The S&P 500 has declined 1.9% in the past five days, retreating from an all-time high on Sept. 18. Data today showed the economy expanded at faster pace in the second quarter from the previous three months. A Labor Department report showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week. Fewer Americans signed contracts in August to buy previously owned homes, figures from the National Association of Realtors showed today. Failure to increase the debt limit could lead to a downgrade of the U.S. government’s credit rating.
Equities: The DEC13 E-mini S&P 500 futures (CME:ESZ13) are still trading above their recent gap at 1683.50, and are up 8.5 points today to 1694.50. This market is just going back and forth in the low to mid 1690s, and we still believe that this contract will at least fill its gap lower at 1683.50. We believe the market is out of trend mode and into range mode. We would not be surprised to see a “flush” to the downside, even though we still believe that overall the market trend is pointing higher on the longer time horizon. The DEC13 mini Dow futures have been in a steady short term downtrend in the second half of September, and we believe this contract could try to test the 15K level below here.
Bonds: The DEC U.S.30-year bond futures (CBOT:ZBZ13) spiked higher yesterday above our key target of 133’16, and hit a high of 133’23. Today this contract is down 15 ticks to 133’04. We believe the bonds may start to quiet down in front of next week’s monthly jobs report, which will likely have a large impact on the near term bond market direction. If the jobs report comes in under estimates, we believe the bonds could have a sharp rally, possibly testing the 135 level. If the jobs report is a big upside surprise, we could see the bonds reverse recent gains and try to get below 132.
Currencies: The DEC13 U.S. Dollar Index futures (NYBOT:DXZ13) are up 22 ticks to 80.66. The DEC13 Euro is down 34 ticks to 134.91. The strength of the USD is likely due to the strong GDP and unemployment claims numbers today, possibly causing the market to cover some USD shorts and start to wonder if the Fed will indeed taper stimulus this year. The DEC13 British Pound is down 69 ticks today to 159.98, and approaching a key short term level of 159.50. The DEC Canadian dollar continues its recent decline after the big rally after the September FOMC meeting. The DEC New Zealand dollar rallied back above the 82 level after a decline yesterday, and is trading up 40 ticks to 82.40. We believe this currency has further upside, and may even start to trend higher over the longer term.
Commodities: NOV13 crude oil (NYMEX:CLX13) has been trading around the $103 level and it looks as though volatility has been slowing recently. We believe crude is a tough market to really predict at these levels, because on one hand it could be oversold and head back up the $110 level, but on the other hand we could see further selling down to the key prior breakout level of $100. The DEC13 lean hogs contract finally had a fairly big sell-off, trading down. $.085 to $.8775. We believe this contract could go lower after a big run up. DEC13 gold (COMEX:GCZ13) sold off today, which is likely due to the economic data released today. The key resistance level gold could not breach today and yesterday was $1,336. We would not be surprised to see gold head below $1,300.