The Biggest Short Cover in History

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

S&P, yesterday’s close: Settled at 3744.25, down 98.25

NQ, yesterday’s close: Settled at 13,105.50, down 380.00

Fundamentals: The flood gates opened through yesterday’s Federal Reserve policy meeting and U.S. benchmarks closed sharply lower. The committee left policy unchanged, but the risk-landscape has been on shaky footing due to ongoing fiscal policy delays in Washington. Fed Chair Powell reiterated policy must stay accommodative and said risks to financial stability are only moderate. In fact, he convinced the rate market the Fed is not even thinking about, thinking about raising rates; that 6% probability for September has eroded to 1.1%. Although the Fed was steady, these unprecedented times have created a constant need for added Kool-Aid and the market clearly left the party thirsty for more.

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The tape stabilized overnight from lower levels, but with no help from Apple, Facebook, and Tesla’s earnings reports; all three are down varying degrees ahead of today’s open. The deluge of earnings through the heart of the season continues today. The U.S. economic calendar brings the first look at Q4 GDP at 7:30 am CT along with weekly Jobless Claims. New Home Sales follow at 9:00 am CT, KC Manufacturing is due at 10:00 am CT, and there is a 7-year Note auction at noon. From Europe, German Bundesbank Executive Board member Wuermeling speaks at 9:00 am CT and ECB Executive Board member Schnabel speaks at 11:15 am CT.

Technicals: The froth came to roost yesterday, but despite heavy selling, both the S&P and NQ did not close below critical levels of technical support. Yes, we find each index very vulnerable to continued selling, but make no mistake, this is simply a much-needed healthy correction. The S&P broke below 3790.50 early and given the current range, will not begin construction until a move out above this major three-star resistance level. Also, the NQ sliced through 13,105-13,159 and will not begin construction until it closes back above 13,350-13,389. However, there are certainly points of balance that come into play today. For the S&P, this is major three-star support, now our Pivot, that the tape did not settle below at 3738.50-3740.75. For the NQ, we have pointed to this level many times, 12,897 is the 100% range extension of the March lows back to the February highs. Continued action below 3738.50-3740.75 will leave the tape vulnerable and a break below 12,897 will encourage added selling. For now first resistance levels 3750 and 13,105-13,159 also align with our momentum indicators and decisive action above such this morning will help stabilize. Overall, we are Neutral, but welcome selling for a portfolio perspective in order to go shopping.

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Bias: Neutral

Resistance: 3750**, 3758.00-3762.25***, 3788.50-3790.50***

Pivot: 3738.50-3740.75***

Support: 3706.50-3709.75**, 3685.50**, 3652.50-3657.65***, 3615.25***

NQ (March)

Resistance: 13,105-13,159***, 13,350-13,389***

Pivot: 12,985-13,023

Support: 12,897***, 12,725**, 12,581***, 12,398-12,434****

Crude Oil (March)

Yesterday’s close: Settled at 52.85, up 0.24

Fundamentals: Crude Oil began broke away from broader the risk-enviornment just ahead of inventory data yesterday morning. Yes, there was a fourth rejection of our major three-star support shelf, but someone also may have known something. EIA printed a massive surprise draw of 9.91 mb of Crude, accompanied by only a small offset of +2.47 mb of Gasoline and -0.815 mb Distillates. Furthermore, the draw comes as Refinery Utilization slipped 0.8% WoW, but regardless, the run rates are higher after four consecutive WoW increases in the weeks prior. All things considered, the energy space, next to agricultures, looks to be the best on the board, but will it be sustainable if risk-assets see continued pressure?

Technicals: Yesterday’s pre-EIA ramp did stall at first key resistance at 53.13-53.16 as sellers stepped in once again in front of major three-star resistance at 53.60-53.94. The overnight action has waffled around our Pivot of 52.65-52.85, that encompasses our Pivot and settlement, in a constructive manner. At the end of the day, we need a break above major three-star resistance or our floor of support at 51.40-51.51 in order to encourage a directional move. At this point, we are very Neutral in Bias.

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Bias: Neutral

Resistance: 53.13-53.16**, 53.60-53.94***, 54.66**, 57.52***

Pivot: 52.65-52.85

Support: 52.29**, 51.40-51.51***, 50.63-50.87***, 49.52-49.84***

Gold (April) / Silver (March)

Gold, yesterday’s close: Settled at 1848.9, down 5.9

Silver, yesterday’s close: Settled at 25.389, down 0.149

Fundamentals: All things considered, Gold and Silver have battled to hold ground terrifically. What stood out most to us, when equity markets took their next leg lower late yesterday, Gold and Silver did not join. While we find the U.S. Dollar one of the most integral parts of the precious metals complex, whereas weakness here will bring a bullish tailwind and we are seeing some signs of exhaustion within its steady consolidation higher, precious metals bulls cannot ignore the what is happening in the dash for trash small stock space. Why? The little players are ganging up on the big boys and forcing a short cover. Within all the conspiracies, there may be none larger than banks being short Silver. If this plays out favorable, it may be just what the doctor ordered.

Technicals: As we are seeing the start of a technical reversal this morning, we are giving the metals a clear opportunity to ride; we are outright Bullish in Bias. However, we must see a close out above 1862-1866.5 in Gold and above 25.99-26.07 in Silver. Our momentum indicators are far behind the tape at 1843 in Gold and aligning with 25.03-25.25 in Silver; a move back below here today would be catastrophic. However, we are adding points of balance for our Pivots at 1850 and 25.50 and we want to see continued action above here today to pave the way higher.

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Bias: Bullish

Resistance: 1862-1866.5***, 1873-1875.9**, 1881**, 1895.1-1900****

Pivot: 1850

Support: 1843**, 1829.9-1831***, 1813-1820***, 1800***

Silver (March)

Resistance: 25.99-26.07***, 26.41-26.55**, 27.00-27.28***

Pivot: 25.50 Support: 25.03-25.15***, 24.86**, 24.04-24.30***, 23.41-23.63***, 21.93-22.00***

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Originally Posted on January 28, 2021 – The Biggest Short Cover in History 

The support and resistance levels are created through our systematic and proprietary technical analysis and ranked by significance from 1 to 4 stars (****). 1-2 star levels are typically best focused on intraday or early in a session to help confirm momentum. 3-4 star levels are used to define a floor or ceiling in a market, a move and close above or below could signal a breakout or breakdown.

Our bias is our outlook for the underlying market, with 7 separate rankings from outright bullish to outright bearish.

Bullish – Outright bullish

Bullish/Neutral – Bullish the market but there may be technical/fundamental headwinds around the corner

Neutral/Bullish – relatively upbeat from a cautious standpoint 

Neutral

Neutral/Bearish – relatively downbeat from a cautious standpoint

Bearish/Neutral- Bearish the market but there may be technical/fundamental headwinds around the corner

Bearish – Outright bearish