E-mini S&P (March)
Last week’s close: Settled at 2874.50 and gained more than 1%
Fundamentals: Equity markets finished last week extremely strong but major U.S indices have struggled to hold these gains into this morning. One headwind is the overnight move in treasuries which are under pressure with the 10-year prices trading to the lowest level since May 2011. The inverse, treasury yields for the 10-year, have jumped to 2.7%, the highest since April 2014. Rising yields can and will be a headwind for equity markets as this makes debt more expensive to service. Though a rise in yields is not a dagger for the S&P, a high velocity move like the one overnight can cause immediate pressures. There is a huge week ahead and this ahead of today’s PCE data. We discussed this inflation read due at 7:30 am CT along with other major events in our Tradable Events this Week; posted each Sunday. This will set the tone for Wednesday’s Fed decision and a better than expected print will likely add to selling in the treasury complex and strengthen the Dollar while paving the way for a hawkish tone from the Fed.
Technicals: Price action accelerated higher on Friday and blew through our 2869.75 level before trading to a new all-time high overnight but has begun paring some of those gains. We will continue to watch this level through today’s close and a settlement above here would keep the bulls in the driver’s seat while encourage a drift higher into Wednesday’s Fed meeting. The first crucial support level we are watching comes in at 2851.75-2852.50 and this aligns multiple levels but most key is a trend line from the last trading day of 2017 that price action has ridden for the last month; a close below here would open the door for another 1%. Ultimately, we would like to use a test into here as a buy opportunity.
Bias: Bullish
Resistance – 2878.50**, 2887***, 2920***
Pivot – 2869.75
Support – 2851.75-2852.50**, 2847.75**, 2825.50-2828**, 2805.25-2807***, 2797.75***
Crude Oil (March)
Last week’s close: Settled at 66.14
Fundamentals: Crude is lower this morning as the U.S Dollar is strengthening ahead of a busy week. We saw how closely tied this relationship can be midweek last week on volatility due to comments on the Dollar from Treasury Secretary Mnuchin and President Trump. Adding to pressure this morning is Baker Hughes data from Friday that showed an increase in twelve rigs, bringing the total to 759; the largest weekly jump in nearly a year. Iraqi Oil exports set a record in December at 3.535 mbpd and as of now it could be topped this month. This is to a drop in local consumption and not higher production. However, this was accompanied by the Iraqi Oil Minister stating they have the capacity to export 5 mbpd.
Technicals: Price action is attempting to retreat this morning but first key support at 65.45-65.61 has stood strong. While our first major three-star level since the breakout above $60 has been tested and has held, price action must close back below previous highs and support at 64.72-64.89 in order to neutralize this recent jump. Furthermore, the market will remain in an uptrend until a close below 62.78-63.00. The net-long position decreased by nearly 6,000 contracts for the week ending January 23rd due to a small jump in speculation from shorts. Still, this is above previous record highs and signals extremely overbought conditions.
Bias: Neutral/Bearish
Resistance – 66.87***, 68.43**
Support – 65.45-65.61**, 64.72-64.89**, 64.26**, 63.70*, 62.78-63.00***
Gold (April)
Last week’s close: Settled at 1357.2
Fundamentals: Traders should now be using the April contract. We brought our Bias in Gold to Neutral last week after price action tested above 1360. We also did this for the Euro and Yen as we believe the Dollar is oversold and the risk of a more hawkish than expected Fed is not priced in. PCE Index data is due at 7:30 am CT today and we discussed on yesterday’s Tradable Events this Week the type of impact it can have on Wednesday’s policy statement from the Fed. Also, due this morning is Personal Spending and Income data. We remain bullish Gold in the long-run but believe there will be a better place to reposition.
Technicals: Gold is down about $10 this morning as overbought conditions attempt to relieve themselves. The CoT report showed that the net-long position expanded in the week ending January 23rd though it is likely some relief already began late last week. For us, it is tough to make the case to buy Gold until first key support at 1329.1-1331.9 is achieved.
Bias: Neutral
Resistance: 1349.7-1351.4**, 1365-1370***, 1377.8**, 1392.6***, 1432.9**
Support: 1329.1-1331.9**, 1321.7***
Natural Gas (March)
Last week’s close: Settled at 3.175
Fundamentals: Prices stayed elevated ahead of the weekend as headlines had called for an impending Polar Vortex. With a potential cold front being delayed for another week, price action gapped lower on the open last night by more than 10 cents. We said on Friday “The main catalyst for this recent volatility is the roll out of February which is essentially near a cash contract and according to headlines, the fear of a Polar Vortex in February. We have been fairly adamant this week that the rally is overdone due to these headlines. In fact, again today storage draw expectations over the next four weeks have dissipated.”
Technicals: After gapping to a low of 3.042 last night, price action worked to a session high of 3.128 in an attempt to cover some of the gap. Major three-star resistance at 3.182-3.197 held strong last week. The sellers are in control right now and we must see a close below 3.11 in order for it to stay that way. In December, we discussed how Managed Money went net-short Natural Gas and this should pave the way for a rally. That rally has come. According to the Commitment of Traders, Natural Gas is now at a net-long ratio of 2:1. This is a drastic shift in less than a month and a move like this from Friday’s close should encourage further selling as longs jump ship.
Bias: Bearish
Resistance: 3.182-3.197***, 3.32**
Pivot: 3.11
Support: 3.035-3.042**, 2.943***, 2.865**, 2.786**
10-year (March)
Last week’s close: Settled at 122’02
Fundamentals: Treasuries are under tremendous pressure this morning after the 10-year reversed Thursday’s gains to finish poorly on Friday. A critical week is underway and it kicks off with PCE Index data due at 7:30 am CT, we discussed the impact of this read in our Tradable Events this Week. Accompanying this is Personal Spending and Income data. The Fed begins their two-day meeting tomorrow and concludes with a policy decision Wednesday at 1:00 pm CT. The move in the 10-year overnight is pricing in the likeliness of a hawkish surprise from the Fed. However, as we discussed last week, we believe that the selling is being incurred ahead of and through the central bank meetings last week and this week and this should present an opportunity to position long for a rally through the middle and late part of February. Today’s move though has made this a difficult task.
Technicals: It is undeniable that this type of move overnight has worked to Neutralize some of our Bullish Bias. Price action stalled against first resistance late Thursday and the sellers have been in the driver’s seat since. We must see a close at or above 121’25 to stop the bleeding. However, only a close back above 121’31-122’015 will neutralize this weakness.
Bias: Bullish/Neutral
Resistance – 122’15-122’175**, 122’26-122’29***, 123’10**
Pivot – 121’31-122’015
Support –121’25**, 119’20-120****
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