US Benchmarks Are Mixed and on Their Back Foot

It is Fed Day and risk assets are already exuding some nervousness, states Bill Baruch of Blue Line Futures.

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

S&P, yesterday’s close: Settled at 3842.50, down 6.00

NQ, yesterday’s close: Settled at 13,485.50, up 10.00

Fundamentals: In recent days and weeks, we have pointed to froth, extended valuations, and complacency as all reasons equity markets could correct 5-10% over any given two-three-day span without being a surprise. Will the Fed intentionally come off as less dovish than expected today? Absolutely not, but the delay on fiscal measures, coupled with fear such unprecedented accommodation from the Fed will have to unwind sometime, is weighing on the internals of the risk landscape. US benchmarks are mixed and on their back foot, but to varying degrees; the S&P lost as much as 1% and the Russell 2000 as much as 2.5%, whereas the NQ is just slipping into the red.

Right now, there is a 6% probability the Federal Reserve will begin thinking about, thinking about, raising rates in September. Yes, this is completely theoretical, but it drives the rate landscape and thus the currency landscape. This morning, the dollar is strengthening and certainly weighing on the risk landscape as pandemic fears mount across Europe and even China. Safe-haven demand of US dollars is bringing a bid to the Treasury complex. These fears are clearly driving the risk landscape more than the Fed this morning and could be enough to encourage a more dovish rhetoric this afternoon, which in turn supports risk assets. US economic data has had some bright spots, both Manufacturing and Services PMI data has improved much better than expected over the last two months, but due to fiscal delays through December, the jobs picture deteriorated. At 7:30 am CT, we look to Durable Goods data.

On the earnings front, Microsoft (MSFT) is performing well after beating expectations, however, Starbucks (SBUX) and Advanced Micro Devices (AMD) have moved south; all reported after yesterday’s closing bell. This morning, Abbott Laboratories (ABT) and Boeing (BA) are each edging positive and AT&T (T) lower after reporting ahead of today’s open. After the bell, all eyes will be on earnings from Apple (AAPL), Tesla (TSLA), and Facebook (FB).

Technicals: In Monday’s Midday Market Minute, we reiterated the frothy environment and pointed to markets having to digest the Fed’s policy statement, an exercise that can easily create added volatility. Both the S&P and NQ, despite a firm session yesterday on the heels of Monday’s rebound, stalled at overhead resistance levels once again. For the S&P, this is key resistance at 3849-3853.75 and our next upside target, major three-star resistance, at 3865 lurks overhead. For the NQ, it is 13,523-13,583 that has halted the rally. Our momentum indicators have yet to slope downwards after this morning’s drop.

Crude Oil (March)

Yesterday’s close: Settled at 52.61, down 0.16

Fundamentals: Weekly EIA inventory data will certainly be pivotal today, but the risk landscape is moving in unison not only ahead of the Fed, but as froth boils, and pandemic fears mount. Still, crude oil has held ground tremendously and yesterday we pointed to the many narratives all sloshing together. Outside of this broader landscape, of the most importance today is Refinery Utilization. We have pointed to strong reads here in recent weeks as a catalyst, keeping a bid under an exhausted tape. On today’s report, analysts estimate a WoW drop from by 0.5%. For four weeks running, we have seen this read handedly crush estimates; a positive read today, barring a large unexpected composite build, should continue to support crude oil. Analysts estimate +0.43 mb crude, +1.764 mb gasoline, and -0.361 mb of distillates.

Technicals: Despite crude sticking its nose above key resistance at 53.13-53.16 and trading to a high of 53.25, sellers defended major three-star resistance at 53.60-53.94. We have noted consistently that the fundamental landscape is priced to perfection and we have our worries, but overall, the technical landscape provides little value at these levels. We like holding cheap defined risk put spreads in crude and will again exude such through a cautiously bearish bias. However, we must see a close below major three-star support.

Gold (April) / Silver (March)

Gold, yesterday’s close: Settled at 1854.8, down 4.2

Silver, yesterday’s close: Settled at 25.538, up 0.054

Fundamentals: Yesterday’s February options expiration has allowed gold to attempt to break out of its consolidation, also considered an enthusiastic rally attempt from the January 19th low. The February futures expiration, as we have seen before, can bring a cleansing and potentially a fortified bottom. What really matters today though is the US dollar, as we pointed to in the S&P/NQ section, there is safe-haven demand for US dollars and thus Treasuries as pandemic fears mount across the globe and uncertainty leads into today’s FOMC meeting. Traders must stay nimble and prepare for added volatility.

Technicals: The landscape seems very uncertain in the near-term and gold is trading at one-week lows, a level in which it quickly rejected last week. However, such a rejection must see follow through, gold and silver each failed that attempt through the start of this week, leading to this wave of selling.

Learn more about Bill Baruch at Blue Line Futures.