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Morning Express: Feb. 14, 2020

By:

President of Blue Line Futures

E-mini S&P (March)

Yesterday’s close: Settled at 3377.50, -3.00

Fundamentals: U.S benchmarks set a fresh wave of record highs overnight. This marks the S&P’s fourth straight session and more impressively the NQ’s ninth. The combination of central bank liquidity, ultra-low/negative rates, lack of negative news and a warrior of a U.S consumer has fueled this market in recent days and weeks. The central bank liquidity and rate stories are a given and we’ve discussed it here at length, but one might wonder, lack of negative news? That is correct, markets race to price-in negativity before many can even react, but furthermore we must define ‘price-in’. For all intents and purposes this has become to mean priced-in from a risk perspective. It’s no secret that the stock market is in a new bull market since gaining 20% from the December 2018 low or breaking out above the October 2018 high in October 2019 (also decisively gaining above 3000). From an investor’s perspective momentum is strong and earnings, the lifeblood of stocks, are growing. More importantly though, it is uniquely inexpensive to protect the downside of one’s portfolio and therefore ‘risks’ are inherently ‘priced-in’. Instead, when negative news dissipates, the market experiences fresh buying. With all of that said, a narrative of ours this week has been “gyrations” at elevated levels are to be expected. In fact, we can easily see a healthy 3-5% pullback before the end of this quarter. Phillip Streible, our Chief Market Strategist, joined CNBC’s Worldwide Exchange to discuss just that yesterday morning.

The warrior of a U.S consumer is certainly a leading factor in this bull market rally. This is no secret, but it takes the stage today as January Retail Sales and fresh February Michigan Consumer data are due at 7:30 am CT and then 9:00 am CT respectively. The stock market needs strong data to be less dependent on a Federal Reserve who is decreasing the amount of liquidity provided through repurchase agreements and does not anticipate loosening policy by cutting rates again. Strong consumer data has filled a void left by the manufacturing sector and must continue to do so given the loss of 12,000 manufacturing jobs on last week’s Nonfarm Payroll report. This also brings a strong emphasis to Industrial Production data due at 8:15 am CT.

Technicals: The S&P is sticking its nose out above our most recent upside target, major three-star resistance at 3380.50-3385.25 and the NQ is nudging up against key resistance at 9650.75-9663.50. Yesterday’s reversal was propelled from a hold of major three-star support at 3347.25-3352.50 and this brings us a line in the sand to define what has become what is considered an extremely bullish tape by some and over-exuberance by others; simply, we believe it to be both. More closely, the bulls are in the driver’s seat on the session above … Please sign up at Blue Line Futures to receive our entire technical outlook, actionable bias and proprietary levels by email each day. 

Crude Oil (March)

Yesterday’s close: Settled at 51.42, up 0.25

Fundamentals: Crude Oil is sharply higher this morning as traders are pricing-in a likeliness that OPEC+ cuts supply. This is not a foregone conclusion although it is one we believed would happen at first. However, the fact Russia is now in control and the rest of OPEC is waiting allows us to believe if Russia were to agree to cuts, they already would have. Furthermore, U.S energy officials are not supporting a narrative that needs cuts and instead exuding a limited impact to Coronavirus. Russia does not have to succumb to the Saudi-led OPEC-cut-coalition and from another perspective this is their chance to puff their chest. While we believe this to be the dominant underlying narrative, a slower pace of virus outbreaks reported last night as certainly provided a bullish tailwind despite the fact Crude Oil is backing up in tankers on the shores of China.

Technicals: Price action surged higher at 4:00 am CT and has now achieved a key level of resistance at 52.20-52.44. A level that surprisingly took a lot longer than one would have anticipated given such oversold conditions (allowing us to believe it may not be achieved this week). Our momentum indicators come in at …  Please sign up at Blue Line Futures to receive our entire technical outlook, actionable bias and proprietary levels by email each day.

Gold (April)

Yesterday’s close: Settled at 1578.8, up 7.2

Fundamentals: Gold remains firm and Treasuries are also seeing waves of support ahead of a deluge of U.S economic data despite a stronger Dollar and new records in U.S equities. As discussed in the S&P section, the U.S consumer has been a warrior, continuing to top even the highest of projections. January Retail Sales is due at 7:30 am CT and followed by fresh Michigan Consumer data at 9:00 am CT. Strong numbers will almost certainly put Gold on its back foot as U.S equity markets again set a new wave of record highs. However, a miss here could be the catalyst that sets Gold on a pace to achieve and breakout above $1600. Industrial Production is due at 8:15 am CT and this number amid a loss of manufacturing jobs on last week’s Nonfarm Payroll report will also be watched closely.

Technicals: Gold again could not settle out above a crucial level of resistance at …  Please sign up at Blue Line Futures to receive our entire technical outlook, actionable bias and proprietary levels by email each day.

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