US Benchmarks Have Played Out a Beautiful Consolidation This Week

US benchmarks have played out a beautiful consolidation this week and yesterday’s steady strength sets the stage for the next bull leg, states Bill Baruch of Blue Line Futures.

E-mini S&P (March) / NQ (March)

S&P, yesterday’s close: Settled at 3803.75, up 9.25

NQ, yesterday’s close: Settled at 12,972.25, up 82.00

Fundamentals: The S&P’s supportive technical pattern, discussed more in the Technical section below, coincides with tailwinds from the hopes of added stimulus. Today, President-elect Biden is expected to unveil his economic stimulus plan, which could have a price tag as high as $2 trillion. As we have become accustomed to, the anticipation of fresh measures should keep powering the bull market, however, we welcome the move with caution as markets turn a blind eye to potential headwinds. Mainly, the aftermath of issuing unprecedented amounts of debt and a Federal Reserve that inevitably plans to slow its purchases of such; a combination that will send yields to unsustainable levels. For now, it is not a concern and we look to Fed Chair Powell who has done a terrific job in soothing or prolonging such worries. He speaks today at 11:30 am CT. First, Atlanta Fed President Bostic, a 2021 voter, speaks at 10:00 am CT. Earlier this week, he initiated the notion the Fed could taper its bond purchases as early as late this year after stimulus measures, the vaccine rollout, and overall reopening create a powerful economy that does not need the same level of pandemic support.

Last night, China’s December Trade Balance data showed a monthly record, topping November’s, at $78.17 billion. One year ago, the market could have had a very different reaction to the same news. For now, we believe the market is digesting the news with cautious optimism as both imports and exports surpassed expectations, exuding broadly strong demand around the world.

From the US, jobless claims widely missed expectations this morning. Although this can weigh on the tape, markets seem to be more focused on the potential of added stimulus that will soothe a deteriorating jobs picture. Also, Dallas Fed President Kaplan speaks at noon CT, he is no long a voter in 2021.

Technicals: We have been very patient with our overall bullish bias by exuding caution through this consolidation. We now find it appropriate to increase our bullishness as long as price action holds above our first levels of support. 

Crude Oil (February)

Yesterday’s close: Settled at 52.91, down 0.30

Fundamentals: Crude oil has been a bit unenthusiastic since slipping yesterday morning. Our technicals have now confirmed exhaustion is setting in, discussed more in the Technical section below. Yesterday’s inventory data was neither bullish nor bearish for crude oil, but it has certainly weighed on the products. Last night, China’s trade balance data does exude strong global economy, however, China has been the bellwether within the energy space, and in December, their purchases slowed to 9.06 mbpd down from 10.6 mbpd one year ago and down from 11.04 mbpd in November. Still, hopes of fiscal stimulus have been a welcomed tailwind by the bull camp since last week. President-elect Biden is expected to unveil an economic agenda later today. Furthermore, such could also be supportive to the complex if he announces plans to reduce fracking in the US.

Technicals: We took a very cautiously bearish approach on Tuesday, noting that low-risk, very calculated put spread exposure is our positioning preference. In typical fashion, we took a more neutral approach yesterday ahead of the inventory data. Today, we will continue to exude our cautiously bearish bias as price action has decisively broken below our momentum indicator that comes in at 52.95 this morning; continued action below here will encourage slow selling at the least. This also aligns with what was a major three-star support shelf, that while out above there made us nervous picking a top in that the melt-up would continue.

Gold (February) / Silver (March)

Gold, yesterday’s close: Settled at 1854.9, up 10.7

Silver, yesterday’s close: Settled at 25.572, up 0.137

Fundamentals: Gold and silver both took a nosedive late yesterday, post-settlement, after failing to break out above major three-star resistance levels; discussed more in the Technical section below. Although the drop in Treasury yields helped support the rebound, there is some fear that the move is not done, and this is certainly a headwind to the precious metals space. Furthermore, the US dollar has continued to gain ground and relieve itself from a headline peak, also weighing on commodities broadly. Fed Chair Powell will speak today at 11:30 am CT and his comments will be closely watched. Of course, a discussion of tapering bond purchases that began earlier this week has weighed on gold while lifting the US dollar. Atlanta Fed President Bostick ignited that conversation, a 2021 voter, speaks at 10:00 am CT. Jobless claims this morning came in much higher than expected something that can quietly keep a bid in gold and silver if the rest of the landscape allows.

Technicals: We remain cautiously bullish in bias due to our longer-term outlook, but the landscape remains very uncertain in the near-term until gold can clear major three-star resistance at 1859-1864.9, a level that proved to be a great spot to trade against yesterday and one that we have steadfastly pointed to this week. Similarly, major three-star resistance in silver.

Learn more about Bill Baruch at Blue Line Futures.