Yesterday, Fed Bank of Chicago President Charles Evans, historically a proponent of monetary stimulus, said he would not rule out a decision to begin tapering in September. Bank of England Governor Mark Carney linked the monetary-policy outlook to unemployment for the first time. First Solar (FSLR) plunged 11% to $41.77.
Equities: The SEP13 E-mini S&P 500 (CME:ESU13) is down 11 points today to 1683. We believe the key line in the sand for this market is at 1693. It looks as though we are starting to see some profit-taking at this point from the incredible July rally, likely incited by not only yesterday’s comments of Charles Evans (discussed a possible September tapering), but also IBM’s decline in share price yesterday and today. We have key targets below these levels at 1670, then 1660, then 1648. We would not be surprised at all to see an August correction taking this market down to 1648, as investors brace themselves for a possible stimulus tapering later this year. We have had a tremendous rally in 2013 and perhaps this is the period of profit-taking.
Bonds: The SEP13 30-year bond futures (CBOT:ZBU13) are up 18 ticks to 133’23, once again above their key pivot level of 133’18. The bonds are in an interesting position because one might think they will have a nice rally on a potential August stock market correction, but at the same time how can the market have a significant rally if the Fed does indeed pull back stimulus in September? Overall, we believe in focusing on price levels as key indications of market sentiment. Therefore, as long as this market can hold above 133’18, we lean towards looking for a short covering rally, especially if equities continue to decline.
Commodities: DEC13 gold futures (COMEX:GCZ13) had a very brief dip below $1,275, but now are trading up $1 this morning to $1,283. Gold is also in an interesting position, having declined so much this year already, while having the markets now start to really consider various central banks being a bit more hawkish than they were at the beginning of the year, such as US Fed, BOE, and even the BOJ which has its announcement tomorrow, in which the market is expecting no new stimulus. We believe gold may have found its floor at the $1,200 level, and could actually rally if investors move some funds back into gold from their profit-taking activities in the stock market. However, we would not be surprised to see a short term decline in gold if and when the Fed officially announces a tapering plan. SEP13 natural gas is the big commodity loser of the day, down $.077 to $3.24. We have a key target on the downside at $2.90, which looks like an unfilled gap on the daily chart.
Currencies: The SEP13 USD (NYBOT:DXU13) continues its decline today, trading down 25 ticks to 81.40, while the Pound and Yen are having significant rallies today. The SEP13 Yen futures are up 107 ticks to 103.50, with our next key technical target on the upside at 104.70. 103.11 looks like initial support for the Yen. The BOJ releases their policy announcement tomorrow, and the market is expecting no new stimulus from the BOJ, which is perhaps why the Yen is rallying. The Pound is also rallying on more specific policy guidance from Carney and the BOE, trading up 145 ticks to 154.96. We have an upside technical target for the Pound at 1.57. If data from the UK, especially employment data, keeps surprising to the upside, we could see the Pound reach this target.