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Why Rates are Leading


President of Blue Line Futures

E-mini S&P (September) / NQ (Sept)

S&P, yesterday’s close: Settled at 4315.50, up 64.25

NQ, yesterday’s close: Settled at 14,722.75, up 182

Fundamentals: Yesterday, U.S. benchmarks snapped back from a healthy three-day slide. Can the rebound continue? Massive buying at the opening bell yesterday set the tone for a tape that had held well in the overnight. Two of the more beaten down sectors, Industrials and Energy, led. However, Tech caught up through the second half and the NQ mounted gains of 1.25% versus the Dow’s 1.66%. Just ahead of that opening bell surge, it was a reversal in Treasuries that set the table for risk-on. At a yield of 1.25%, the 10-year does not pose an ongoing threat to high multiple Tech stocks, but this is something we are watching closely in the back of our mind. Can yesterday’s reversal (weakness) in Treasuries continue or does it dissipate? Regardless, it is certainly something to pay attention to. Again, not so much because yields are a headwind at these levels for Tech, but it should help signal what sectors and thus what E-mini tool could lead or simply hold ground better.

Today’s economic calendar is light. EIA inventory data is due at 9:30 am CT. Crude Oil is rebounding, and we believe strength here will directly correlate with weakness in the Treasury complex (inflation tailwinds). Also, there is a 20-year Bond auction at noon CT. A deluge of supply through August opens the door for weakness, buoying yields. Tomorrow, we look to a pivotal ECB meeting that will certainly have a great impact on currencies and rates. Friday brings Flash PMIs.

Technicals: Price action is mixed ahead of the bell. The S&P and Dow extended gains to new swing highs, whereas the NQ traded to a lower high on the session versus yesterday. Strong levels of support are buoying an early morning pullback. For the S&P, there are several levels that have re-emerged over the last couple weeks and align with settlements. First key support in the S&P is a wide range that combines those settlements with several technical indicators, including our rising momentum indicator, at 4310-4318.50; the bulls have regained the driver’s seat across all timeframes while holding out above here. For the NQ, our Pivot and point of balance is 14,690-14,695 and major three-star support sits just below at 14,633-14,670; similarly, the bulls have regained the driver’s seat across all timeframes while holding out above here. For now, we are holding a more cautious Bias, but we certainly expect trading opportunities across all levels and would look to buy the S&P for a swing against major three-star support at … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Crude Oil (September)

Yesterday’s close: Settled at 67.20, up 0.85

Fundamentals: Here yesterday, we spoke of Crude stabilizing off a fresh low and in our Midday Market Minute we described such along with the Treasury story as a turning point for broader sentiment. Crude has only briefly looked back since reversing from yesterday’s low. This came upon the private API survey late yesterday when it fell more than a dollar after a surprise build. Price action has since recouped those losses and more. API posted +0.806 mb Crude, +3.307 mb Gasoline, and -1.225 mb Distillates. Despite all the narratives out there, right here, right now, today’s inventory data for the Energy space is front and center. Furthermore, we spoke in the S&P/NQ section how a rebound in Crude would likely impact Treasuries. Expectations for today’s official data are far from API at -4.466 mb Crude, -1.043 mb Gasoline, and +0.557 mb Distillates. Gasoline inventories will continue to be a crucial aspect of this report. Outside of a record jump in demand surrounding the July 4th holiday, tepid demand has overshadowed other bullish aspects. This helps explain the recent collapse in prices, OPEC+ removed one of those bullish narratives by defining their production plans while Gasoline demand and overall global demand remain under question as the pandemic drags on.

Technicals: Price action is running into a key level of resistance but remains healthy while holding out above previous resistance that has been adjusted to major three-star support to align with our rising momentum indicator at 67.05-67.20. Crude Oil is in recovery mode while holding out above here and the bulls will attempt to reach for major three-star resistance at 70.10-70.33. In the event of a failure that takes out the overnight low, we could see an inverse head and shoulders play out if… Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Gold (August) / Silver (Sept)

Gold, yesterday’s close: Settled at 1811.4, up 2.2

Silver, yesterday’s close: Settled at 24.995, down 0.149

Fundamentals: Gold is down about 1% today and, on the week, but broadly holding ground relative to Silver which has lost about 3% on the week. The U.S. Dollar is lurking at higher levels, but technically has not broken out. The stall across the currency space is likely awaiting results and comments coming out of tomorrow’s ECB meeting. Remember, 57% of the Dollar Index is the Euro. Gold had held ground much better as Treasuries were marching higher, however, the reversal in Treasuries we highlighted in the S&P/NQ section has invited fresh selling in Gold. This helps explain, along with technical resistance, Gold’s 1.5% slip from yesterday’s swing high. Do Treasuries continue to slip and weigh on Gold? Does the Dollar Index breakout on a weekly closing basis? Can Gold withstand a budding technical failure? Has Silver sold off enough to attract fresh buying? These questions will be answered in the coming trading days.

Technicals: Gold is trading decisively below our momentum indicator. Coming after another failed attempt at major three-star resistance at 1828-1835, it suggests the tape wanting to resolve lower in the near-term. So far, key support at 1793-1796 is doing the trick once again, as it did Monday, and staving off the selling. Silver has not done Gold any favors, but it is battling to hold unchanged and at our momentum indicator this morning. Ultimately, we think the failure in Gold can test as low as … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Originally Posted on July 21, 2021 – Why Rates are Leading

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