Demand Destruction and Excessive Negative Sentiment

By:

President of Blue Line Futures

S&P trading into a large area of support as negative sentiment becomes excessive.

S&P trading into a large area of support as negative sentiment becomes excessive.

A massive week of earnings ahead, with big tech leadership front and center.

A massive week of earnings ahead, with big tech leadership front and center.

Gold weekly back to 2011 highlighting the December 2013 bottom.

Gold weekly back to 2011 highlighting the December 2013 bottom

USD/CNH strengthens and pressures commodities. Resistance overhead?

USD/CNH strengthens and pressures commodities. Resistance overhead?

Market Activity

– Do not miss our Special Report drawing parallels today to the post-GFC action, 2013-2014 taper, and the Chinese Yuan being the straw that broke the camel’s back in 2015.

Get out your 2015 playbook; equity benchmarks are right in the thick of an August 2015 type selloff. In Friday’s Morning Express, we noted the U.S. Dollar had its strongest week against the Chinese Yuan (or Renminbi) since the week of August 10, 2015. Of course, this was not a one-week event, but the Yuan’s demise during that week in 2015 was merely one domino amid a chain years in the making. First and foremost, we believe that market themes that once took years to play out can now unfold in half the time or less. For instance, the S&P topped in October 2007 due to the Great Financial Crisis and did not set a new record high until April 2013, five and a half years. In 2020, the S&P topped in February and did not set a new record high until August, only six months. Continue reading here, chart deck included.

– The Federal Reserve is in blackout period ahead of next Wednesday’s policy meeting.

– Huge week of earnings, the biggest. Coca-Cola beat this morning. UPS, Microsoft, Apple, and more tomorrow. (calendar above)

– China leads global risk-assets lower. Shanghai enters fourth week of lockdowns and fear mounts Beijing will follow after mass testing begins. Panic buying at stores to prepare. Shanghai Composite -5.13% and Hang Seng -3.73%.

– U.S. Dollar gains 1% versus Chinese Yuan today, highest since November 2020

– Energies and Metals lead commodities on China demand fears. We will reiterate our belief that China is manufacturing and exporting deflation with the plan to advantageously buy lower prices.

– Economic calendar quiet, German Ifo Business Climate and sentiment data beats. Business Expectations (6 months out) stabilizes.

– U.S. Secretary of State Blinken and Defense Secretary Austin in Ukraine for highest-level visit since Russia invaded. U.S. promises $713 million in aid for Ukraine in allied countries.

– Developing: Twitter plans to accept Elon Musk’s bid at $54.20.

– French President Macron muscles out far-right Le Pen, 59-41, to win reelection.

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

S&P, yesterday’s close: Settled at 4267.25, down 123.25 on Friday and 120.25 on the week

NQ, yesterday’s close: Settled at 13,353.50, down 374.75 on Friday and 540.25 on the week

– Remain cautiously Bearish in our Bias, but as always advise against chasing price action. Especially into the depths of March 15th reversal.

– From year’s low, S&P about 3% and NQ about 2%.

– Sentiment is getting excessively negative. Unfinished business at 4010-4050. A lot of eyes at that level, may not get there. Intermediate-term risk between here and there is now to the upside.

– Pivot and point of balance will be critical, noted below, aligns with settlement.

– Trend line in S&P from Feb-March lows comes in at 4200 and aligns with 4208 late-day low on March 15th as major three-star support.

– If trend line breaks, next major three-star support likely to get tested at … Click here to get our (FULL) daily reports emailed to you!

Crude Oil (June)

Yesterday’s close: Settled at 102.07, down 1.72 on Friday and 4.31 on the week

– Near-term demand destruction: Chin zero-virus policy, Shanghai enters fourth week of lockdowns and fear mounts Beijing follows after mass testing begins.

– Selling in energy picks up alongside equity market weakness.

– Dollar strength headwind to commodities. U.S. Dollar gains 1% versus Chinese Yuan today, highest since November 2020.

– EU working to sanction Russian Oil, “smart sanctions”. Potential gradual phaseout of Russian Oil and tariff on exports beyond a specified price cap. This could be contributing to weakness, market is preparing for direction embargo.

– Momentum indicator falling sharply and aligns to create first resistance, a major three-star level denoted below.

– Rare major four-star support comes in today at … Click here to get our (FULL) daily reports emailed to you!

Gold (June) / Silver (May)

Gold, yesterday’s close: Settled at 1934, down 13.9 on Friday and 40.6 on the week

Silver, yesterday’s close: Settled at 24.259, down 0.362 on Friday and 1.441 on the week

– Demand destruction across commodities due to China lockdowns with Shanghai entering fourth week, Beijing mass testing, and U.S. Dollar surging.

– Fed blackout period, policy decision next week, 50-bp hike expected.

– Keying off our theme within the Special Report, “We believe that market themes that once took years to play out can now unfold in half the time or less.” What does it mean for Gold and Silver?

– Coming out of taper 2013-2014, Gold and Silver weakened significantly and due to U.S. Dollar strength pricing in the impending rate hike cycle.

– This played right into a bottom for Gold the day after the Federal Reserve hiked rates in December 2015.

– We believe such a theme lays the groundwork for Gold to bottom by/upon the expiration of the June contract, at the end of May.

– Rare major four-star support in Gold comes in today at … Click here to get our (FULL) daily reports emailed to you!

Originally Posted on April 22, 2022 – Demand Destruction and Excessive Negative Sentiment

Chart Sources: Trading View

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