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E-mini S&P (September)
Yesterday’s close: Settled at 2788.25, up 1.50
Fundamentals: It is Fed day and they are expected to raise interest rates a quarter point at 1:00 pm CT. What’s unknown though is the tone in which they will do such. There was a report yesterday that Fed Chair Powell wants to hold a press conference after each meeting. The Dollar jumped, Treasuries ticked down and equity markets hit a midday snag. Doing this would essentially make each meeting live, giving the FOMC additional opportunities to hike. This is something traders want to keep an eye out for today and if this is announced it will be seen as hawkish. Economic data has gained positive traction over the last two weeks and inflation is essentially at the Fed’s 2% objective. However, wages remain a concern. All in all, it is a foregone conclusion that the Fed hikes rates today. At their last meeting, they took a more dovish approach by speaking of “symmetrical inflation” targeting. This means that they are willing to allow inflation to run hot without forcing them to move quicker on rates. Some could argue the catalyst for this direction was slow wage growth despite PCE and CPI hitting that 2%. Others could say geopolitical headwinds, fears of transitory growth on the heels of tax-reform or even volatility in equity markets encouraged this phrase. While all these surely had something to do with it, we believe the main reason was a divergence in global central bank policies. The Fed could not allow themselves to become too hawkish while the ECB was becoming more dovish. In January, not only did the ECB announce they will soon look to make a policy change giving a firmer timeline to tapering but the Bank of Japan was moving along the same path. Slow growth, geopolitical hurdles and softening prices kept both of these central banks on the sidelines into midyear. Until now. Last week, the ECB’s chief economist Praet said they will discuss making this policy change at their meeting tomorrow. Now, a more hawkish Federal Reserve would not be diverging against other central banks. In fact, we believe currency markets have not priced in a potentially more hawkish ECB and this gives the Fed leeway. What does this all mean? We expect to see a more hawkish Fed statement and Dot Plot today and while we have been extremely Bullish in Bias for the largest chunk of this stock market rally, the meat in the middle, we raise caution in the near-term.
In other news this morning, equity markets aboard are quiet to unchanged. Except for China, the Hang Seng is down 1.5% and after paring losses from the May 30th low, selling seems to have reinvigorated. Tonight, Fixed Asset Investment, Industrial Production and Retail Sales are due out of China t 9:00 pm CT. Headlines this morning point President Trump having to face questioning from Special Counsel Mueller; traders need to keep an ear to the ground on these developments. Industrial Production data in the Eurozone slowed this morning but markets are holding ground well. U.S PPI is due at 7:30 am CT.
Technicals: Above, we expressed fundamental caution. We have done so technically on and off this week as the rally feels exhausted and faces our rare major four-star resistance overhead. However, let us be clear, there is nothing bearish about this price action and for that reason we remain Neutral in Bias and look to trade this market from either side. Though today, we do believe rallies or spikes should surely be sold. Price action is flirting at first key resistance at 2794.25, above here, we imagine buyers are not shy until there is a reason to be; the Fed. Yesterday, price action quickly dipped to a low of 2782.25 and held first key support at 2779.50. We maintain that key support below here at 2770.50-2774.75 is crucial and move below here should accelerate selling down into the middle of the recent range.
Resistance: 2794.25**, 2807.25-2814.25****, 2849.75***
Support: 2788.25*, 2779.50**, 2770.50-2774.75**, 2755.75-2757.50**, 2745.50-2746.75***, 2732.75**, 2720.25-2724.75***, 2716.75**
Crude Oil (July)
Yesterday’s close: Settled at 66.36, up 0.26
Fundamentals: Crude Oil lost about 70 cents after API reported only a small draw of 730,000 barrels. Additionally, builds of 2.33 mb of Gasoline and 2.1 mb of Distillates weighed on the tape. The IEA released its Monthly Report this morning and Crude has bounced back from a session low of 65.52 to regain the $66 mark. They said that due to increased sanction by the U.S, Iran and Venezuela will lose 30% of their output. However, they pointed to increased supply from U.S shale would make up the difference. Just as we discussed yesterday, spare capacity will become the key talking point. The IEA said, “if the supply-gap is plugged, the market will be balanced next year.” They also expressed concern that any disruption to supply would send prices higher. Expectations for today’s EIA report are -1.44 mb Crude, +0.443 mb Gasoline and +0.20 mb Distillates. Lastly, traders should not underestimate the effect today’s Fed meeting can and will have on the price of Crude at 1:00 pm CT.
