A Congressional budget accord may be fueling speculation that the Federal Reserve could trim stimulus next week. U.S. stocks fell a second day, after an all-time high for the Standard & Poor’s 500 Index. The dollar fell against the euro for a seventh straight session. U.S. Treasuries prices slipped as investors pared bond holdings before a $21 billion auction of 10-year notes.
Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down 12 points today to 1791. We noted yesterday the key barrier of 1807, and this barrier has clearly held up, with markets having a sharp negative reaction downward, especially in light of the budget deal, which we believe is fueling the markets’ thinking that we could indeed see an official taper announcement next week. Our next downside target for this market is 1778, which we could easily see by next week if we do get a taper announcement. 1807 continues to be our key topside resistance. If the market breaks 1778, we could see further selling down to 1760.
Bonds: The MAR14 U.S. 30-year bond (CBOT:ZBH14) is finding it tough to sustain a rally in the face of a potential taper next week. 130 could be a key resistance level, and the downside is vast for this market in our opinion. Longer term we still are targeting the 118 level for the U.S. 30-year bonds. If the FOMC does taper next week, we look for recent lows of 128 to be taken out, as investors may rush to get out of longer dated treasuries. We think day by day the market is getting closer and closer to realizing that a taper could very well be imminent.
Currencies: The DEC13 U.S. Dollar Index (NYBOT:DXZ13) is down for the seventh straight day against the euro. The DEC13 Euro is up 24 ticks to 137.88, and we would not be surprised to see a 1.40 level approached. The DEC13 Swiss Franc is also strong, trading up 12 ticks to 112.83. The DEC13 Aussie dollar is down big today, trading down 102 ticks to 90.51. We would not be surprised to see a move lower below 90. The USD seems to be “unhinged” from taper talk, as one might expect the USD to rally in front of a potential taper.
Commodities: MAR14 wheat futures (CBOT:WH14) had a nice sell-off after yesterday’s USDA report, trading down another $.01 today to $6.3775. JAN14 WTI crude (NYMEX:CLF14) is back below $98 after the supply data was released today. We believe the $98-99 area could hold as solid resistance. FEB14 gold (COMEX:GCG14) had a big rally yesterday, and today is down $4 to $1,257. It looks like $1,200 could be the new low area; however, if we do get a taper announcement, gold could try to approach that level again. Overall it looks like gold is consolidating after a big move up yesterday and could move higher to $1,275 soon. MAR14 copper (COMEX:HGH14) continues to be a focus of ours, we think it is headed higher to at least $3.35.