E-mini S&P (September) / NQ (September)
S&P, yesterday’s close: Settled at 4093.75, down 26.75
NQ, yesterday’s close: Settled at 12,924.50, down 38.00
Fundamentals: The move in Treasury yields is inherently the biggest story. Will it derail underlying buoyancy in U.S. equity benchmarks? Yesterday, we highlighted the 30-year Bond’s historic back-test with a chart here and keyed off the rollover in the Midday Market Minute. One might say that House Speaker visiting Taiwan, or the deluge of Fed speak are bigger stories, but the move in Treasury yields was 20+ years in the making and became the product of those two aforementioned narratives. Many lauded last week’s Federal Reserve meeting as a “pivot”, we disagree. However, their newfound data dependence did allow markets to discount the potential of a less hawkish rhetoric moving forward. The Fed sent Minneapolis Fed President Kashkari, known to be one of the most dovish committee members, out over the weekend to rein in the idea of a “pivot” without saying it directly. Bonds traded sharply higher coming out of last week’s meeting, meaning lower yields, and found added tailwinds from weakening ISM Manufacturing New Orders and Prices Paid for July. The largest tailwind though, may have come from geopolitics and the uncertain ramifications of House Speaker Pelosi’s visit to Taiwan. Amid this anticipation, both the 10-year Note, and 30-year Bond completed a perfect back-test of the 20-year chart highlighted here yesterday. Ironically, her plane landed safely just as a deluge of Fed speak was being delivered yesterday morning. Both San Francisco Fed President Daly and Cleveland Fed President Mester emphasized the Fed still has a long road ahead in fighting inflation, also downplaying the idea of a “pivot”. The byproduct of this fundamental and technical stew has been nearly a 30 basis point rally in 10-year Note yields and a 20 basis point move for the 30-year Bond. Both of which were outpaced by the 2-year and 5-year respectively, meaning the yield curve inverted and flattened more sharply, a recession indicator. Can this stock market rally withstand higher yields? Given the level in which yields are rising from, we seem to believe so. However, what matters most is the velocity of the move and another fallout of yesterday’s magnitude may overpower risk-assets.
We have been cautiously Bullish U.S. equity benchmarks from an intermediate to long-term perspective since mid-May, pivoting from cautiously Bearish for much of the year up to that point. One theme that has helped our optimism is believing in measured downside from S&P -20% on the year for several reasons, not the least of which is excessive negativity. There are many factors to excessive negativity and one of them was mounting expectations for earning’s compression to be the catalyst for the next leg lower. However, it has played out just as we anticipated. Yes, some companies have been severely punished for poor earnings, but broadly speaking with compression and softer guidance expected by the masses, it laid the groundwork for one of the most bullish narratives; a one-two punch of many positive surprises and stocks that do not go down on negative news.
Technicals: Price action is firm ahead of the open and has held great construction out above yesterday’s early intraday lows, which also happened to be major three-star support in the S&P at 4073.50-4081. A fresh wave of strength is looking to retest what we have had as major three-star resistance at 4136.50-4145.75 for the fourth time in as many sessions. It is go-time, if price action gets up there, it must break through. Look for both the S&P and NQ to hold at and above our Pivot and point of balance in order to invite buyers for such a bullish attempt at … Click here to get our (FULL) daily reports emailed to you!
Crude Oil (September)
Yesterday’s close: Settled at 94.42, up 0.53
Fundamentals: Crude spiked after OPEC+ announced an increase of only 100,000 bpd, but those gains have since dissipated. The token increase will ultimately not be met as most members are already producing at a maximum capacity, the cartel was at 320% compliance in June. Only Saudi Arabia and the UAE currently have the ability to increase production. Javier Blas of Bloomberg noted the increase within each country’s quota only translates to a 26,000 bpd increase from the Saudis and 8,000 bpd from the UAE. We have noted how this week’s selling could be a ‘buy the rumor, sell the news’ event, meaning market selling was buying the idea and risk OPEC+ could announce a larger increase and selling the news is an unwind of such with fresh buying.
This leads into today’s EIA data. Last night’s private API survey showed a surprise build of 2.165 mb of Crude, along with -0.204 mb Gasoline, and -0.351 mb Distillates. Cushing, Refinery Utilization, SPR release, and Net Imports will all play a role in digesting today’s data relative to the bar API set. Updated expectations are for -0.629 mb Crude, -1.614 mb Gasoline, and +1.038 mb Distillates.
Technicals: The range has been defined; major three-star resistance has capped rallies at 96.48-96.97 and major three-star support has capped the selling at 92.83-92.97. Look for a close outside this range to create added directional tailwinds. Our momentum indicator aligns as our Pivot and point of balance with the recurring … Click here to get our (FULL) daily reports emailed to you!
Gold (December) / Silver (September)
Gold, yesterday’s close: Settled at 1789.7, up 2.0
Silver, yesterday’s close: Settled at 20.139, down 0.223
Fundamentals: Yesterday, we keyed off prudence and highlighted the need to capitalize on this recent run in metals with given the historic Bond back-test (discussed again today in the S&P/NQ section) potentially being a canary in the coal mine. ISM Services data today showed a sharp divergence from SPGI Services PMI, coming in at a boisterous 56.7 versus 47.3. However, Prices came down from 80.1 in June to 72.3 in July and Employment contracted for the second month in a row. Regardless this stokes both yields in the Dollar higher, putting a dent in precious metals. Stay nimble today, there is a deluge of Fed speak ahead.
Technicals: Price action in Gold and Silver is under pressure with Gold testing major three-star support at 1774.3 and Silver at 19.78. Our Pivot and point of balance are noted below and must be regained to stave off added selling. We will be eyeing our next major three-star support in Gold for a potential swing opportunity at … Click here to get our (FULL) daily reports emailed to you!
Originally Posted August 3, 2022 – It Was Never A Pivot, But That’s Ok
Disclosure: Blue Line Futures
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results. The information contained within is not to be construed as a recommendation of any investment product or service.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Blue Line Futures and is being posted with its permission. The views expressed in this material are solely those of the author and/or Blue Line Futures and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.