying the December.

Technicals: March options expire today, and this could encourage the market to tether to the round $60 mark. Our momentum indicator comes in at 60.11 this morning and aligns to create our Pivot today. Upon weakness yesterday, first key support at 59.47 held perfectly with a low off 59.33. We would need to see a new low on the week in order to set wheels in motion for a move down to major three-star support 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 1799, down 24.2

Silver, yesterday’s close: Settled at 27.325, down -0.003

Fundamentals: The rise in Treasury yields and U.S. Dollar strength are weighing heavily on the metals complex. Unfortunately, the blowout Retail Sales data and strong PPI only bring a tailwind to that narrative. For Gold, it must find solace in this inflationary environment, however, it will not amid such strength in the U.S. Dollar. With Gold looking into an abyss below the November 30th low at 1767-1771 and the FOMC Minutes in focus this afternoon, it goes unsaid that today will be absolutely critical for the metals complex. Platinum is $100 from its holiday surge high and back to its breakout area while Silver is clinging to its own support; the complex certainly is at an infection point and traders must stay nimble. Technicals: Per our discussion yesterday, we are holding a cautiously Bullish Bias until the uptrend is broken and that uptrend is being tested today at our rare major four-star support in Gold at 1767.2-1770; a close below here will encourage a continued flush. Gold must secure a close back above … 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 February 17, 2021 – A Near-Term Inflection Point, Here is Why