US benchmarks are pointing higher. During Monday’s opening bell, they had regained the peak of Friday’s final minute month-end-whipsaw, states Bill Baruch of Blue Line Futures.
E-mini S&P (March) / NQ (March)
Last week’s close: Settled at 3809.25, down 18.75 on Friday and 93.75 on the week
NQ, last week’s close: Settled at 12,911, up 79.25 on Friday and down 665.00 on the week
Fundamentals:. The rise in rates was at the heart of last week’s selloff and Thursday’s Treasury landslide was months in the making. The 10-year Treasury note hit the highest level in a year at 1.56% amid a melting pot of inflation tailwinds, added supply, and a technical breakdown colliding with a very poor seven-year note auction and the March-June futures roll. For all intents and purposes, this was a capitulation. The baseline definition for capitulation is volume and last week Treasury futures had the most volume since last February’s breakout, or breakdown in yields that led to a low of 0.36%. Is this the long-term bottom in Treasury prices, or top in yields? Although we can only call it intermission at the least, we do believe it is the end of the high-velocity move. Ultimately, it was the speed in which Treasuries rose, the 10-year from 1.2% to a “pain threshold” at 1.5%, in two weeks that cratered investors’ risk appetite last week and we further believe such a reprieve is bullish equity markets.
It is easy to forget that the S&P was only about 3% from the record high it set two weeks ago. Just as a reminder, record highs are the sign of a bull market. Yes, Tech has a bit more lifting to do at about 6.5%, but amid last week’s washout is easy to forget the Dow set a fresh record early Thursday and is now only about 2.5% from that mark. This certainly tells us there is leadership aside from the Tech behemoths but let us also not discount such Tech names that have now achieved and held strong levels of technical support.
The economic calendar through the first week of any month is typically jam-packed and March is no different. Chinese Manufacturing data disappointed over the weekend, but this morning Manufacturing data from the Eurozone topped expectations, as did German CPI. However, German 10-year bund yields continue to back off from last week’s high and this is supportive to the risk landscape. We now look to final US Manufacturing PMI for March and the more closely watched ISM Manufacturing.
On Friday, Core PCE, the Federal Reserve’s preferred inflation indicator was only a touch better than expected. Expectations and risk management likely feared a hot read and the fact that it was not allowed the risk- andscape to settle down on the back of Thursday’s Treasury capitulation. Make no mistake, we still must see solid economic data, however, we have likely entered a period of needing Goldilocks reads, not too hot, and not too cold. ISM Manufacturing has steadily improved for the last seven months and has been just below 60.0 for the last four months. Services data is in the picture Wednesday, but the week could easily be bubble wrapped by the lagging jobs picture as things conclude with Nonfarm Payroll Friday.
Lastly, there are tailwinds from Congress on fiscal stimulus measures after Democrats pulled back on $15 minimum wage (bullish stocks, we have covered the difficulty such a floor brings in recent write-ups). Also, Johnson & Johnson’s single-shot vaccine received FDA approval over the weekend.
Technicals: On Friday, the S&P responded perfectly to a clear trendline from the October 30th low and one arguably nearly as perfect from the March low. At the same time, the NQ battled through the week to hold our rare major four-star support at 12,727-12,767 perfectly intraday. Furthermore, a bleed overnight, into Friday, was met by major three-star support at 12,616-12,646 from the January 6th gap. Amid such a strong uptrend, it gets us super excited to see technical supports of such construction hold. Additionally, the late session whipsaw Friday, at month end, was extremely similar to that from January, as is the Sunday night strength into the first opening bell of the month. You can now infer that we are getting very bulled up and this is true. Both the S&P and NQ are out in front of our momentum indicators, which come in as our Pivots, at 3837-3842 for the S&P and 13,000 for the NQ. First overhead resistance in the S&P is stronger than that for the NQ at 3858.50-3859.75. This aligns the 50% retracement from last week’s failed high and the Friday low with Friday’s late failed swing high. A move out above here is very bullish on the session and will help the NQ chew through its first key resistance. The two indices must work together as that brings the NQ to its major three-star resistance.
Crude Oil (April)
Last week’s close: Settled at 61.50, down 2.03 and up 2.24 on the week
Fundamentals: Crude oil is waffling at unchanged this morning after jumping by as much as 2% overnight. Early strength found tailwinds from the broader risk-environment rebounding from last week’s selling and news that Iran rejected the notion of direct talks with the US the OPEC+ meeting is scheduled for Thursday and is certainly the highlight of the week, however, as we have seen before it can drag out longer. Russia wants to bring previously cut production back online now that the supply-demand landscape has stabilized, prices are steadfastly above $60, and given the drag on US production after the freeze in Texas. Also, Saudi Arabia is set to resume the 1 mbpd it unilaterally cut for February and March and this also brings credence to Russia’s demands. We have not shied away from the fact we believe crude is overdue for a pullback, a pullback that we would love to buy, but there is no ignoring that this is a bull market, the path of least resistance is higher, and such pullbacks are rarely as steep as you want to see. However, things could come to a pinnacle later this week if US production comes back online as OPEC+ also adds production.
Technicals: Price action rose to retest key resistance at 63.05 overnight before slipping back to unchanged. Our momentum indicator comes in at 62.25 and will now bring headwind on rally attempts. Still, previous major three-star support at 61.65-61.80 is now our pivot and point of balance aligned with Friday’s settlement and while above here the bulls are in the driver’s seat. However, while below here there is reason to expect a consolidation back to our next major three-star support.
Gold (April) / Silver (March)
Gold, close: Settled at 1728.8, down 46.6 on Friday and 48.6 on the week
Silver, close: Settled at 26.44, down 1.245 on Friday and 0.814 on the week
Fundamentals: It was not the first month end that gold and silver were slammed, and it certainly will not be the last. We do not have to look any further than the November 30th bludgeoning that gold took before sharply reversing higher on the first day of the month. Not so coincidentally, this correlated with the expiration of December futures and options just as last week silver futures and options for March expired. Remember, through the early part of February, silver garnered massive attention for a short squeeze and the failure that led into Friday was a cleansing of those bulls.
With a refreshed market profile, silver much more so than gold, is snapping back to start the week. However, we cannot ignore the damage and thus supply that is left overhead. Still, this week will also be very fundamental. Starting off with fiscal talks in Congress that seem to have a smoother path now that $15 minimum wage was tossed out (it also means less debt over the next decade and thus could be seen as silencing a rise in rates). ISM Manufacturing beat expectations and this is seen as a positive for silver and the industrial side of the metals complex; although this helps buoy Treasury yields, the capitulation last week has silenced a rise in rates on the heels of such a beat so far. Lastly, jobs will be the headline of the week and if it continues to be a major laggard in this economic rebound it will exude that more monetary measures from the Fed are needed and this would help lift gold and suppress Treasury yields.
Technicals: Gold sliced through our rare major four-star support at 1767.2-1770 on Friday and precipitous selling ensued. Gold traded to a low of 1714.9 and dragged silver in its undertow. The two are in rebound mode today with silver being much more buoyant after its selling stayed contained within the February 19th fallout. Gold traded down to our next rare major four-star support at 1704-1710 and has so far responded. In fact, it ripped to major three-star resistance at 1759. We must see gold battle to hold 1732.9 and this will help build for a charge to retest the scene of the crime at 1767.2-1770. For silver, it must move out above major three-star resistance to begin repair.
Learn more about Bill Baruch at Blue Line Futures.
