The Institute for Supply Management’s non-manufacturing index increased to 56 last month from 55.2 in January. This fact, combined with Fed Vice Chair Janet Yellen’s statement that ‘I do not see any that would cause me to advocate a curtailment of our purchase program,’ are the likely primary immediate causes for the burst of buying this morning in U.S. equity futures. The MAR13 E-mini S&P 500 futures are now trading above the prior 2013 high, trading up 12.75 pts, hitting a morning high of 1541.75.
Conversely, the JUN13 U.S. 10-year note futures are down 6 ticks, hitting a low of 131 12. We notice that 132 is the top of the recent range in this 10-year note contract. Even with the recent QE affirmation of Janet Yellen, we believe overall the bonds are more likely to go down this year than up. The U.S. economic data has been on fire recently, with more good news today, thus investors might start to flee bonds for more growth oriented investments. The one counterpoint to this argument is the recent news of Biden discussing a potential strike in Iran to attempt to halt a potential nuclear weapon production scheme. If this escalates, we anticipate a rush to safe haven assets such as gold and bonds. For the JUN13 10-year note, if the market drops below 129 24, we see the potential for a big move down.
Grains and precious metals also seem to be stoked by the stock market activity today. We believe Yellen’s QE affirmation is bringing out the bulls across the board on most risk-on markets. Gold and Silver are both up today, while palladium is the metal with the biggest rally this morning. Palladium is up 3.11% to $736.70. We would not be surprised to see gold travel to our first resistance area at $1,620-30. MAY13 soybeans are up $.010 today, trading at $14.72. We believe they are trending up and will approach the key $15 level soon.
We focus more specifically on the MAR13 S&P 500. Our major line in the sand continues to be 1460. The market recently dropped to 1480, but then found major buying support at these levels. The market is very sensitive to future QE policy, and Yellen’s statement yesterday really is helping these markets stay strong, combined with continued positive economic data. Technically, our major bullish target is 1630. This market rallied 150 points from the beginning of the year to its recent high of 1530. Another 150 point rally from the recent 1480 low brings the target to 1630. We believe Yellen’s statements are being given added credibility by the markets because she is a rumored candidate to take over Bernanke’s chairmanship when he leaves.
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