What to do about inflation?

Thursday, February 25–Jim Wyckoff’s Morning Markets Report

Global stock markets were mostly higher overnight. U.S. stock indexes are pointed toward mixed openings when the New York day session begins. The discussion in the marketplace at present centers on global inflation prospects, with most traders reckoning inflation is up-ticking. The key question is how high will price inflation rise and will it become problematic. Government bond yields are trending up, with the yield on the benchmark U.S. 10-year Treasury note presently fetching 1.444%, a one-year high. Stock market bulls have taken note of the rising bond yields and are a bit worried about it. At least one big Wall Street investment bank is predicting a “commodity super-cycle” is just under way that will see raw commodity prices appreciate for quite some time to come. Many commodity futures markets such as the grains, crude oil and some softs have seen their prices hit multi-month and even multi-year highs this year.

Federal Reserve Chairman Jay Powell’s testimony to the U.S. Congress this week saw the central bank chief reiterate that U.S. money policy will remain very easy until U.S. employment has reached more normal levels coming out of the pandemic. This did work to assuage the stock index bulls a bit as prices have rebounded from early-week lows.

The key “outside markets” today see Nymex crude oil futures prices slightly up and trading around $63.30 a barrel. The U.S. dollar index is lower early today as the bulls have faded recently.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the second estimate of four-quarter gross domestic product, durable goods orders, pending home sales and the Kansas City Fed manufacturing survey.

–Jim

U.S. STOCK INDEXES

March S&P 500 e-mini futures: Prices weaker in early U.S. trading. Bulls still have the solid overall near-term technical advantage. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at the overnight high of 3,934.50 and then at the contract high of 3,959.25. Buy stops likely reside just above those levels. Downside support for active traders is seen at Wednesday’s low of 3,851.75 and then at 3,825.00. Wyckoff’s Intra-day Market Rating: 5.5

March Nasdaq index futures: Prices are lower in early U.S. trading. Bulls still have the overall near-term technical advantage. Shorter-term moving averages (4- 9-and 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day average is below the 18-day. Short-term oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at the overnight high of 13,353.75 and then at 13,500.00. On the downside, shorter-term support is seen at 13,000.00 and then at 12,900.00. Wyckoff’s Intra-Day Market Rating: 4.0.

U.S. TREASURY BONDS AND NOTES FUTURES

March U.S. T-Bonds: Prices are solidly lower and hit another contract low in early U.S. trading. Bears have the strong overall near-term technical advantage. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at 160 16/32 and then at 161 even. Shorter-term support lies at the overnight contract low of 159 26/32 and then at 159 even. Wyckoff’s Intra-Day Market Rating: 2.0

March U.S. T-Notes: Prices are solidly lower and hit a contract low in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term resistance lies at 135.00.0 and then at the overnight high of 135.09.0. Shorter-term technical support lies at the overnight contract low of 134.17.5 and then at 134.10.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 3.0

EURO CURRENCY

The March Euro currency futures are solidly higher and hit a six-week high in early U.S. trading. Bulls have the firm overall near-term technical advantage amid a price uptrend in place on the daily chart. The shorter-term moving averages for the Euro are bullish early today, as the 4-day is above the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators for the Euro are bullish early today. The Euro currency finds shorter-term technical resistance at the overnight high of 1.2242 and then at 1.2300. Shorter-term support is seen at 1.2200 and then at the overnight low of 1.2160. Wyckoff’s Intra Day Market Rating: 7.0

NYMEX CRUDE OIL

April Nymex crude oil prices are slightly higher and hit a 13-month high in early U.S. trading. Bulls have the solid overall near-term technical advantage amid a price uptrend firmly in place on the daily chart. The shorter-term moving averages are bullish early today as the 4-day is above the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral to bullish early today. Look for buy stops to reside just above technical resistance at the overnight high of $63.79 and then at $64.00. Look for sell stops just below technical support at $62.00 and then at $61.00. Wyckoff’s Intra-Day Market Rating: 6.0

GRAINS

U.S. grain futures are mixed in early U.S. pre-market trading. The bulls are having a good week and have the solid overall near-term technical advantage as prices are mostly trending up—both on a near-term and longer-term basis. On tap today is the weekly USDA export sales report. The path of least resistance for grain futures prices remains sideways to higher.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission

(CFTC) has said about futures trading (and I agree 100%):

1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff