E-mini S&P and E-mini NQ futures finished well yesterday by digging out of session lows but turned lower overnight, states Bill Baruch of BlueLineFutures.com.

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

S&P, yesterday’s close: Settled at 3995.00, up 5.25
NQ, yesterday’s close: Settled at 12,228.25, up 59.25

Fundamentals: Markets have been heavy ahead of tomorrow’s Nonfarm Payroll report as they discount a more hawkish Fed path. According to the CME’s FedWatch Tool, there is now an 80.8% probability the Fed hikes by 50bps at their meeting in two weeks. One week ago, this was a 31% chance, and it only emerged after January’s Nonfarm Payroll report on February third. Here is the thing, if markets are perfectly efficient at all times, there is very little opportunity. We see this mounting probability of a 50bps hike in March and a rate of 5.50-5.75% by June, if not higher in the second half of the year, as an opportunity. Just two weeks ago, Fed Funds futures were still pricing in a terminal rate of 5.00-5.25% before a rate cut at yearend. The odds have done a complete 180, but has the flip been too much too quick?

That is where the opportunity is found. With rate cuts priced in, good economic data was going to weigh on the market in order to discount a higher terminal rate. At current levels, a solid jobs report and firm, but not hot inflation, could actually become a tailwind for risk assets such as stocks. Furthermore, as we discussed earlier this week, Fed Chair Powell has gone from a victory lap touting disinflation to nearing his Jackson Hole demeanor; he seems lost and now chasing himself around. We have only had one month of strong data, a month that we expected due to social evolution around the holiday season and New Year data distortions. It is easy to forget the Fed has been tightening policy, not just rate hikes, but cumulatively for a year now; the data will slow, and now the risks are skewed.

Weekly Initial Jobless Claims are due today. Treasury will auction $18 billion of 30-year Bonds after a tepid ten-year auction yesterday. Challenger Job Cuts for February softened this morning to 77,770 from 102,943 in January, which has led markets to believe Nonfarm Payrolls could be hotter. Fed Governor Barr speaks today, and traders should be on the lookout for added Fed speak before the blackout period begins Saturday.

Technicals: Price action in both the E-mini S&P and E-mini NQ futures could not get through the first resistance, a major three-star level yesterday, highlighted below. Much of the battle has been around our Pivot and point of balance at 3982.50-3985.25 in the S&P and 12,159-12,170 in the NQ. We are beginning to see leadership emerge among the chips, and this has underpinned relative strength in the NQ versus the S&P or Dow. We will be watching this closely and discussing it further in our Midday Market Minute. For now, the line in the sand to hold this consolidation pattern ahead of tomorrow’s Nonfarm Payroll report comes in at key support in the S&P.

Crude Oil (April)

Yesterday’s close: Settled at 76.66, down 0.92

Fundamentals: Crude Oil is working off overnight lows and trying to shake tepid price action. Buying showed up at the 8:00 am CT intraday open on the heels of higher-than-expected Initial Jobless Claims. The Claims data, the highest since December 29th, boosted risk assets and weakened the US Dollar ahead of tomorrow’s Nonfarm Payrolls report. Yesterday’s weekly EIA report marked the first drawdown of Crude stocks since the December 21st report. Still, price action was soft but held major three-star support, highlighted below, and lingering above $76 as Exports fell off sharply from the prior week’s record (down 2.267 mbpd from 5.629 mbpd to 3.362 mbpd). However, production continues to struggle to accelerate, down 100,000 bpd in the Lower 48 states and waffling below 12.0 mbpd (in Lower 48). This is helping to buoy the longer-term bull thesis.

Technicals: Price action battled above major three-star support since yesterday’s EIA report and is now attempting to test higher at the onset of US hours. Given the stagnant tape for nearly 24 hours, our momentum indicator went sideways and comes in at 76.70 this morning; while above here, the bulls will attempt to flex their muscles. Still, traders cannot ignore major three-star resistance, a level that was held yesterday.

Gold (April) / Silver (May)

Gold, yesterday’s close: Settled at 1818.6, down 1.4
Silver, yesterday’s close: Settled at 20.141, down 0.048

Fundamentals: Gold and Silver are seeing some reinvigoration after this morning’s Initial Jobless Claim number came in at 211k, the highest since December 29th, and above the 195k expected. In fact, this is the first time above 200k since January 12th, and it certainly sets the stage for tomorrow’s Nonfarm Payroll report, where the risks are skewed, something discussed in detail in the S&P/NQ section. Tomorrow’s Nonfarm and next week’s CPI will be critical in defining the path of precious metals, a heavily reliant one on the reaction of the US Dollar and rates, but also one with hot data becoming discounted. The US Treasury will auction $18 billion in 30-year Bonds at noon CT. Traders should be on the lookout for added Fed speak before the blackout period begins Saturday.

Technicals: Price action is seeing a nice hop but still faces strong resistance aligning with damage from Tuesday. However, we see it as a strong positive that Gold is building a double bottom at major three-star support.

Learn more about Bill Baruch at Blue Line Futures.