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S&P daily chart. Support held yesterday and a right shoulder is building. Can it hold? What must we see?

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

S&P, yesterday’s close: Settled at 4292.75, up 25.50

NQ, yesterday’s close: Settled at 13,535.75, up 182.25

Fundamentals: At what point would one who has been negative (or cautiously bearish) this equity market call a low and turn bullish? Would it be a fundamental shift tied to peak hawkishness realized by the Federal Reserve, slowed volatility across the Treasury complex, or simply a great earnings season? Would it be technical? A right shoulder of an inverse head and shoulders, a trend line hold, excessive negative sentiment, or simply less stocks making new lows?

Calling a low in this environment would be a fool’s errand. We find it much more appropriate to say the door is open for a bottoming process and measured downside is now the worst case scenario. The point in which we would we reassess our analysis is detailed in the Technical section below.

U.S. equity benchmarks are working off yesterday’s early low, a critical technical hold amid the excessive negativity. This certainly paves the way for a rebound of significant proportions, but earnings must be a catalyst. Last Thursday’s failure was magnificent, a two-day and 2% run in the S&P provided memories of the March ripper and many were positioning for a breakout. There were several problems though. Yields were also on the mend and the curve had flattened sharply Tuesday through Wednesday. Furthermore, fears were mounting around China’s ongoing lockdowns, and this caused unfavorable strength in the U.S. Dollar versus Chinese Yuan, highlighted in our Special Report. Also, this pop was much more muted across Tech, especially after Netflix whiffed on earnings. Tesla’s beat certainly helped lift sentiment ahead of Thursdays bell, but the initially lackluster reaction Wednesday night left many, including us, with an eerie feeling. On Friday, the 10-year Treasury yield was stiff-armed at 3% and has reprieved since. There was certainly some capitulation in China to start the week and the USDCNH arguably halted its five-day ascent with a meager +0.03% today. In come earnings, Alphabet and Microsoft report after the bell. If they both beat and set a strong tone, we could see the start of a bullish tailwind into next week’s Fed meeting, one that could deliver peak hawkishness.

 

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NQ (June)

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Crude Oil (June)

Yesterday’s close: Settled at 98.54, down 3.53

Fundamentals: Crude Oil is showing signs of stabilizing after yesterday’s bludgeoning, along with risk-assets broadly. We have noted how U.S. Dollar strength, and specifically against the Chinese Yuan, has been a detriment to commodities in recent days. The People’s Bank of China promised overnight to increase support to promote a health and stable market. The Chinese Yuan versus the U.S. Dollar is essentially unchanged on the session, halting a five-day losing streak. Still, the fourth week of lockdowns in Shanghai continues, and Beijing has begun mass testing. As we have maintained, we find all of this a near-term gyration and believe ongoing geopolitics tied to Russia, lack of spare capacity within OPEC+, and China’s constant bid on commodities will pave the way for higher prices in the coming weeks, if not much sooner.

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Gold (June) / Silver (May)

Gold, yesterday’s close: Settled at 1896, down 38.3

Silver, yesterday’s close: Settled at 23.73, down 0.588

Fundamentals: Gold and Silver are attempting to firm up after each setting at least two-month lows. Helping the precious metals landscape find its footing is strength across the Treasury complex. Although the U.S. Dollar Index continues to strengthen, most importantly, it is unchanged against the Chinese Yuan. Let us not beat around the bush, there was certainly damage yesterday, but do not expect the selling to become excessive as geopolitics remain at the forefront and at least not ahead of next week’s FOMC meeting. On today’s economic calendar, Durable Goods were mixed, but S&P Case Shiller Home Price Index beat; it has helped keep a bid under the U.S. Dollar.

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Silver (May)

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