E-mini S&P (March)
Yesterday’s close: Settled at 2752.25
Fundamentals: Equity markets are directly under pressure due to rising treasury yields. The S&P hit our major three-star resistance on the high yesterday while the NQ hit our target on its high, all major indices backed off into the close. If you were in contact with our trade desk late yesterday, we reminded you of our concern for the Russell 2000 and how the repeated failure to close out above 1564 presented a sell opportunity with stops above session highs. CPI data from China missed the mark last night which has helped pressures. However, the true story here is all about treasury yields as the 10-year prices are reaching the lowest level since 2011. China is still a part of this story as Bloomberg has reported that “officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S Treasuries”. Though equity markets are only beginning to see true effects right now, the treasury selling kicked into high gear on Monday night after the BoJ announced that it will trim its bond purchases in issues longer than 10 years. We are in the camp that we don’t believe treasury yields will rise for longer (yields are the inverse of treasury prices), however, when pertaining to equity markets the key factor is the velocity in which yields rise; a quick rise will encourage pressure on equities. Import and Export Price Index is due at 7:30 am CT. Chicago Fed President Charles Evans, a Fed dissenter, speaks today at 8:00 and Wholesale Inventories are at 9:00. St. Louis Fed President James Bullard speaks at 12:30 pm CT.
Technicals: We have completely Neutralized our bias in the S&P after it tested major three-star resistance at 2759.25 yesterday and after the NQ hit our 6707 target. Furthermore, we favored a sell on the close yesterday in the Russell 2000 after it failed to hold 1564. Major support in the Russell comes in today at 1547 and a close below this trend line could get the ball rolling. With pressure on equity markets this morning we cannot see ourselves buying the S&P until major three-star support that we discussed on Monday is achieved, this level is now adjusted slightly to 2724.75-2728.75. A close below this level will signal further pressure down to the 2700 area, one in which we have now marked as a rare major four-star level. We are now watching 2740.50 on a closing basis and simply holding this will help neutralize weakness. Only a close back above 2747.75-2752.75 will turn this immediate term bullish.
Bias: Neutral
Resistance – 2747.75-2752.75**, 2759.25***
Support – 2740.50**, 2724.75-2728.75***, 2713**, 2698.25-2703****
Crude (March)
Yesterday’s close: Settled at 62.96
Fundamentals: Crude Oil broke out above the May 2015 highs and finished at the highest level since early-December 2014 ahead of inventory data today. As we discussed yesterday, the EIA is expecting the sixth major drawdown in a row and yesterday’s API read heightened those expectations by coming in at -11.19 mb. If confirmed by EIA, this would be the largest draw since September 2016 came in -14.513 mb. That read back then was following Labor Day weekend, and a draw of this size, at this time of year is very uncommon. API reported a build of 4.338 mb in Gasoline and a build of 4.685 in Distillates. This sets a bar for today’s EIA report and we want to remind traders, that a vast majority of traders willing to buy because of inventories have likely already bought. We will now need to see a draw in the ballpark of API to maintain prices at these levels. However, it will be important to look at the read as a whole; including the products which equates to a draw of 2.167. EIA expects a -3.89 mb Crude, +1.46 mb Distillates and +2.625 mb Gasoline which actually equates to an overall build. We will also be keeping a close eye on production coming back online.
Technicals: Price action is in a melt-up mode and we backed away from a potential sell opportunity and our slight Bearish Bias earlier in the week. The next resistance at 63.39 has been taken out with a high of 63.67. As we said yesterday, there is no technical reason to sell and furthermore, the market could easily stay bid through the expiration of the February contract. Price action will now need to settle back below 62.21-62.58 in order to neutralize this immense strength. Still, we see no value in buying at this level and a reversal will need to be sparked by over exaggerated expectations on today’s inventory report.
