Doves flew yesterday as the Federal Reserve reiterated steadfast support for the economy and that it is not yet thinking about tapering its unprecedented asset purchases, states Bill Baruch of Blue Line Futures.
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4176.25, down 2.75
NQ, yesterday’s close: Settled at 13,892.25, down 60.75
Fundamentals: Although the committee's view of the economy was upbeat, “indicators of economic activity and employment have strengthened,” Fed Chair Powell emphasized “one great jobs report is not enough.” Like we have said, this leads into April’s report next week for further validation. The committee, through its statement, and Powell, during his press conference, tied vaccine progress into their decision-making, saying that people need to feel safe going back to work and resuming activities. They maintained the view increases in inflation are merely transitory and there was certainly an emphasis the virus is the greatest economic risk. In the end, one of the biggest takeaways is the Fed will “act on data, not their forecast” and has no problem being behind the curve.
The Fed meeting tied perfectly with President Biden’s speech to a joint session of Congress last night. With doves flying, Biden was able to emphasize how the US has turned a corner on the pandemic and struck an enthusiastic tone with “America is on the move again.” The speech highlighted his new $1.8 billion spending plan, not to be confused with the $2 trillion infrastructure plan, that focuses on American families, childcare, and education. The administration expects this agenda to be largely paid for by raising taxes on the wealthy. Both plans face staunch opposition by Republicans and one goal of last night’s speech was certainly to appeal to the GOP and their constituents.
The US dollar sold off sharply following the Fed and Treasuries whipsawed higher, a traditional reaction to such a dovish rhetoric. However, at the onset of US hours and following stronger than expected economic data from Europe the Treasury complex reversed course. Overshadowing yesterday's move must be some doubt that President Biden’s spending plans can be absorbed by taxes as much as mapped out. Furthermore, the rally in commodities this week is inflationary, and forces yields higher. Speaking of inflation, the Fed’s preferred gauge, the Core PCE index, is due tomorrow. Today, the first look at Q1 GDP was better than expected at 6.4% versus 6.1% and weekly Jobless Claims were mixed but continue to trend at pandemic lows. Federal Reserve speakers are back at it today, Fed Governor Quarles speaks at 10:00 am CT and NY Fed President Williams follows at 1:00 pm CT. We are eager to hear if they take a less dovish tone. There is no reason to expect such, other than it was a “Jekyll and Hyde” game the Yellen committee played around the 2013 taper. Tonight, April PMI data is due from China at 8:00 pm CT.
To briefly touch on earnings, Apple reported another blowout quarter. It would seem the indices were waiting around for these results late yesterday and the beat gave a green light afterhours. Apple (AAPL) is up 2.5% ahead of the bell. Qualcomm (QCOM) also crushed estimates late yesterday and is up nearly 6%. Caterpillar (CAT) reported a strong quarter this morning and the stock is up nearly 2%. This morning, Mastercard (MA), McDonald's (MCD), and Thermo Fisher (TMO) all topped estimates, but the stocks are mixed. Merck (MRK) and Bristol-Myers (BMY) each missed and are trading lower. All eyes will be on Amazon (AMZN), rounding out the megacaps, after the bell. (Disclosure: Blue Line Capital owns Apple)
Technicals: The overnight strength is undoubtingly bullish and given such we must reinvite a cautiously bullish bias. However, we are eager to see the intraday action and the monthly close tomorrow as we maintain a belief price action is overextended in the near-term. The S&P is well out above our previous intermediate-term target of 4186, a stick level that now brings support. Price action is well out above our rising momentum indicator that comes in at 4192. Our pivot and point of balance on the session is previous resistance at 4200.75, while out above here, the path of least resistance is to 4220-4228. As for the NQ, it is edging through our 14,035 major three-star resistance level, another stick level that has acted as a ceiling and is crucial on a closing basis today and tomorrow; decisive action above here paves a path of least resistance to rare major four-star resistance.
Crude Oil (June)
Yesterday’s close: Settled at 63.86, up 0.92
Fundamentals: Crude oil is surging on the back of OPEC+ threading the needle once again; raising their demand forecast and sticking to their plan to reintroduce production only gradually over the next three months. Overall, the market has been charmed by the cartel’s composure in working together. This move is not only due to OPEC though, a weaker US dollar, upbeat data from both Europe and the US, a dovish Fed, reopenings, and inventory data yesterday exuding strong demand have all played a bullish role. Furthermore, strong tailwinds are coming from Goldman Sachs’ call of $80 and the anticipation of increased travel activity in China over their Labor Day holiday this weekend. Tonight, we look PMI data from China at 8:00 pm CT. We remain bullish on crude and do not believe the high of the year is in.
Technicals: Strong price action has now decisively cleared two layers of major three-star resistance and is pointing towards the highs of the year with only little resistance until above $66. Our pivot, previous resistance, brings a point of balance to the session at 64.93-65.21 and continued action above here should pave a path of least resistance to major three-star resistance at 66.45-66.60. Previous resistance is now crucial support.
Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1778.8, down 1.3
Silver, yesterday’s close: Settled at 26.118, down 0.332
Fundamentals: Gold and silver are sharply off their overnight highs and each down about 1%. In the S&P section, we highlighted the reversal in Treasuries, and this has been a leading factor impacting the precious metals. Further tailwinds to that narrative came with strong than expected Q1 GDP at 6.4% versus 6.1%. We spoke in detail in the S&P section on the dovish Fed rhetoric, but the talk of $4 trillion in spending in Washington has bond buyers very nervous. To make matters worse, the US dollar is strengthening from overnight lows. Overall, gold and silver exuded some exhaustion, struggling to extend gains as other commodities surged in recent days. We will look for constructive technical groundwork upon this pullback to find a buying opportunity.
Technicals: Price action has sliced through major three-star support levels for each gold and silver, levels that buoyed waves of selling over recent sessions. All is not lost quite yet though, gold had two layers of strong support and the second comes in as rare major four-star support at 1752.7-1756.1. Can gold respond to here and manage to settle the week above this level? For silver, it is now decisively below the 50-day moving average but faces first key support.
Learn more about Bill Baruch at Blue Line Futures.