US benchmarks have diverged this week. The Dow set a fresh record high yesterday, whereas the NQ is down 2.5% on the week and trading 4% from its record, states Bill Baruch of Blue Line Futures.
E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4160, up 1.75
NQ, yesterday’s close: Settled at 13,491, down 45.00
Fundamentals: As for the S&P, it is trading slightly lower on the week, a blend of the two. On Tuesday, Big Tech got trucked, but as one could imagine given the Dow’s record, many names within energies, industrials, and materials are trading much higher on the week. The talk of rising rates has certainly weighed on tech, but there are also various idiosyncratic themes ranging simply from air coming out earnings enthusiasm, to the chip shortage, and concerns of high multiples. One conversation that we find ourselves having more often with clients is that at some point soon, broader index gains may not be so robust. For instance, what if the S&P is flat next year because tech loses ground due to rising rates. At the same time, what if there are real inflation tailwinds and crude oil reaches $100, the energy sector could easily gain 20%. As we move closer to the Fed tightening policy, whether the end of this summer or not until the turn of the year, these are important conversations; we could see a continued divergence.
Weekly Jobless Claims came in at 7:30 am CT and this leads into a pivotal Nonfarm Payroll report tomorrow. Nonfarm Productivity for Q1 is also due then. NY Fed President Williams spoke at 8:00 am CT and comes after Fed speak this week that has pointed to rising inflation and that a conversation on tapering may come sooner than later. Atlanta Fed President Bostic speaks at noon CT, he is a 2021 voter, along with Cleveland Fed President Mester, a 2022 voter. Dallas Fed President Kaplan, a 2023 voter and known hawk, speaks at 5:05 pm CT. He has led the taper conversation this week as the Fed probes the market’s resolve.
Tonight, around 9:00 pm CT, we look to Chinese Trade Balance data and Services PMI.
On the earnings front, PayPal (PYPL) is up more than 4% ahead of the bell after reporting last night and announcing a “next generation digital wallet.” Square (SQ) is being buoyed by the news and reports after the bell today. Expedia (EXPE), another stock we are eager to see, also reports after market close. (Disclosure: Blue Line Capital owns PayPal, Square, and Expedia)
Technicals: Price action in the S&P battled early lows in yesterday’s session, responded, but again struggled at resistance. Both indices finished unenthusiastically, but the NQ remains closer to its low of the week relative to its trading range. Our Pivots today will bring a point of balance and align with our momentum indicators. For the S&P, this is 4160-4166 and for the NQ, this is 13,505-13,536. We maintain a belief that the market overall feels exhausted and lower price action is increasingly necessary in order to refresh the tape.
Crude Oil (June)
Yesterday’s close: Settled at 65.63, down 0.06
Fundamentals: Crude oil is lower and on track for its first down day of the month after June traded to the highest level since March 8 and September set a new contract high. For those of you who have not been following, we have suggested being long September crude. The market found tremendous enthusiasm this week from reopenings and as Europe plans to lift their travel ban. The market is pricing in the expected increase in demand at a seasonally bullish time of year but did so ahead of yesterday’s massive draw of 7.99 mb. Remember, API did track the report well, so such a draw was expected. All things considered; the retreat alludes more so to profit taking than a shift in market direction. However, traders must keep a pulse on the broader risk environment as crude oil digests its one week run of as much as 7.5%. Tonight, Chinese Trade Balance is due around 9:00 pm CT.
Technicals: Crude tested perfectly into major three-star resistance at 66.45-66.00 with a high of 66.76 yesterday. Given the ascent and now pullback, price action has retreated below our momentum indicator in a sign of near-term exhaustion. This aligns closely with yesterday’s settlement and will act as our Pivot and point of balance on the session. Given such a constructive move higher through yesterday, the market has built multiple layers of strong technical support and the first comes in as major three-star support.
Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1784.3, up 8.3
Silver, yesterday’s close: Settled at 26.522, down 0.036
Fundamentals: Gold and silver are seeing renewed support this morning on fresh US dollar weakness and a stable Treasury picture. One also cannot underestimate the role strong technical support. Weekly Initial Jobless Claims broke below 500,000, a new pandemic low, and Nonfarm Productivity improved significantly. Although these do not support today’s rise, continued weakness in the US dollar will. At the end of the day, the week really comes down to tomorrow’s Nonfarm Payroll and whether the economy topped one million jobs. Also, we look to a continued deluge of Fed speak. NY Fed President Williams speaks at 8:00 am CT and comes after Fed speak this week that has pointed to rising inflation and that a conversation on tapering may come sooner than later. Atlanta Fed President Bostic speaks at noon CT, he is a 2021 voter, along with Cleveland Fed President Mester, a 2022 voter. Dallas Fed President Kaplan, a 2023 voter and known hawk, speaks at 5:05 pm CT. He has led the taper conversation this week as the Fed probes the equity and bond market’s resolve.
Technicals: Gold is trading into a strong layer of resistance at 1796.3-1800 once again and silver is checking the $27 mark. Can each maintain a constructive technical path today and into tomorrow’s fundamental jobs data. Our momentum indicators will play a critical role in defining such construction by bringing a point of balance.
Learn more about Bill Baruch at Blue Line Futures.