Bias: Neutral
Resistance – 63.39-62.67**, 66.87***, 68.43**
Support – 62.21-62.58**, 61.80*, 59.87-59.96***, 58.97-58.99***
Gold (February)
Yesterday’s close: Settled yesterday at 1313.7
Fundamentals: Gold continues to focus on the Dollar and we cannot emphasize enough how incredibly constructive this continues to be for the metal as we remain long term bearish the Dollar. The even better news here is that Gold investors, buyers, traders. . . everyone, has ignored the rise in global treasury yields. Traditionally, Gold sells off as yields rise which in normal times is a signal of strong economic growth but also a higher cost of storage; all of this is normally tied to a rising Dollar. Instead, we are seeing a tapering of bond purchases from central banks other than the Fed. Remember, the Fed did this years ago and the Dollar rallied on this getting priced in. Now, other currencies are rallying against the Dollar as they taper. Gold is priced in Dollars and this is favorable for Gold. Data from the U.S includes Import and Export Price Index as 7:30 am CT and Wholesale Inventories at 9:00. Chicago Fed President Evans speaks at 8:00 am CT and St. Louis Fed President Bullard speaks at 12:30.
Technicals: After settling just below first key support yesterday and nudging a new swing low last night of 1308.9, Gold has achieved the bull flag that we discussed yesterday. The beautiful thing about this is the short order in which it all happened! Price action traded to a new swing high of 1328.6 this morning and we are watching for a close out above its previous swing high of 1327.3 to confirm this extremely bullish move. The next resistance comes in at 1335.8 and this should be within reach before the end of the week at the latest. A failure to hold 1322.3-1323 on a closing basis will be disappointing while a close below first support at 1317 will begin to signal a failure. Only a close below major three-star support at 1302-1303.4 will signal a breakdown.
Bias: Bullish
Resistance – 1327.3*, 1335.8**, 1358-1365***
Pivot – 1322.3-1323
Support – 1317-1317.2**, 1314.6-1314.8**, 1302-1303.4***, 1292.9**, 1279.5***
Natural Gas (February)
Yesterday’s close: Settled at 2.923
Fundamentals: Expectations for tomorrow’s record storage draw continue to build. But the question we must ask is how much of this is priced in? While a key catalyst in the selling that came late last week was the potential shutdowns, many took profits as these storage expectations climbed to unheard of levels, a read that will be tough to see. Furthermore, more mild weather that has followed the “bomb” storm has also whipsawed price action. Might we just say, what an awful name for a storm.
Technicals: Prices settled at yesterday’s pivot and have nudged above first resistance. The key level to watch remains 3.00-3.01 and it’s a spot where if price action stays below here, the bears will continue to have the upper hand. If we see a close above here, then this could encourage a two to three-week bottom and higher price action.
Bias: Neutral
Resistance – 3.00-3.01***, 3.108-3.145**
Pivot – 2.9415-2.963
Support – 2.9215-2.923**, 2.859-2.887**, 2.734-2.7664**, 2.562***, 2.486-2.522****
10-year (March)
Yesterday’s close: Settled at 123’015
Fundamentals: Treasuries are under immense pressure today and this comes on the heels on Monday night’s news that the Bank of Japan will trim bond purchases in issues longer than 10 years. We have seen a spike in global yields sense. Furthermore, there has been mounting speculation for months that China will trim its purchases of U.S Treasuries and this was confirmed by a Bloomberg article that states, “officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S Treasuries”. As these officials review their investments and compare them to other higher yielding assets, traders are jumping on board the wave lower. Bill Gross, an outspoken bond bear discussed a breakdown in long term technicals last week. We are in the camp that we do not believe yields will go higher for longer, or treasury prices will not go lower for longer. In fact, this could potentially be the capitulation we have been waiting for. Today’s Fed speakers, Chicago Fed President and rate hike dissenter Charles Evans speaks at 8:00 am CT and St. Louis Fed President Bullard speaks at 12:30.
Technicals: Price action has dropped below major three-star support at 122’25-122’29 and this will be critical to watch on a closing basis. The tape feels a bit exacerbated and we will need to continue to watch today’s session unfold before drawing further conclusions in the immediate term.
Bias: Neutral
Resistance – 123’10-123’135**, 123’215**, 123’27-123’28**, 124’01*, 124’06-124’07
Support – 122’25-122’29****, 121’25**, 119’20-120****
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