E-mini S&P (March)
Yesterday’s close: Settled at 2669, a new all-time high
Fundamentals: Yesterday was just another quiet grind higher for equity markets with the S&P trading to a new all-time high of 2675.50 and settling just below there, also at a record. Republicans are moving tax-reform through congress and a bill seems on track to hit the President’s desk next week. The Federal Reserve raised interest rates yesterday and Fed Chair Yellen, in her last meeting, sited strong job growth and rising wages. However, there were two dissenters for the first time as inflation continues to lag. This has been a perfect recipe of ‘not so hot, not so cold’ that has supported equity markets. You can view the Fed Dot Plot on our website here. This morning traders buckle up for the final ECB meeting of the year with a policy announcement at 6:45 am CT. No surprises are expected, and they are to release economic projections through 2020. ECB President Mario Draghi’s press conference begins at 7:30 am CT. Equity markets in Europe are lower with bank stocks weighing on the action despite robust reads on Manufacturing from across the continent. Fixed Asset Investment and Industrial Production data out of China last night both missed the mark by a tenth. In the U.S Retail Sales is due at 7:30 am CT and Manufacturing and Services PMI data at 8:45.
Technicals: We remain outright Bullish and rightfully so. Price action settled above major three-star resistance yesterday and the path of least resistance remains north, and our yearend target is 2715. The NQ’s slight descending wedge, a bullish pattern, is now attempting to create a bull flag and a move through new all-time highs above 6446.50 will spark the next leg.
Bias: Bullish
Resistance –2673*, 2681.50**, 2688**, 2694.50**, 2715.25***
Pivot – 2666-2667.75***
Support – 2659.25*, 2650.25-2654**, 2643.75-2644.75**, 2640.25*, 2630.50-2632.50**, 2622.50**, 2506.25**, 2596-2598****
Crude Oil (January)
Session close: Settled at 56.60, 5 cents from the low and more than a dollar from the highs
Fundamentals: We could not have asked for a better setup than we got yesterday from the weakness and outlying API report on Tuesday as we headed into EIA. The numbers for EIA when considering them as a whole were bearish; though Crude inventories were drawn down 5.2 mb, this was less than API and offset by Gasoline which built by 5.7 mb. Production increased by 65,000 bpd in the lower 48 states with an additional 8,000 from Alaska. The IEA added to pressure this morning in their IEA Monthly Report siting that additional U.S production will offset OPEC’s production cap. For us, the groundwork is in place for a lower session, but remember, price action likes to bottom very early in Friday’s session (overnight or even late Thursday) so traders must look to capitalize in some way on the move this week before the end of the session.
Technicals: Price action is weak, and the momentum is in the hands of the bears. We must see a close below last week’s low and support at the 55.82-55.95 level but at a bare minimum maintain a close below 56.85-56.93. Today is option expiration for the January contract and at a glance calls outweigh puts by more than 2:1, especially right at the 55 strikes. If anything, this can add to pressure early to squeeze those long call holders.
Bias: Bearish
Resistance – 56.85-56.93**, 57.83-57.99*, 58.45-58.60**, 58.97***, 59.96***, 62.58**
Support – 56.46*, 55.82-55.95**, 55.00-55.25***
Gold (February)
Session close: Settled at 1248.6 but traded more than $10 higher after Fed announcement
Fundamentals: Gold ha performed very well since the Fed hiked interest rates yesterday. Yes, you read that statement correctly; Gold has performed very well since the Fed hiked interest rates yesterday. This is because the rate was priced in and Gold longs have already been tormented enough over the last two weeks, they were ready to reposition. Ultimately though, as we have been hammering home, we believe the Federal Reserve, during this hiking cycle, will never be as hawkish as they were one year ago. To add to the bull case for Gold, there were two dissenters yesterday for the first time this year (voting ‘No’ on the hike; Kashkari and Evans). The Fed Dot Plot (click here to view) still prices in three hikes next year but there is without doubt more doubt over those three hikes then there has been and that means the Dollar is ‘dovening’ up. Tax-reform should be materially priced in by now, but still remains a hurdle for Gold as it could give the Dollar its last stand before yearend. But we remain firm that we like buying Gold ahead of the New Year with the expectations of a positive performance in January. The ECB is still yet to come and their policy announcement and statement is due at 6:45 am CT. ECB President Mario Draghi holds a press conference at 7:30 and currencies will be key for the Gold trade. Retail Sales is due at 7:30 am CT, a key number ahead of the holiday season. Manufacturing and Services PMI’s are due at 8:45.
Technicals: Yesterday’s recovery surely neutralized the tape at minimum. We don’t necessarily advise chasing this price action in a FOMO manner. However, we see support at 1247-1250 and this area, if retested should prove to be a solid buy opportunity over the next 45 days.
Bias: Bullish/Neutral
Resistance – 1262.8-1263.2**, 1273.9-1276.8***, 1289**, 1303.4-1304.7****
Support – 1247-1250**, 1237-1241.7**, 1214.5-1225***
Natural Gas (January)
Yesterday’s close: Settled at 2.715
Fundamentals: Though prices stabilized through part of yesterday’s session, the bears are taking it lower again this morning. Stock data is due at 9:30 am CT and the draw expectations have dissipated slightly from -67 bcf yesterday and we are looking at a range of 60-65 now. However, a draw of more than the initial expectations of 67 bcf should spark some short covering as there is becoming little question on the colder weather over the next two weeks.
Technicals: The bears remain in control and there is no question here. We will continue to watch the 2.74-2.7565 level and we need to see a close back above here to even think about beginning the neutralization process. A close below the previous low at 2.656 will encourage further selling though we have to imagine the downside is limited.
Bias: Neutral/Bullish
Resistance – 2.781**, 2.85-2.88**, 2.946**, 2.9825-3.01***
Pivot – 2.74-2.7565***
Support – 2.656*, 2.486-2.522****
10-year (March)
Yesterday’s close: Settled at 124’195, the highest settlement in more than two weeks
Fundamentals: Prices have bled lower into this morning as things have settled in since yesterday’s Fed meeting. We have discussed this earlier in the report but yesterday was the first time all year that we had two dissenters (voting ‘No’, Kashkari and Evans) and this will begin to start the conversation about a potential third at some point next year as the Fed Dot Plot does have some laggards on three hikes next year (Click here to view the Fed Dot Plot). We have been adamant about buying the 10-year in the latter half of December and looking for stronger price action into and through January. Though we are in a hiking cycle, the Fed will never be as hawkish as they were a year ago and for that reason we believe middle to longer term yields will not go higher. You don’t have to look much past QE1, 2 and 3 to see that the bottom in yields came upon their launch to get the idea of perception.. We are also gearing up for more information from the ECB policy statement at 6:45 am CT and Mario Draghi’s press conference at 7:30. Retail Sales is also due at 7:30 am CT, a key number ahead of the holiday season, and Manufacturing and Services PMI’s are due at 8:45 am CT.
Technicals: Price action traded to a high of 124’21 and stalled between our two layers of resistance that come in front of a potential breakout point at 125. We have now altered this resistance level. Support comes in at our 124’09 level and has held the session low; watch this level today in order to signal that this market will consolidate for another week as it awaits more news on tax-reform. Today should be more data drive so stay nimble.
Bias: Neutral/Bullish
Resistance – 124’21**, 124’295-125’00***
Pivot – 124’15
Support – 124’09**, 124’015**, 123’27***, 123’10**, 122’29****
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