A Notable Relative Strength Divergence | Morning Express 05/03/22
Posted: May 3, 2022, 9:15 a.m.
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E-mini S&P (June) / NQ (June)
S&P, yesterday’s close: Settled at 4151.00, up 23.50
NQ, yesterday’s close: Settled at 13,073.00, up 221.00
Fundamentals: Yesterday brought a sincere test of our measured downside and U.S. benchmarks responded. From a low of 4056, the S&P rallied 2.3% in the final 80 minutes. However, it was not the S&P that stood out most, it was beleaguered Tech. While the S&P lost as much as 1% from its opening bell range into that low, the NQ lost just 33 points or one-quarter of one percent. Although the NQ’s rally of 2.9% into settlement was merely in line with the S&P, the technical groundwork and the relative strength against Consumer Staples was significant. XLP, the SPDR Consumer Staples ETF, finished down 1.3% on the heels of a 2.72% loss Friday. Mounting two-day losses in Staples is a very similar pattern to February 23-24 and March 7-8, where significant bottoms in the S&P became. Of course, March 8th chopped around into March 15th. This type of relative strength in Tech, highlighted in the chart above, did not take place in the short-covering rallies last Monday or Thursday, and leads us to believe this has the potential to be a real turning point for equity markets.
The Federal Reserve begins their two-day policy meeting today and concludes tomorrow at 1:00 pm CT. The market is pricing in a 50-basis point hike with a 98.7% probability, but market participants certainly fear a more hawkish tone. The yield of the U.S. 10-year hit 3.01% in a four-day climb ahead of the decision. What if they are not as hawkish as participants fear? Remember, in March they were hawkish, but their message was well-received, simply because there were no surprises.
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NQ (June)
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Crude Oil (June)
Yesterday’s close: Settled 105.17, up 0.48
Fundamentals: Crude Oil is holding onto the bulk of yesterday’s rebound, but certainly consolidating after being contained by resistance. BP reported earnings today and the stock is trading higher by 5%, but it was comments by the CEO that caught headlines. He said the impact of sanctions on Russian Oil will double to 2 mbpd. Cooling the rally are also reports last night that Hungary and Slovakia may be exempt from banning Russian Oil. OPEC+ and U.S. inventories will begin making headlines. Early expectations are for -1.167 mb Crude, -0.25 mb Gasoline, and -1.167 mb Distillates.
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Gold (June) / Silver (July)
Gold, yesterday’s close: Settled at 1863.6, down 48.1
Silver, yesterday’s close: Settled at 22.584, down 0.501
Fundamentals: The U.S. Dollar’s broad strength, coupled with the 10-year’s four-day push to 3%, has created immense pressures on both Gold and Silver. Yesterday’s bloodbath was two weeks in the making and should mark a consolidation point ahead of tomorrow’ Federal Reserve policy decision. We believe markets and participants are preparing for a more hawkish announcement and this opens the door to a relief rally in Gold and Silver. Yesterday’s ISM Manufacturing data cannot go unnoticed, especially on the heels of last week’s Q1 GDP contraction. Manufacturing slipped to 55.4 in April, from 57.1 in March and below the 57.6 expected. Also, the ISM Manufacturing Employment component slipped to 50.9, a near contraction, versus 56.0 expected. Considering this, once currency markets settle and the U.S. Dollar’s ascent due to such safe-haven factors are halted, it paves the way for continued strength in Gold.
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Silver (July)
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