US equity benchmarks are slipping from yesterday’s exuberant closing levels, observes Bill Baruch, president of

There was a sense of negativity ahead of Fed Chair Powell’s afternoon comments, that he would squash the rally. He certainly did not set out to be supportive with comments such as, “right now, it feels like the natural (neutral) rate is well above 3.6%” and that “a soft landing will be challenging”. The neutral rate is becoming a hot topic among Fed committee members. Simply, it is the rate at which policy is neither accommodative nor restrictive. Minneapolis Fed President Kashkari pointed to a neutral rate of 2.5%, and this arguably brought supportive tailwinds. Although Powell’s 3.6% was inferred as hawkish, equity benchmarks rallied into the close because none of his comments were seen as a true surprise.

Given market participants’ negativity ahead of his comments, this paved the way for a relief rally of sorts. The Chair confirmed he is eyeing 50-basis hikes in both June and July; the probability of such for June rose from 86.2% to 91.3%. However, the yield of the Ten-Year Note (TNX) could not ignore the overall hawkishness and finished up ten basis points on the session to 2.995%.

This morning’s soft tape comes after price action stalled to regain 4100. Many are watching this critical level as a battleground given it being established as a hard low in February and as a monumental gamma balancing point ahead of Friday’s Week Three Option Expiration. Despite these positioning dynamics, the leader to the downside was Target. The company’s stock has plunged by more than 20% after missing earnings by about 50% at $2.16 versus the $3.06 expected. The company cited supply chain problems, higher fuel costs, and less discretionary spending. Revenues did beat, however, this exudes inflation and the higher cost of doing business in this environment. This comes a day after Walmart (WMT) missed and fell by 11.4% in its worst trading day since 1987. Lowe’s (L) is also down about 3% after beating earnings this morning but missing on revenues. Lowe’s leans on the spring gardening season to maximize the end of the first-quarter revenues and cooler weather certainly played a role in slowing the company. Home Depot (HD) beat yesterday, showing a strong quarter, but was whipsawed by Walmart and broader market angst to muscle out a gain of only 1.68%. Upon Target’s miss, the S&P fell from a high of 4077, just before the report, and along with Walmart, the two have certainly set a tone.

With price action achieving strong resistance at 4094.25-4101.75 and slipping, we can only begin dialing back what was a more Bullish Bias since Thursday’s close. The reason 4094.25-4101.75 was just a key level was because of the unfinished business overhead at the 4119.75 gaps from May sixth and markets usually gravitate to cover such gaps. With that said, we will now have a gap from yesterday’s close aligning with previous major three-star resistance at 4079-4084.75 in the S&P 500 (SPX) and 12,547-12,560 in the Nasdaq (NDX). To the downside, not much has changed; yesterday’s first key supports still stand and are being tested ahead of the bell. Intraday lows from yesterday, shortly after the bell brings a standing ground.

Options on the June contract expired yesterday. Also, Open Interest and Volume have decisively moved to July. The private API survey, released after the bell yesterday, showed massive surprise draws and brought very bullish tailwinds overnight. They printed -2.445 mb of crude, -5.102 mb of gasoline, and +1.075 mb of distillates, while inventories at Cushing drew 3.071 mb. Analysts’ expectations for today’s official report are +1.383 mb crude, -1.333 mb gasoline, and -0.80 mb distillates. If such inventories at Cushing are confirmed then half the rebound from March’s low would disappear. Inventories for the prior week, released last Wednesday, surged by 8.487 mb because of the SPR release and a lack of exports. If last night’s API data is confirmed, it would truly show how tight the market is and we find this very bullish.

Price action rebounded from yesterday’s low of 108.96 in the July contract. This will align with unchanged on the week at 108.63 to bring our second wave of major three-star support. Although the expiring June contract had a ceiling of resistance in the $115 range and we must be mindful of such that comes in as key resistance at 112.80, we view July as being a bit more constructive. There is a pennant developing decisively above previous highs.

The rebound in Gold and Silver is dissipating just as quickly as it started. The retest to 3.0% in the US ten-year note has clearly weighed on the precious metals complex along with the US Dollar strength against the Chinese Yuan. At the end of the day, not much has changed, but we can clearly see what can jumpstart the complex and it is exactly what we have been pointing to. Much of the damage in Gold in recent weeks is due to the Chinese Yuan's weakness while rates are elevated. The complex does not seem to care about eroding corporate growth and fear of inflation, as seen through Walmart and Target, but in due time we believe Gold will. Now, it is up to the technical landscape to hold and provide a constructive path to recovery.

Given the early selling, Gold must battle to hold at first and second key support and regain our momentum indicator at 1815. As for Silver, constructively it has regained and is holding out above the previous floor and rare major four-star support at 21.22-21.50.

Learn more about Bill Baruch at Blue Line Futures.