Risk-Assets are Vulnerable, Here is Why

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

S&P, yesterday’s close: Settled at 3912, up 9.00

NQ, yesterday’s close: Settled at 13,729, up 85.50

Fundamentals: U.S. benchmarks have so far refused to give ground this week. They are holding steadily above last Friday’s settlement and break to fresh record highs. Waves of selling have certainly tested the market’s resilience, but a dovish Fed Chair Powell on Wednesday reaffirmed the notable ‘Fed Put’. Selling ahead of his interview that morning was a very concerning wave; after a soft read on U.S. CPI, there was no inflation in January, the S&P ripped 11 points to record highs before reversing sharply. Often, reversals of that magnitude bring follow through and this was not the case after Fed Chair Powell reiterated accommodative policies and said more stimulus is needed, especially since there have been no signs of sustainable inflation.

We finished last week and came into this very Bullish in Bias. We held that through Monday’s session but noted a pullback from there had become probable and it still feels that way. Let us be clear, we are not Bearish in Bias having held a more cautiously Bullish outlook and concerned for a pullback, we simply feel there is some exhaustion after a seven-session rally and want to buy from better levels. Yesterday’s wave came on news the House added $15 minimum wage to the final draft of President Biden’s lauded $1.9 trillion stimulus package. Justice for all, right? On the surface, it sounds terrific, a step forward for everyone. Not so fast, according to the Congressional Budget Office, if this Raise the Wage Act of 2021 is passed, raising minimum wages in increments to $15 per hour by June 2025, it will add $54 billion to the budget deficit over the next decade. Why? They estimate a loss of 1.4 million jobs and therefore pin many to rely on unemployment benefits. They also expect the price of goods and services to rise, in other words, inflation. From a market perspective, this is a headwind. Not only because it could derail the fiscal package but bring added overhead to the corporations that make up these indices (until they layoff workers, of course).

Today, NY Fed President Williams speaks at 9:00 am CT and fresh February Michigan Consumer data is also due at that time. Monday is President’s Day, a U.S. holiday, this pushes Retails Sales and PPI out to next Wednesday.

Technicals: Yesterday brought a new high settlement for each the S&P and NQ. For the S&P, it has spent only a very little amount of time above our momentum indicator since Wednesday’s reversal, the first two hours and last hour of yesterday’s intraday session. Our momentum indicator at 3907 this morning aligns with settlement at 3912 to being a battleground to start the session; below there, the market is susceptible to waves of selling. Yesterday’s weakness was much less pronounced in the NQ, therefore, it has held much better above our momentum indicator at 13,705 which aligns with settlement to also bring a battleground. However, while above here, the market will continue to find a path of least resistance higher. Still, we must acknowledge overhead 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.

Crude Oil (March)

Yesterday’s close: Settled at 58.24, down 0.44

Fundamentals: Crude Oil will not retreat quietly; all pullbacks have been steadfastly defended within this leading sector. According to Reuters data, the U.S. infection rate is 41% off its peak from January 7th. There is no doubt that amid a steady call for Crude from refiners, improving U.S. PMI data, inflationary tailwinds (yes, Mr. Powell), and Saudi Arabia’s production cut, that a light at the end of the virus tunnel, given the drop in infection rate and vaccine rollout, has been a constant bid under prices. We simply just see little value upon the first retest to $60, a broad region that has stalled rally attempts going back to the 2018 fallout. We believe Crude will trade much higher this year but want to be buyers from better level. We do feel there is some exhaustion as the aforementioned narratives are priced-in and see value in very cheap, well defined put spreads; call our trade desk at 312-278-0500 to discuss further.

Technicals: A wave of weakness has so far been defended against first key support at 57.27-57.52. A recover at the onset of U.S. hours pins our momentum indicator at 58.00 aligned with settlement as our Pivot; below here, the market remains vulnerable to fresh waves of selling that will attempt to chew through that first key support and test into support just below at 56.85 and then our major three-star level 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 1826.8, down 15.9

Silver, yesterday’s close: Settled at 27.047, down 0.31

Fundamentals: Gold has grinded lower very steadily and this is worrisome because there has yet to be panic selling. However, Silver is holding ground despite the Gold’s move and Platinum’s pullback from the highest level since 2015. Overall, the U.S. Dollar failed to follow through lower over the last two sessions and is now gaining ground. This, coupled with another firm tick up in Treasury yields back near Monday’s high, is weighing heavily on Gold. We will continue to reiterate that fresh weakness in the Dollar is a necessity for Gold amid this inflationary environment of rising Treasury yields and added fiscal spending. We are seeing the impact of a firm Dollar directly over the last 24 hours. Lastly, there are two catalysts two weeks out that can lift Gold; China coming back from the Lunar New Year and the expiration of March Silver options and futures. The first has proven to bring fresh buying interest in the past and the latter will help refresh the supply/demand technicals of the complex.

Technicals: Gold chewed through major three-star support at 1829.9-1831 yesterday after several tests this week, but Silver is clinging to major three-star support at 26.91-27.01 and brings hope to the bulls. However, hope is not a risk management strategy. What we do know is that Gold has so far responded to key support at 1807-1813 this morning. Our momentum indicator 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.

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Originally Posted on February 12, 2021 – Risk-Assets are Vulnerable, Here is Why