Data today showed new-home construction in July climbed 5.9% to an 896,000 annualized rate. Consumer confidence in the U.S. unexpectedly dropped in August from a six-year high. The VIX fell 5.9% today to 13.86 after yesterday touching the highest level this month. J.C. Penney Co. fell 3.5% to $13.35.
Equities: The SEP13 E-mini S&P 500 futures (CME:ESU13) are up 3.5 points this morning to 1659, after a sharp down move yesterday to the low 1650′s. We have first resistance at 1670, a key pivot level at 1658, and a next downside target at 1634, according to our market profile analysis. 1658 seems to us to be the key pivot level for the short term. Corporate earnings and guidance have likely caused to market to sell off recently, in addition to the market getting concerned that a very upbeat jobless claims number yesterday may portend a higher likelihood of a fed tapering announcement next month. We believe the upside may be limited for this market, while there could be more room to fall below 1658. 1644 another important support level.
Bonds: The SEP13 US 30yr bond market (CBOE:ZBU13) is down again today, this time trading down 26 ticks to 131’09. The bonds are trading well below their key pivot level of 131’20, and if they continue to trend lower, our next market profile target is 130’08. It seems like the bonds do not want to rally before the next Fed meeting for fear of a tapering announcement. However, there is always a chance the bonds will go down too far too fast, and we may see a short-covering rally before the next Fed meeting, but at this point, we would not be surprised to see the bonds continue to slide. Again, 131’20 is our key decision level we watch.
Currencies: After a steep and rapid sell-off yesterday, the SEP13 USD (NYBOT:DXU13) has reversed course today and is back up 18 ticks to 81.38. It bounced off a key support level yesterday of 81.12. As long as the USD stays above this key support level, we believe it can head higher to at least 82, possibly 82.50. We would not be surprised to see this rally into the Fed meeting next month. Conversely, the SEP13 Euro is down 26 ticks to 133.23, and is resting on multiple trendline support points. The SEP13 Aussie dollar is very strong today, trading up 55 ticks to 91.78, and we would not be surprised to see this currency head towards a key potential breakout level of 92.50.
Commodities: The big story we’d like to focus on is DEC13 cotton (NYBOT:CTZ13). Cotton is up another $.017 today to $.9348. At this beginning of this month, cotton was trading about $.08 lower, as expected rainfall which may be very damaging to cotton crops has caused this market to stage a significant rally in August. Even though technically today cotton could potentially be at overbought levels, it looks like this market could potentially head higher. We have a market profile upside target for this market at $.9510. At this point we believe cotton could attract some profit-taking action. DEC13 cocoa futures have also had a nice rally, trading at $2492/metric ton, on speculation that dry weather in West Africa, the world’s main growing region, will damage the crop. DEC13 gold rallied hard yesterday, and is up slightly today to $1365. We still believe rallies may be stopped in the resistance zone of $1380-$1420. We believe the potential slowing of Fed stimulus may put a ceiling on gold at this resistance zone.