Where is the recession? I was promised a recession last year. Next, I was notified the recession had been delayed until Q1, states Bill Baruch of BlueLineFutures.com.

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

S&P, yesterday’s close: Settled at 4152.75, up 2.50
NQ, yesterday’s close: Settled at 13,352.25, up 34.50

Fundamentals: We are almost halfway through Q2, and still no sign of a recession. In fact, the Atlanta Fed GDPNow model forecasts Q2 GDP at 2.7%. Maybe they are right, and the recession is still coming. Or maybe, just maybe, they are wrong. 

There is a clear divergence between hard data, derived from real statistics, and soft data, taken from confidence and sentiment surveys. We can all agree the Services sector has shown no sign of recession. However, ISM Manufacturing is a terrific example; after trending the hottest since the 1980s, it has eroded for two years. The erosion now consists of a streak of small contractions since October. Is that really a negative? Whereas the NFIB Small Business Optimism survey, released this morning, hit the lowest level in a decade. Michigan Consumer Sentiment is another example, although it has improved from the depths of last year’s negativity, it is still waffling around the lowest level since 2011. Look at last Friday’s Nonfarm Payroll though, the Unemployment Rate slipped back to its cycle low of 3.4%, while Manufacturing and high-paying jobs showed resilient growth, anchoring a surge in wages. The best way to sum it up, the Citi Economic Surprise Index retreated from its best levels in Q1, but the data is still surprisingly better!

What if a recession never comes, and you have been trading for it for two years? What if you never invested in the stock market because some group of pundits on TV fear-mongered while the market bottomed from June through October? There are certainly risks, and the debt ceiling debate is coming, but at the same time company EPS bottomed in Q1 and are now forecasted to set new highs in Q4, yes, Q4 this year. I am not oblivious, credit and lending are likely to tighten up a bit, but from what levels? Household savings are likely to deplete a bit but from record levels. Things have slowed down for a year now, but our society has become accustomed to an ever-lasting expansion while being coddled with 24-hour demand technology. Do yourself a favor this week and seek out one or two positives within the economy.

The next risk is tomorrow’s CPI data. It is expected to jump a bit month-to-month due to the rise in energy in April, but the headline year-over-year number is expected to remain at 5.0%. CPI will be tough to predict month-to-month, but the trend has clearly turned lower, and that is what matters. Remember, the rise in inflation from March to June 2022 has created abnormally high base comparisons, which will arbitrarily tame inflation. 

Technicals: The E-mini S&P and E-mini NQ continue to struggle against a ceiling of resistance. Despite a strong close pinned right at these levels, the overnight tape was soft and set the stage for a bit of profit-taking ahead of tomorrow’s CPI report. Price action is set for a showdown against major three-star support in the S&P.

Crude Oil (June)

Yesterday’s close: Settled at 73.16, up 1.82 

Fundamentals: Last week’s rebound carried into yesterday, but was it just that, a rebound? Most importantly, every trader must know that Crude Oil futures tested our rare major four-star resistance, and we find that to be the main reason for today’s retreat, discussed in more detail in the technical section below. Okay, China’s Trade Balance data certainly did not help. Although China’s Exports at +8.5% y/y topped expectations, its Imports fell by -7.9% y/y, much worse than the -5.0% expected. The release highlights the nation’s slow reopening. We have said this before, we are confident that China’s growth will show up this year, and the mounting negativity creates opportunity. 

Technicals: Price action is digesting the roaring three-day rebound of 15.9%, which was a direct hit into our rare major four-star resistance at 73.47-74.05. The retreat has held out above our first key support, detailed below, but is trading under our pivot and point of balance, which aligns with our momentum indicator.

Gold (June) / Silver (July) 

Gold, yesterday’s close: Settled at 2033.2, up 8.4
Silver, yesterday’s close: Settled at 25.834, down 0.096

Fundamentals: Gold is firm this morning despite a strengthening US Dollar ahead of tomorrow’s CPI and after the weak China Import data. That China data has likely helped keep a bid under Gold while softening Silver. In fact, the odds of a June rate hike, according to the CME FedWatch Tool, have risen to a 14.3% probability. This comes after those odds completely eroded as of last Thursday. This puts the precious metals complex in a precarious position ahead of tomorrow’s CPI, stay nimble.

Technicals: While Gold continues to consolidate, Silver traded to a low of 25.57 overnight, again probing below a critical area of major three-star support at 25.68-25.78, a pocket it has not settled below since the May first failure. While this happened, Platinum pinged above 1100 this morning. The wonkiness within the space exudes the need for not only caution but patience for your longer-term thesis. We remain Bullish in Bias until the latest intermediate-term trend is violated upon a close below rare major four-star support.

Learn more about Bill Baruch at Blue Line Futures.