An Inability to Hold Higher Prices Will Encourage a Probing Lower

After struggling at resistance all week, US benchmarks are now pointing lower and working their way through support, states Bill Baruch of Blue Line Futures.

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

S&P, yesterday’s close: Settled at 4206.25, up 7.75

NQ, yesterday’s close: Settled at 13,673.75, up 25.00

Fundamentals: This is no surprise, despite exuding a bullish tone, we have warned that an inability to hold higher prices will encourage a probing lower. Now, we do not believe there is a reason to break either way ahead of tomorrow’s pivotal jobs report, but we cannot overlook such a possibility given the tightened technical range and mounting gamma exposure. Especially so given the lack of news flow; it often becomes periods of ‘boring’ news flow that create a range break. Of course, the media then attributes the day’s trending topics as a cause, but we all know it is much simpler; the market’s profile, as always, is making sure to disturb the greatest number of participants.

Although tomorrow’s Nonfarm Payroll report is top focus this week, today’s economic calendar is nothing to snooze on. The private ADP survey came in much higher than expected at 978,000 versus 650,000. This does give us the first look at May jobs, but last month proved to be drastically different from the official read. Weekly Jobless Claims are then due at 7:30 am CT and Initial Claims are expected to trend lower for the fifth week and break below 400,000 for the first time since last March. Nonfarm Productivity and Unit Labor Costs will accompany claims data. Final May Services PMI will be released at 8:45 am CT and followed by the more closely watched ISM Non-Manufacturing at 9:00 am CT. Also, Crude oil is trading at the highest levels since October 2018 and closing in on the psychological $70 mark, weekly EIA inventory data is out at 10:00 am CT.

This deluge of economic data is even more critical ahead of this afternoon’s Fed speak. Atlanta Fed President Bostic speaks at 11:20 am CT, he is a 2021 voter. Philadelphia Fed President Harker talks at 12:50 pm CT and grabbed headlines yesterday by essentially saying the Fed should begin talking about talking about a timeline to taper. He is not a voter until 2023. Fed Governor Quarles then speaks at 2:05 pm CT.

Technicals: In yesterday’s Midday Market Minute, we pointed to the overhead supply keeping a lid on rallies; the S&P and other indices simply could not chew through resistance. As to be expected, it opens the door for a test of support. The S&P has decisively broken below major three-star support at 4183.50-4186 and this forces us to reduce our bias to more cautious. Still, a close back above this level will provide a win for the bull camp, reinvigorating near-term sentiment. Given the break, today’s Pivot and point of balance is 4173.50. This is an area that has incurred tremendous volume and was the opening bell low from the May 24th rally that left a gap from the May 21st close that aligns to create major three-star support at 4150-4154. We will hold a cautiously bullish bias while price action is out in front of 4150-4154, but a break and close below here will completely neutralize our bias.

Crude Oil (July)

Yesterday’s close: Settled at 68.83, up 1.11

Fundamentals: Markets are battling a wave of risk-off this morning, but crude oil is staving off fears and holding ground near the $69 mark. Last night’s private API survey showed a much larger draw than expected at 5.36 mb versus -2.443 mb expected from today’s official EIA report. Although the headline draw is helping to underpin prices, builds on both products when a draw was expected offset much of the impact. Overall, we find the upbeat and constructive rhetoric out of OPEC+ coupled with less enthusiasm surrounding an Iran Nuclear Deal to be buoying prices amid the risk-off undertow. Talks concluded yesterday and are scheduled to restart next week. Reuters has reported optimism from an EU official whereas other senior diplomats said, “the most difficult decisions lie ahead”.

Analysts’ expectations for the EIA are -2.443 mb Crude, -1.385 mb Gasoline, and -1.479 mb Distillates.

Technicals: Price action is stable near unchanged, which is encompassed by our Pivot and point of balance that also aligns with previous highs and our momentum indicator. Decisive action above here through today’s data will encourage a move through $70. However, steady action below here will encourage a consolidation lower that first would test key support at 67.98, but leaves the door open to trade into major three-star support.

Gold (August) / Silver (July)

Gold, yesterday’s close: Settled at 1909.9, up 4.9

Silver, yesterday’s close: Settled at 28.204, up 0.102

Fundamentals: Gold and silver traded well yesterday but failed to hold higher prices overnight. This quickly opened the door for a reversal and test into recent swing lows, a move that was secured by better jobs data. First, the private ADP Payroll survey came in at 978,000, higher than the 650,000 expected, and then Initial Weekly Jobless Claims came in at a new pandemic low at 385,000. This was the fifth beat in a row for Initial Claims and the first time below 400,000 since last March. Today’s economic calendar is just getting rolling though; Final May Services PMI will be released at 8:45 am CT and followed by the more closely watched ISM Non-Manufacturing at 9:00 am CT. We then look to Fed officials this afternoon. Atlanta Fed President Bostic speaks at 11:20 am CT, he is a 2021 voter. Philadelphia Fed President Harker talks at 12:50 pm CT and grabbed headlines yesterday by essentially saying the Fed should begin talking about talking about a timeline to taper. He is not a voter until 2023. Fed Governor Quarles then speaks at 2:05 pm CT.

The US dollar is strengthening on the heels of the jobs reads, but we are also looking at the fourth lower session in row for the Chinese yuan versus the US dollar. The White House is looking to add companies to the China blacklist, traders must keep a close eye on this currency pair. As for the Treasury environment, they have ticked lower despite a wave of risk-off. A strengthening US dollar coupled with a leak lower in Treasuries that does not garner a bid upon risk-off does not bode well for precious metals.

Technicals: Given the break below our first wave of major three-star supports, we must begin neutralizing our bias. Gold is still in a longer-term breakout of its downtrend since August, and a response against our next level of major three-star support at 1877-1882 could quickly reinvigorate the tape. Similarly, silver has another wave of major three-star support.

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.