Yesterday was a very interesting day in the markets, as the S&P 500 retraced part of its monumental 2013 run thus far after FOMC minutes indicated a possible slowing or change to the bond buying policies of the Fed. The MAR13 E-mini S&P 500 did hit the key level of 1530, then quickly sold off a few points. Once the minutes came out however, sellers really started to enter the market and took this market down all the way to below 1510. Because of the very important potential implications of these FOMC minutes, many risk-on markets really got hit hard yesterday. Crude oil, S&P 500, RBOB gasoline, gold, silver, and the euro all experienced selling waves yesterday as market participants reacted to potentially less liquidity support by the U.S. Fed.
Today, crude oil futures (APR13) are down again, trading down $2.16 to $93.12. RBOB Gasoline, after a big run up in January and early February, is down again today, trading down $.0248 to $3.0323 (MAR13 contract). We believe crude could continue to approach our major first downside target of $82. It seems like today’s and yesterday’s price action shows you how much the market has been dependent on the liquidity injections of the Fed. Now, the Fed has indicated talks of ‘taking away the punch bowl’ before the party really gets going, and the market is adjusting to this potential new reality.
We focus more on the Gold market today. Over the past two weeks, gold futures have dropped more than $100. Today, gold is rebounding slightly, trading up $3.30 to $1,581. We believe the next major downside target to gold is $1,540. Gold is now trading below our very key pivot level of $1,630. With the FOMC indicating a possible change in QE3 policy (potential winding down), gold bugs got very scared and quickly sold gold in anticipation of less Fed support/liquidity.
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