US equity benchmarks have so far staved off additional waves of selling and are consolidating at the low end of the week’s range, states Bill Baruch of BlueLineFutures.com.
E-mini S&P (December) / NQ (December)
Fundamentals: We look to weekly Initial Jobless Claims this morning at 7:30 am, before inflation data is truly at the forefront, beginning with CPI and PPI from China tonight. Tomorrow brings PPI, remember, producer prices are a leading indicator of consumer prices. We also get a fresh look at December Michigan Consumer data with evolving inflation expectations. Next week, CPI is due Tuesday, and this all leads into the Fed’s policy decision on Wednesday. Unless the inflation data is smoking hot, the Fed is expected to hike by 50bps. What matters more is their path through the first quarter. Currently, the CME FedWatch Tool is signaling at least 100bps through February with a 57.5% probability, off the highest level of the week at about 65%. Furthermore, 100bps between the next three meetings is at a 43.9% probability. By staying at this level or better, there is reason to believe a Christmas Rally will take hold.
Technicals: Price action is trying to firm into the opening bell. US indices incurred a wave of selling upon the Asian open last night, but only the Russell 2000 made a fresh low, and overnight the tape muscled back into the middle of its range from yesterday. Through this week’s selling, it is essential to note the S&P has not settled below major three-star support at 3928-3930.75. The resiliency at the low end of the range has helped the S&P unfold an inverse head and shoulders of sorts. It was its second higher low off Tuesday’s mark for the Dow. The heavy lifting comes overhead at yesterday’s highs and through the damage created Tuesday. This brings the first key resistance in the S&P and NQ at 3957.75-3961.50 and 11,596. Above there, it is reasonable to expect a test of our major three-star resistance as price action consolidates ahead of tomorrow’s data.
Crude Oil (January)
Yesterday’s close: Settled at 72.01, down 2.24
Fundamentals: A tightly supplied Oil market is rallying off a Keystone Pipeline disruption. Canada’s TC Energy said this morning it shut down the pipeline, which carries 622,000 bpd, adding there was an Oil release into a creek in Nebraska. Yesterday’s EIA data did little to support a market in freefall. Despite a -5.187 mb draw in Crude, there was a combined build of 11.479 mb build in the products. Another 2.1 mb from the SPR was released last week, and Exports fell by 10.626 mb w/w. Such week-to-week divergences, combined with the higher-than-expected Refinery Utilization at +0.3% w/w versus +0.1%, help explain the wide range of data. For now, the Keystone news is helping to buoy price action from nearing the $70 mark for the first time since January for this January contract or since December for the front month.
Technicals: Price action has ripped to retest major three-star resistance at 74.96-75.27, a recurring level that also aligns with the recent closing low (before this week) and the prior low from September, among other indicators. The bulls must achieve a close back above this level in order to have a shot of neutralizing the last part of this leg lower. Our momentum indicator is rising and now aligns at first key support, holding out above this mark.
Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1798.0, up 15.6
Silver, yesterday's close: Settled at 22.922, up 0.587
Fundamentals: Gold and Silver are edging higher this morning after Initial Jobless Claims were in line with expectations at 230k. Outside of 240k two weeks ago, this is the highest level since September. Yesterday’s stronger-than-expected Nonfarm Productivity and lower-than-expected Labor Cost data for Q3 helped underpin a rally that retested the $1800 mark in Gold and $23 in Silver. While there has been bullish momentum in recent weeks, and this rebound exudes more in the near term, this tape will heavily rely on tomorrow’s PPI data and what the inflation read does to the US Dollar and rates.
Technicals: Price action is testing a tremendous amount of resistance in both Gold and Silver, headlined by rare major four-star resistance in Gold at 1806-1809.6. A failure to finish the week out above here will certainly leave the tape vulnerable to selling ahead of CPI data on Tuesday and the Fed on Wednesday. For now, continued action above our Pivot and point of balance, aligning with our momentum indicator.
Learn more about Bill Baruch at Blue Line Futures.