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Tradable events this week
The NASDAQ 100 (NQ) has been lurking within 2% of its all-time high since late February and Friday’s monster gain of 1.8% finally achieved the inevitable. While the lack of wage growth in Friday’s jobs report provided the green light, the ground work had already been laid through the exacerbated selloff on tariff talk. Friday’s breakout above its previous high had strong leadership which is more reason to believe this new leg can run; Netflix +4.5%, Alphabet +3%, Microsoft +2.2% Amazon +1.75 Apple +1.7 and Facebook +1.6%. This week’s inflation data (CPI) will play a key role in next week’s FOMC Meeting, but the inconsistent and mundane wage growth will make it difficult for the Fed to bubble wrap their hike with a hawkish rhetoric. This was the fear at the end of January and upon Fed Chair Powell’s first congressional hearing on February 27th where he was considered outspoken and hawkish. Without a hot read on CPI this week, we are likely to see a more neutral Fed. This would be a major catalyst for higher equity markets. With the macro-fundamentals now providing a tailwind, the next major upside target in the NQ is 7372-7384. Furthermore, while the S&P lags its all-time high by 3.3%, the small cap and domestic focused Russell 2000 trails its by only 1.4%. A breakout above the old record high of 1619.2 opens the door for the next leg higher in the Russell 2000 which targets 1697-1700.
February’s Consumer Price Index data is due out Tuesday at 7:30 am CT. The Core read that excludes food and energy is the most closely watched data point. January’s MoM release on February 14th showed an increase of 0.3% for the second month in a row. This was the first time since January and February 2016. All things considered, those two months marked a peak in the rise in inflation. Former Fed Chairwoman Yellen had recently expressed her concern that inflation was stalled due to the Fed hiking rates too quickly. However, new Fed Chair Powell surprised pundits with his hawkish and assertive tone during his congressional hearing and this reinvigorated the Dollar. Friday’s Nonfarm Payroll already confirmed that there was no traction in January’s wage inflation. If CPI misses on Tuesday, this would be lights out for the Dollar.
Industrial Production, Fixed Asset investment and Retail Sales are due out of China on Tuesday Evening. While many put the largest focus on Industrial Production, we tend to keep a closer eye on Fixed Asset Investment. Regardless of your preference, this data comes at a critical time for commodity prices. The Dollar Index is trading about 2% from its recent low, a jump that put pressure on commodities priced in Dollars. However, Friday’s miss on wage growth will now provide a headwind for a further rise in the greenback. Lost in the noise last week was a very great on China CPI. A strong read on this trio of data points for the world’s second largest economy combined with a weaker Dollar is likely to spark tremendous broad-based commodity buying.
E-mini S&P (June)
Last week’s close: Settled at 2788.75
Fundamentals: Nonfarm Payroll was a perfect storm for equity markets on Friday. Average Hourly Earnings missed the expected 0.2% mark, coming in at 0.1% but was accompanied by tremendous job growth at 313,000; on Friday’s Morning Express we said this exact scenario would be bullish. We discussed all last week how this was the most important read on wages ever and the miss pushes the Federal Reserve back on their inflation argument. This biggest headwind for equity markets was a rise in rates as the Fed’s argument to hike four times this year was gaining traction in recent weeks. The S&P gained 1.6% on Friday and extended gains into this morning to the highest level since February 2nd. However, the NQ set a new all-time high on Friday with strong leadership. It is leading the way again this morning, already gaining more than 0.5% on the session. Today’s economic calendar is bare, but the focus will quickly shift to tomorrow’s CPI read, also discussed on yesterday’s Tradable Events. If inflation shows signs of stalling this will force the Fed hawks to do a complete 180 from their most recent rhetoric; one that pinned four hikes this year as possible and even ‘gradual’. The term is overly cliché, but the groundwork is being laid for a goldilocks period in equity markets.
Technicals: The market has been a technical paradise in recent sessions and we expect much more of the same. Major three-star resistance comes in at 2800.50 and yes, this level has been taken out, however, it will remain extremely crucial on a closing basis; a failure to close above this level could encourage profit taking in the near-term. The same truly goes for 2795, the previous high. Remember, this level traded intraday and was rejected. While the S&P has traded well, the NQ and Russell 2000 have traded much better. We discussed the technical breakout in the NQ on y and the potential for such in the Russell. This would lead to a bullish domino effect with each index feeding off the other. Additionally, while the S&P will benefit from such an environment, it is likely to lag the NQ, similar to last spring. At that time, it took the S&P more than two months before breaking out above its March 1st high and arguably longer without help from the contract roll while the NQ traded at a minimum 6% above its March 1st high in the same time frame.
