When Does The Carnage End?

By:

President of Blue Line Futures

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

S&P, yesterday’s close: Settled at 3987.50, down 132.00

NQ, yesterday’s close: Settled at 12,193.75, down 502.00

Fundamentals: The carnage across risk assets resumed Monday. The S&P covered the gap associated with its April 1, 2021 breakout, settling with “3” handle, and the NQ traded to an 18-month low. The selling has now left no stone unturned. High-multiple growth has been bludgeoned for months, but the indiscriminate selling in recent days speaks to a broader dynamic. Growth names that previously held construction or clung to a floor were not immune. Energy has outperformed since November 2020. Yesterday, the sector had its worst day since June 11, 2020; the XLE lost 8.3% versus 9.4% then. Also, such carnage is to be expected across the high beta crypto space amid risk-off volatility, and it may have only been a matter of time before a stablecoin became unhinged. That day came yesterday when Terra (UST) fell to a low of 0.616 on the Dollar (Coinbase). For those of you who are unfamiliar with a stablecoin, it is supposed to be pegged to $1.00 and act as a reduced risk asset. This type of stress across markets speaks volumes to not only tightening financial conditions and the end of easy money policy, but of forced selling. After being a market participant for two decades, you gain a sense of market dynamics. The liquidation over the last three trading sessions may have started with some institutions taking down exposure, but it only ends when there is blood in the streets. Yesterday may have been that day.

With the S&P trading nearly 20% from its high and down 7% in three days, we find it hard to believe anyone would willingly sell today, ahead of tomorrow’s CPI. This paves the way for a consolidation higher.

We find it encouraging that Treasuries responded to yesterday’s risk-off tone. In fact, both the U.S. 5-and 10-year futures had outside bullish technical days. The yield on the 10-year has come off its high of 3.203% yesterday and is below 3% this morning. Simply, the fact the Treasury market is getting bid signals the market’s plumbing is being restored. Additionally, Bill Baruch noted in yesterday’s Midday Market Minute that Copper gave us a signal last Thursday morning. It pulled off its overnight high by 10 cents within 2 hours of Europe being open and never looked back. Yesterday, it rebounded off a seven-month low by 8 cents into the afternoon and has held ground well into this morning.

With all of this said, it will be Federal Reserve speakers who can either confirm or deny today’s improvements with their tone. New York Fed President Williams said he expects PCE inflation to fall to nearly 4% this year and to around 2.5% next year. Atlanta Fed President Bostic’s comments should be hitting the tape before the opening bell. We then look to Minneapolis Fed President Kashkari and the pivotal Fed Governor Waller at noon CT, before Cleveland Fed President Mester at 2:00 pm CT. For the Fed’s June meeting, the odds have flipped to a 50-basis point hike with a 90% probability, the other 10% being 75-bps.

Technicals: Price action is improving, but neither the S&P nor NQ have exceeded yesterday’s intraday high. These levels come in as first key resistance at 4056-4062 and 12,519-12,555. If price action fails to stretch above these levels that also align with previous lows, then sellers will come in quickly. If the tape can regain these marks decisively, there is a path of least resistance to major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!

Crude (June)

Yesterday’s close: Settled at 103.09, down 6.68

Fundamentals: Crude Oil lost 6.1% yesterday, to the XLE’s 8.3%. The selling continued overnight to a session low of 100.44 before stabilizing. Quietly, June Gasoline hit a fresh high yesterday before finishing lower by 3.1%. The trend higher speaks to the underlying tightness and strong demand ahead of the summer driving season. However, as we highlighted here yesterday, China’s ongoing lockdowns have disrupted the demand landscape, forcing the complex on its back foot. However, we look to fresh OPEC+ data confirming output was 2.59 mbpd shy of its target in April. Inventories will hit the picture today and early estimates are for -1.2 mb Crude, -1.833 mb Gasoline, and -1.167 mb Distillates. The draws across the board are expected due to an increase in exports. Technicals: Crude is working off last night’s 100.44 low with a higher low this morning at 100.71. The rebound is trying to hold at and above our Pivot and point of balance at 102.41-102.95. Doing such should pave a path to major three-star resistance at 104.61-104.80. To the downside, price action must hold out above … Click here to get our (FULL) daily reports emailed to you!

Gold (June) / Silver (July)

Gold, yesterday’s close: Settled at 1858.6, down 24.2

Silver, yesterday’s close: Settled at 21.82, down 0.547

Fundamentals: Gold and Silver have not extended losses, yet, and we find this a positive sign. Stability is being underpinned by the Treasury rally and a sideways day in the USDCNH. It would also make sense for the precious metals complex to hold ground at technical support ahead of tomorrow’s CPI read. We are at the point in the Fed’s tightening cycle where we must begin seeing a peak hawkish rhetoric which opens the door for Gold’s time to shine. There is a deluge of Fed speak today. New York Fed President Williams said he expects PCE inflation to fall to nearly 4% this year and to around 2.5% next year. Atlanta Fed President Bostic’s comments should be hitting the tape before the opening bell. We then look to Minneapolis Fed President Kashkari and the pivotal Fed Governor Waller at noon CT, before Cleveland Fed President Mester at 2:00 pm CT. For the Fed’s June meeting, the odds have flipped to a 50-basis point hike with a 90% probability, the other 10% being 75-bps.

Technicals: Despite some stability overnight, we cannot ignore the directional weakness in recent days. However, such directional weakness has pinned Silver, more so than Gold, at an ever-critical level of technical support; our long-term rare major four-star support at 21.22-21.50. Given the outside bullish daily bars in both the 5- and 10-year Treasury futures yesterday, and such significant support, the door is opened for a rally, but it would seem the precious metals complex needs one last catalysts. As for Gold, in order to neutralize this near-term weakness, it must clear major three-star resistance at … Click here to get our (FULL) daily reports emailed to you!

Originally Posted on May 10, 2022 – When Does The Carnage End?

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