E-mini S&P (March)
Yesterday’s close (Wednesday, Feb. 8): Settled at 2668.25
Fundamentals: Equity markets showed strong resilience early in yesterday’s session, but this tapered out into the close for several reasons other than technicals. Most simply, if one had bought when there was blood in the streets Monday or Tuesday, why not take 5 or even 10% profit on not only an index but top names like Apple, Netflix, JP Morgan and many others. So, to some degree, selling is coming in because of that. Another reason is this budget deal, though the memo was in the news last week, Washington has done a good job of staying out of the headlines through this week’s volatility. That was until yesterday when once again they brought attention to their dysfunction in an attempt to keep the government from shutting down once again.
Of course, one of the larger stories here is yields and as the market bounced back yesterday so did yields and this once again put pressure on equity markets. Coupled with this was Fed Presidents Bullard, Kaplan, Dudley and Williams who none of which signaled being deterred from hiking rates in March. Let’s not forget we are still in the heart of earnings season and this could help play a key role in solidifying a bottom. Viacom, CVS, Twitter, Kellogg, Phillip Morris, Tyson Foods and others are all due this morning. NVIDIA, Expedia and AIG among others are due out after the bell. Last night’s Chinese Trade Balance data, though skewed seasonally, did show surging demand. The Bank of England held rates steady as expected. We look to Philadelphia Fed President Harker at 7:00 am CT, weekly Jobless Claims at 7:30, Minneapolis Fed President Kashkari at 8:00 and a 30-year bond auction at noon CT.
Technicals: Much of the heavy pushing in these market swings is technical. Price action stalled yesterday in an attempt to retake the breakdown point from Monday with a session high of 2726.75, shy of our key resistance level at 2733.
Crude Oil (March)
Yesterday’s close: Settled at 61.79
Fundamentals: Yesterday’s EIA data gave the bear camp everything we wanted and needed. Crude inventories added 1.895 mb while Gasoline was +3.414 and Distillates were +3.926. This alone was bearish and could have pushed the market through a tremendous technical level at $63. However, U.S production added 332,000 bpd sending it to 10.25 mbpd. On a weekly basis, this is the first-time production notched above the big 10 mbpd mark. However, the EIA reported that in November monthly production averaged 10.03 mbpd, the highest since November 1970. This surpasses Saudi production that averages just below 10 mbpd.
Furthermore, the EIA said earlier this week that it expects U.S. production to average 10.6 mbpd in 2018 and 11.8 mbpd in 2019. Combine this news with a rising Dollar and the path of least resistance is lower. We believe the Dollar Index has about 0.5% more to rise this week and early next and this should add to pressures in crude and keep Friday buyers at bay.
Technicals: Price action in the March contract is at the lowest level since the first trading week of the year. The move below major three-star support at 62.78-63.00.
Yesterday’s close: Settled at 1314.6
Fundamentals: Gold is under pressure as the dollar continues a path of recovery. Fed Presidents Bullard, Kaplan, Dudley and Williams all essentially stayed the course signaling a likely rate hike in March and showed no concern over an ‘expected’ correction in equities. Today we have Philadelphia Fed President Harker at 7:00 am CT and weekly Jobless Claims at 7:30. Fed rate hike dissenter, Minneapolis Fed President Kashkari speaks at 8:00 and he will be important to watch for. Yesterday, his partner in dissenting, Chicago Fed President Evans made his case for waiting until the summer before another rate hike. Both want to see more on the inflation side. Most important to us in the gold trade is positioning, we will discuss this below.
Technicals: Yesterday, we revised major three-star support at 1321.7 down to a two star as we advised this level is likely to get taken out for a couple reasons but mainly as we saw more upside in the dollar.
Natural Gas (March)
Yesterday’s close: Settled at 2.702
Fundamentals: The wintery mix weather continues. It has remained near zero and snowy in Chicago every day this week. Expectations for today’s storage report at -116 to -120 bcf and yes this will move the needle. However, the main focus will be next week’s expectations which are mounting near -200 bcf. Price action is attempting to form a bottom ahead of the weekend as we discussed last week and that is where today’s report becomes more key; holding weight on the technical setup.
Technicals: Price action has continued to hold at the 2.693 support level and previous lows.
Yesterday’s close: Settled at 121
Fundamentals: Fed Presidents Bullard, Kaplan, Dudley and Williams all stayed the course this week and this has kept yields pushing back to the highs. The 10-year is back to 2.85% after a weak auction yesterday added further support. We expected to see solid demand from this auction at the start of this week. We maintained our belief that buyers would show up at the auction yesterday. But since equity markets traded as much as 10% from their high, money might be looking to do something different on this pullback. Regardless, the risks remain that high yields will likely weigh on stock and once again encourage Treasury buying. For now, the move back to 2.85% is something we don’t want to fight, especially since our counter call came to fruition before quickly failing.
Technicals: Price action settled below our 121’15-121’175 mark we referred to yesterday. This has completely Neutralized our Bias in the near term.