Resistance: 2800.50***, 2817.25**, 2831.25***
Support: 2788.75-2789.50**, 2778.50***, 2762.25-2764.25**
Crude Oil (April)
Last week’s close: Settled at 62.04
Fundamentals: Crude Oil put in a strong Friday session queuing off the risk-on environment brought by the Nonfarm Payroll report. While the 313,000 in job growth was enough to signal that the economy is expanding, the lack of wage growth will keep the Federal Reserve in check. The Dollar Index lost ground on the session and this sparked a gain of more than 3% for Crude ahead of the weekend. However, the Dollar has held ground into this morning and a fresh report in the Wall Street Journal over the weekend on OPEC divide has traders on edge. The report discusses how two different price views could place OPEC’s production cap into question; Saudi Arabia vying for $70 while Iran is more comfortable with $60. Ultimately, traders who bought after the jobs report as we discussed on Friday, should be quick to lock in gains as prices did not hold Friday’s closing range or Sunday’s opening range ahead of a busy week for Crude Oil. The EIA is set to release their Monthly Drilling Productivity Report today, inventories come into the picture tomorrow and Wednesday, OPEC releases its Monthly Oil Report on Wednesday and the IEA releases its on Thursday.
Technicals: Yes, our Bias quickly turned Bullish on Friday and this was due to the Dollar. If the Dollar begins to lose significant ground while equities rally, this would bring a strong atmosphere for Crude which rejected the $60 mark once again last week. We are sticking with our Bullish Bias slightly into this morning, though it has been reduced due to a lack of follow through on both the Dollar and Crude. Crude failed to get out above strong key resistance at the 62.25-62.58 level before retreating; this level aligns multiple technical indicators including a trend line from late February but also could be drawn from the first days of the month. First key support comes in at 61.42 and if Crude can consolidate at this level through the morning it could prime for another push. However, a failure here would make the market very neutral in the immediate-term.
Resistance: 62.25-62.58**, 63.27-63.50***, 64.24-64.39**, 66.00**, 66.66-66.87***
Support: 61.42**, 60.14**, 59.95-60.32***, 59.05-59.29**, 57.26-57.95***
Last week’s close: Settled at 1324
Fundamentals: Friday’s Nonfarm Payroll report was not a screaming game-on for Gold in the immediate term, though the fact that the Dollar could not hold ground did make and still makes Gold a very attractive trade this week. The Dollar failed to hold ground on Friday despite a tremendous 313,000 jobs created in February. This was because wage growth is now the most important part of the report and without it, the Fed will have a very difficult time hiking rates at a pace as fast or faster than three times a year; Average Hourly Earnings came in at 0.1% versus 0.2% expected. The economic calendar is quiet today ahead of tomorrow except for a 10-year Treasury auction at noon CT and Federal Budget Balance due at 1:00 pm CT.
Technicals: The lack of follow through from Friday’s session is concerning in the immediate term on a technical basis. Still, the tape is in a long-term value area and the emphasis in the next 24 hours will be extremely fundamental with tomorrow’s CPI read. After trading to a low on Friday of 1313.2, this aligns with newly formed trend line support. Friday’s jump failed at first key resistance at 1327.3-1329.8, a level that we want to see taken out as the week develops in order to remain immediate-term bullish. Considering the price action into this morning, a hold against today’s pivot level on a closing basis would be a win.
Resistance: 1327.3-1329.8**, 1341.2-1342.9**, 1350.2-1351.3**, 1367.8-1370***
Support: 1312-1313.2**, 1305.5-1307.1***, 1291.5-1297.6****
Natural Gas (April)
Last week’s close: Settled at 2.732
Fundamentals: Natural Gas is off to a strong start this week on technicals and fundamentals. Despite temperatures well within seasonal averages, the Northeast braces for its third winter storm in two weeks. With uncertainty provided by another Nor’easter, this one dubbed Skyler, buyers have quickly come to the table this morning.
Technicals: Friday’s low of 2.712 held first key support on a closing basis and higher low on today’s session has kept a rising trend line from 2/21 intact. These technicals along with another winter storm has encouraged strong waves of buying this morning. Major three-star resistance is still overhead, but a move out above here is likely to spark short-covering and fresh buying to the $3 mark.
Resistance: 2.8233-2.837***, 2.983***
Pivot – 2.774
Support: 2.7247**, 2.565**, 2.486-2.532****
Last week’s close: Settled at 120’01
Fundamentals: Friday’s price action stayed in a tight range of 7.5 ticks after what was a conflicting Nonfarm Payroll report. While job growth was tremendous at 313,000, the wage growth was simply not there. This, as we have discussed above, pushes the Federal Reserve back from their recent rhetoric of potentially bringing a fourth hike into the picture. The 10-year is an interesting trade, because the data is not bad, it just lacks inflation. This means the Fed will continue at their current pace, albeit, because rates are too low for current levels of growth. This also means that a 3% yield is likely to be the rough ceiling for the 10-year. Tomorrow’s CPI data will be absolutely crucial in deciphering this conundrum. There is a 10-year Treasury auction at noon CT today.
