U.S. equity indexes rose this morning, following the biggest drop in two months for the Standard & Poor’s 500 Index. The S&P 500 fell 1.3% yesterday, the most since November. Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. report later this week. U.S. retail sales increased 0.2% after a 0.4% advance in November that was smaller than previously reported.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) is up 8 points to 1823, after sliding yesterday down below 1810. We detect key resistance levels at 1826 and then 1830. Our key market profile support level is 1816. The next Fed meeting is Jan. 28-29, and we believe this will serve as a rally-capping influence on equity markets. If the Fed executes another taper this month, we believe the S&P 500 will work on a correction, and possibly approach 1800. If the Fed surprises markets and “pauses” (does not taper), we believe the markets will be very excited about that and potentially stage a big rally. We believe it will be fairly range-bound trading until the end of this month.
Bonds: The MAR14 U.S. 30-year bonds (CBOT:ZBH14) are down 5 ticks to 130’30. We detect resistance at the high 131s. We find it hard to believe that the bonds could stage a major rally in the face of a 2014 tapering cycle, but crazier things have happened. We believe the bond market anxiously awaits this month’s FOMC meeting to see whether or not the tapering pledge is executed. Furthermore, there is always the next jobs report to look forward to, and if we see big upside revisions to the recent 74K, the bonds could experience another round of selling.
Currencies: The MAR14 Canadian dollar (CME:D6H14) has been very weak, and today is down 63 ticks to 91.31. We would not be surprised to see the Canadian approach the 90 level, although that still seems like a pretty big move for the Canadian dollar. This move is likely occurring because of the market’s perception that interest rates may need to be lowered in Canada to stimulate the economy. The MAR14 Yen (CME:J6H14) rallied nicely yesterday, but is retracing today, down 69 ticks to 96.50. We believe if the yen approaches 96, we could see some strong buying. The FOMC meeting could be a big impact day for the FX markets on 1/28-29.
Commodities: FEB14 gold (COMEX:GCG14) is down $8 to $1,242 after trying to sustain a rally above $1,250. FEB14 WTI (NYMEX:CLG14) has retraced downward some of the early morning rally, now trading up just $.28 to $92.08. Again, we believe WTI is headed below $90. The heating oil spreads we introduced yesterday as a point of focus are up again today, with the FEB-APR2014 spread almost hitting our key resistance level of 440. We believe this rally in the spreads is because of the cold weather, and the rally in deferred month spreads may dissipate soon. MAR14 sugar (NYBOT:SBH14) has not found strong buying interest yet, as it’s trading down today to $.1545. We would not be shocked to see sugar head lower.