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What is the Trade Setup?

Bill Baruch joined the Schwab Network to discuss equity index futures, Crude Oil, Treasury rates, and last night's China Trade Balance data.

Published on May 9, 2024


We have had some drawdown. So this is definitely an asset class to watch. You're moving forward with crude oil. All right, let's bring in our next guest. And that's going to be Bill Baruch, president of blue line futures. Welcome back to the show, Bill.

Thanks for having me on. It's always a pleasure to join you.

All right, Bill, I wanted to get your take here on the equity market to start off with maize, looking pretty good. So far, most of the major indices up over 3%. Is there optimism in your view here?

Yeah, I'm optimistic now. weakness that we saw through April. I mean, I think you got profit taking some geopolitical headwinds, we're getting profit taking ahead of earnings. And just just looking at that, that sort of seasonality that you get a sell off through April, but in an election year, you know, it's not a Sell in May and go away. And I've been my my, my motto has been for last last year to is, you know, it's it's a bull market and stay in May. Yeah, bull market is here to stay. But, you know, I think as we look at, we look out here, I'm optimistic looking through June and look through the summer and looking through the being an election year that this market is going to rally earnings broadly from the leadership have been really good. You know, the next couple of days, I think could be more critical just to see how the, the chart patterns build out the NASDAQ maybe as a bull flag here, the s&p checked a really critical area of support the futures down to about 5185, yesterday could be 190. That's our major three star support level we put out in our research. And it's played really to that roadmap very well.

Now with catalysts here, because you know, we're really light on data, we've got jobless claims coming up in a few minutes here. Maybe that's an indication after that non farm payrolls that came in below expectations, because that is been that leading indicator bill where, you know, the jobs market is still robust, and the Feds not going to cut in that type of environment. Is there something that's going to offset that where maybe the consumer comes into play? And, you know, that kind of starts to come to realization where they're going to start really pulling back as we've seen that reaction in the crude market at this point?

Well, I mean, we've we've seen loosening conditions. I mean, the the Federal Reserve lowered their their Qt or the bonds, the cap on treasuries rolling up their balance sheet, from 65 billion 60 billion down to 25 billion. I think that was a statement there last week. Expectations are still there for rate cut, I mean, 50% probability through for two cuts through the end of the year, I wouldn't be surprised to see a third cut as as conditions worsened a little bit. I think the fact that they were rates are right now at five and a quarter, five and a half. You know, and with inflation below, you know, PCs below three. I mean, that's slowing conditions here, right now. I think the reason why we're not really seeing the Treasury market is just the continued pummeling of supply. I mean, that the there is a tremendous amount of supply, again, got 3030 year bond auctions today. So soft demand yesterday on the 10 year auction, and that's keeping keeping rates elevated. But, you know, I see conditions loosening a bit. And I think I think as we move closer to the election, we'll see, we'll see maybe the Fed politicized a bit.

Yeah, I wanted to kind of bring up yields here at this point, Bill, because that's, to me, that's what's driving the equity market. Right now. We've seen some weakness in yields throughout May, that's lended. Some support to the equity market. The dollars off of those highs at 106 level, although trending a little bit higher this week, is that the story that traders and investors should be watching is, hey, if yields continue to fall, or continue to weaken here that, hey, maybe all time highs for the s&p 500 are in sight.

I would imagine so I mean, if we if I'm actually going back to last week in our CTA, the commodity trading advisor under Blue Creek capital, I'm I got long two years to your futures. And I'm looking for really the front end of that curve yields to start coming down what I'm doing, at the end, my registered investment advisor, blue on Capitol, you know, rolled out a little bit of duration, some money that was in money market funds money, it was an ultra short duration, it's moved out just a little bit. So I think that not now not going out the curve. But but average duration is still around five years or so. I still think that we're going to start to see a little bit of the front end of the curve yields come down. And that's going to be a tailwind to risk assets, trying to see how I can take advantage of it just with with minor moves or minor positioning.

Yeah, it seems like liquidity a little bit late this week. Also, maybe that's due to no really big economic data move markets here. Bill 5200. I'm looking at that and the s&p 500 we break through that do we go to all time back to all time highs in this type of environment?

Well, I'm looking at the futures price action I'm familiar with so 5185 5190 You know, we when we moved out above there, we put out research every single morning and we took our bias to a more bullish bias with the caveat that it holds out above their yesterday's check against that support was pretty critical. So We'll continue to see how this plays out. Further, you know, if we did break below that 5140 in the futures that would that would garner negative momentum and additional selling now, to the upside 5215. And in the futures, that roughly that area right there, that's been kind of keeping keeping the market in check on a closing basis, you know, is right, where the market in s&p started rolling over it started seeing some selling to the early early middle part of April, as well. 51, sorry, 52 5215, and then 5245. So those are the two levels I'm looking we get about out above 30 to 45, then, then I think we could really start to run back to those highs, what was that 5330 area. So that's kind of how I'm watching. This is range consolidation through a week of soft data. And you know what, I wouldn't be surprised to see that consolidation just kind of continue here. We don't know when the big earnings were last week, the big economic data was last week, and everybody's kind of looking forward to next week as we we see inflation data come back in. And we're going to see CPI coming back down a little bit after after bringing a bit of a scare. I would I think that's very possible. On Friday, we get in Michigan consumer data tomorrow. What are those inflation expectations? That's going to be critical to so we'll have we'll have a little bit of data before that.

Yeah, that might be a good, you know, inclination on what the consumer is doing, because we've seen some weakening consumer confidence and sentiment data weekly. And those inflation expectations remaining steady, even ticking up a little bit. Crude oil here, Bill, I just chart just looked at a chart on it. When you're one day, you know, we fell below $77 A barrel just yesterday morning. What's your Outlook here? Because I you know, I keep on saying it's a demand issue. But there's so many different catalysts within this market in the crude oil market that can that can turn on a dime, whether it's geopolitical risk OPEC, plus getting in the mix. Well, what's your thoughts here on crude oil? And where do you see it going?

Well, we put a lot of research each morning and covering all commodities. Crude oil was one that we that we did take a neutral approach as some of the supports above had began to be broken. I think it was like 8250 or so. But as we were selling off, we noticed that the basically seven yesterday, we broke the streak of lower highs on actually on Tuesday. So we did not get a seven day of lower highs. But we noticed that as we moved into the mid 70, sevens and high 76 area that there's a lot of value here. And so we didn't see the market turn off that support level where the consolidation to the middle of March had taken place. A really big outside engulfing pattern here from on yesterday's daily bar. What I'm doing in the CTA, the commodity trading advisor, again, bless Blue Creek capital. You know, I did buy some risk reversals last night after seeing this the settlement. So I'm selling some put spreads in July and buying some call spreads in July, trying to take advantage of that while keeping a really close close leash on that thing. But I want to see that momentum continue. Then we got China's trade balance data last night as well, which should be you know, as foreseeably, a tailwind there was strong, stronger than expected imports and exports. So I think, you know, compared to the March data that we saw in the prior month in China, where we saw a contraction in imports and exports, that was that was pretty scary. Now we actually have a pretty good a pretty good move back up showing some demand as well as on globally as well as within China too. So that could be something to see as a tailwind not only for crude oil, but but commodities in broadly. Yeah, everybody wants that kickstarted over and China has some decent data last night those markets up and I like you bringing in the options trading angle bill right up my alley with the risk reversals on crude. All right, Bill. Thanks for the rundown. Have a great day. You too. All right, that's Bill Baruch, president of Blue Line Futures,

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