Technicals: Price action finished the session right where it was prior to the Nonfarm Payroll release and this continues to signal little edge in the 10-year trade. While the long-term path of least resistance has been lower, we maintain that tremendous support is just below the market. Tomorrow’s CPI read will go a long way in creating a more volatile environment to open the door for a trade, but one would have thought the same of Nonfarm Payroll.
Resistance: 120’14**, 120’24**, 121’02**
Pivot – 120’01
Support: 119’20-119’23**, 119’00-119’14****
Last Week’s Close: May corn futures were up 6 cents for the week, trading in a range of 9 ¾ cents. Friday’s Commitment of Traders report showed funds bought 105,168 contracts through March 6th, this puts their net long at 163,614 contracts.
Fundamentals: Corn prices gave back some gains into the weekend as traders and producers looked to capitalize on Thursdays bullish report and bullish price action. Last week there was tariff talk that had some grain traders on their toes as President Trump imposed tariffs on steel and aluminum. The concern would be retaliation from China targeted at soybeans, which could lead to spill over pressure into other grain markets such as corn. Attention this week will likely turn back to weather, but we will likely start hearing more chatter with regards to the end of month Prospective Plantings report. As private estimates come out, we could see that influence trade.
Technicals: Corn has been in retreat mode since failing to take out Thursdays high as traders and producers look to capitalize on the big move higher over the past 2 months. The market was in overbought territory with the RSI breaching the 80 level. The recent pressure has brought that back down below the 70 threshold which is the “overbought” rule of thumb. The overnight and early morning weakness needs to be confirmed by volume on the floor open. If the sellers do step in, we could see the market work back towards 379-382 ¾. This was previously significant resistance and now becomes significant support.
Resistance: 391 ¼-393 ¾***, 400 ¾-406****, 417 ¼-421 ½**
Support: 379-382 ¾****, 376-376 ½**, 370 ¼-372 ¼***
Last Week’s Close: May soybean futures finished the week down 33 ¼ cents, trading in a range of 42 ¾ cents. Friday’s Commitment of Traders report showed that funds bought 37,985 contracts through March 6th, this puts their net long at 139,846. Funds were estimated sellers of 19,000 soybean contracts on Friday.
Fundamentals: The market took a hard turn on Friday as there was a seemingly delayed reaction from Thursday’s bearish USDA report. That coupled with fears of Chinese trade retaliation opened the door for profit taking ahead of the weekend. Last week President Trump put tariffs on steel and aluminum, if China were to retaliate soybeans would be a pressure point as they are the biggest buyer of US soybeans. Attention and headlines will likely turn back to weather this week which is getting a little old but will need to be monitored. We would expect private estimates to start coming out for the end of month Prospective Plantings report, this could influence price in the near term; we will start compiling those estimates and have them in reports to come.
Technicals: In Fridays report and in our “2 Minute Drill” on Thursday we talked about 1059 being a pivot point where we could see a 20 cent move in either direction on a breakout or breakdown. That was triggered on Friday and led to accelerated selling into the weekend. First support for today’s session comes in from 1027-1030, a break and close below opens the door for another 10-15 cents. The bulls must find their footing in the first half of the week, a failure to do so will encourage additional long liquidation. The RSI (relative strength index) is at 50.46 this morning, that is about as neutral as it gets.
Resistance: 1050**, 1059 ¾***, 1070 ¼**, 1080-1082 ½****
Support: 1027-1030****, 1013 ¾-1016**, 1001-1006***
Last Week’s Close: May wheat futures finished the week down 8 ¾ cents, trading in a range of 24 ¼ cents. Friday’s Commitment of Traders report showed funds bought back 32,960 contracts through March 6th, this puts their net short at 21,600.
Fundamentals: Ample global supplies have offset some of the concerns surrounding the winter wheat market. We will continue to keep an eye on the KC contract as it will likely be the driver in the short term. Market participants will also need to keep an eye on currency fluctuations, if the dollar finds strength at these lower levels it could start to put a lid on commodities as it would likely translate into lower export demand.
Technicals: The market filed to get out above resistance last week which led to a breakdown below our 494 support. Our next support pocket is being tested in the early morning trade, we have outlined this as 478-481 ½. If you recall, this was previous resistance just a short while back, this pocket represents previously important price points as well as the 200-day moving average. If the bulls cannot defend this pocket on a closing basis we would expect to see the market work back towards 462 ½-467 ¾. We think there is value here on the first test, if we cannot “springboard” off of support then our bias would shift.
Resistance: 494**, 502 ½**, 516 ¾-518 ½***, 535-538 ¾**
Support: 478-481 ½***,462 ½-467 ¾**, 451-455 ½****
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