Technicals: Price action settled clearly out above our major three-star level which means the bulls technically have the edge. However, yesterday’s API report fundamentally negated this. Still, last night’s dip held minor support at 65.46 and has recovered back to our crucial pivot area. If price action is sustained above the pivot after today’s EIA report the path is paved north. Support down at 64.73-64.99 is as close to three-star as it comes and a close below here is bearish. Traders must still be aware of the Fed later today.
Resistance: 66.73-66.97*, 67.53-67.63***, 68.51-68.67**, 69.35-69.58**, 70.18-70.55***
Support: 65.46*, 64.73-64.99**, 63.73-64.22***, 61.11***
Yesterday’s close: Settled at 1299.4, down 3.8
Fundamentals: Gold held very well yesterday given the solid to marginally better than expected CPI read ahead of today’s FOMC Meeting. We discussed yesterday that the risk in the near-term for Gold is to the downside as it is very likely we could see the Dollar increase after they hike rates today in a more hawkish manner than expected. However, we see that risk as limited as we expect the Euro to finish the week stronger following the ECB policy meeting early tomorrow morning. Essentially, patience should win out and dips are a buying opportunity. PPI data is due at 7:30 am CT, the Fed releases their policy statement at 1:00 pm CT and Fed Chair Powell follows with a press conference at 1:30 pm.
Technicals: The struggle is real for the metal, it cannot not get above major three-star resistance at 1308.7-1309.6. Still, given these difficulties, Gold has come back after each drop to cling to our pivot level. While we remain longer-term Bullish in Bias because we believe that dips are buying opportunities, however, traders must be cautious in the near-term as we could see a test into the mid and low 1280’s.
Resistance: 1308.7-1309.6***, 1315**, 1321**, 1332.4***
Support: 1293.1*, 1286.8**, 1277.5-1278.3***, 1247.2-1250****
Natural Gas (July)
Yesterday’s close: Settled at 2.939, down 0.01
Fundamentals: Yesterday was the latest in a series of failed tests at the $3 mark. For over a month now, we have been calling for a higher than average demand for cooling days in the back half of June and through July. This is starting to come into the picture with 90-degree weather expected for much of the country over parts of the next 10 days. Still, the $3 level remains a psychological barrier and we would like to be buying better value for the longer-term.
Technicals: This was the fourth failed attempt at not only the $3 mark but major three-star resistance just above here. This means that traders must not get too excited upon a new high but instead only a close above 3.01-3.043. Major three-star support remains at 2.85-2.864 and this also aligns near the 50, 100 and 200-day moving averages. Three tests to this level have now created a series of higher lows, however, this also means traders must, must be cautious upon buying a fourth test down here.
Support: 2.85-2.864***, 2.78-2.804**, 2.688-2.722***
Yesterday’s close: Settled at 119’13, down 0’01
Fundamentals: We highly recommend referring to the S&P section above in order to understand our view on today’s FOMC Meeting. All in all, we expect it to be more hawkish than expected. However, we do believe that the Treasury complex has already seen front-run selling on these probabilities and furthermore, due to a calmer geopolitical landscape. The wild card for the Treasury market relies on that of the equities. If equities selloff due to a more hawkish than expected Federal Reserve, than safe-haven assets will be on demand. Remember, for the last week, we have aligned numerous reasons why we believe that the 10-year bottoms out in the intermediate-term between today and one week from now.
Technicals: Firs key support at 119’05 has been tremendous in keeping the selling in check. With settlement coming at 2:00 pm CT, one hour after the Fed releases their statement, watch this level closely. It is likely that it gets taken out but a close above here will signal that buyers are ready, willing and able to come back to the market on dips; resilience.
Resistance: 119’30*, 120’16*, 121’035***
Support: 119’05**, 118’22**
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