Today is Fed Day, and the committee is expected to hike rates by 75bps at 1:00 pm CT. Then, Fed Chair Powell holds his traditional post-policy meeting press conference at 1:30 pm CT, states Bill Baruch of BlueLineFutures.com.
S&P 500 (SPX), yesterday’s close: Settled at 3866.00, down 17.00.
NQ, yesterday's close: Settled at 11,332.00, down 115.25.
Fundamentals: As we have discussed in recent days, it is less about today’s decision and more about the communication the bank provides for its next meeting in December. There have certainly been bullish tailwinds building as anticipation mounts that the Fed signals it will slow the pace of hikes from 75bps to 50bps in December. Yesterday’s risk-on start to the month had set fresh swing highs in the S&P, Dow, and Russell 2000 before it was derailed by better-than-expected data. At the heart of yesterday’s dataset was JOLT's Job Opening for September, which showed 717,000 more openings than the ten million expected. It also revised last month’s ‘light at the end of the tunnel’ number higher by 227,000. Essentially, there are a million more jobs to be filled than expected, and markets quickly discounted less likeliness the Fed will signal to slow the pace of hikes at today’s meeting. ISM Manufacturing PMI and final SPGI Manufacturing PMI, both for October, edged out beats, but quietly ISM Manufacturing Prices contracted for the first time since May 2020. If the economy is humming along and demand shows no signs of curtailing, then why should the Fed slow the pace of hikes?
Today, the first glimpse of October jobs via the private ADP survey showed 239k created versus 195k expected, while revising September lower by 16k.
Technicals: We remain broadly enthusiastic about this market but understand there are many positive and negative forces it must work through to build a sustained rally such as what took place in July through August. Seasonally speaking, post-midterms are historically one of the most bullish pockets of time for stocks. Let us now layer it with the excessive negativity that has many managers offside. If the S&P were to decisively breach rare major four-star resistance at 3923.75-3925.25, shorts will be forced to cover, and long-managers to buy. Also lost in the shuffle is the October 13 post-CPI capitulation. Remember, capitulation is inherently defined by volume and, thus, the reaction thereafter. On October 13, S&P futures had record volume outside of quadruple witching roll weeks. From its recovery, an inverse head and shoulders were built, and one was re-checked by the NQ last Friday. Regardless, if we get a lack of continuation, followed by a violation of support, we cannot ignore the most powerful technical narrative, this is simply a down market.
Price action in the S&P has been testing into major three-star support at 3855.50-3863.75 and hanging by a thread. The bulls must respond here to avoid selling to our next shelf of major three-star support. The NQ has chewed through previous support, and now our Pivot and point of balance are at 11,359-11,364. The S&P and NQ must find stability by regaining our Pivot and point of balance and trading out above first key resistance.
Crude Oil (December)
Yesterday’s close: Settled at 88.37, up 1.84.
Fundamentals: Crude Oil remains resilient but still unable to chew through strong resistance at the $90 mark. A renewed wave of strength came from surprise draws on last night’s private API survey that showed Crude inventories falling by -6.53 mb and Gasoline by -2.64 mb (Distillates +0.865). Rumors that China will relax its zero-virus policy have also added bullish tailwinds as anticipation for a reopening of sorts builds. Citi has been vocally negative on the Oil market since the onset of the year, even releasing a sell recommendation before the Russian invasion of Ukraine. However, the bank has flipped, noting Crude Oil is likely to see upward pressures into December. Estimates for today’s EIA report are for +0.367 mb Crude, -1.358 mb Gasoline, and -0.56 mb Distillates.
Technicals: Price action has consolidated nicely at this elevated area within the recent range. However, is finding strong overhead resistance at the $90 area, a psychological level that has incurred tremendous volume in recent months and currently aligns with the 200-dma. The December contract first decisively violated the 200-dma on September first, and despite the October seventh spike, it has merely back-tested the indicator. First support is helping to buoy the selling, a major three-star level revised slightly lower and detailed below. To help signal the direction of the session, we will look to our momentum indicator, denoted as the Pivot and point of balance.
Gold (December) / Silver (December)
Gold, yesterday’s close: Settled at 1649.7, up 9.0.
Silver, yesterday's close: Settled at 19.667, up 0.548.
Fundamentals: Gold and Silver have arguably held ground well given the slew of stronger-than-expected data, JOLTs, Manufacturing PMI, and now ADP Payrolls. There has been a trend in precious metals, when they are moving lower, they stay heavy into month-end but commonly find renewed strength at the onset of a fresh month. This is certainly taking place right now as they also consolidate ahead of today’s FOMC policy decision. At the end of the day, what do the US Dollar and rates do, this will dictate whether Gold and Silver can hold onto a decent start to the session.
Technicals: We remain Neutral in the near term on precious metals, but overall believe we will see them trade higher from these levels in the coming months. For now, constructive support has been held, helping each to build out inverse head and shoulder patterns across their respective timelines. Still, as we have been noting, we must see them chew through resistances to help encourage a true bottoming pattern. There is sticky overhead damage created from the early October fallout, but it starts with a close above major three-star resistance in each.
Learn more about Bill Baruch at Blue Line Futures.