The S&P 500 declined this morning amid a selloff in emerging-market currencies. Emerging-market currencies had their worst selloff in five years yesterday. The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 2.75% as we seem to be experiencing a “global flight to quality.”
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) is down 15 points today to 1809.25, and we do believe the selling is not yet complete. Our next downside targets are 1800 and then 1792. We believe 1792 will be hit soon. We noted a very bearish candlestick pattern last week on the weekly chart of the E-mini S&P 500, and this week has been a sell-off from the 1840 level which we believe will be the high area for Q1. The down-move this week is likely the result of multiple factors coming together, such as the China manufacturing contraction, the emerging market currency sell-off (stability risk), as well as a potential taper next week from the US Fed.
Bonds: The MAR14 U.S. 30-year bonds (CBOT:ZBH14) are up 16 ticks to 132’27, breaking through a key level of 133. We believe the bonds will remain strong if this global flight to quality continues. Bonds may also be rallying from the Moody’s downgrade of health insurers yesterday. Bonds are well above their key support level of 130, and we would not at all be surprised to see them head at least another point higher. It seems as though the terrorism talk surrounding the Sochi Olympics may also be providing support to bonds.
Currencies: The MAR14 Pound (CME:B6H14) is the big loser today, down 140 ticks to 164.85, after Bank of England Governor Mark Carney said the currency’s strength may harm exports and pledged to keep down interest rates. The MAR14 Canadian dollar (CME:D6H14) has rallied from its low yesterday of just below 89.50, now trading at 90.15. The MAR14 Yen (CME:J6H14) is one that is really moving, up 82 ticks today to 97.77. This could be due to the market thinking that the BOJ will not provide more stimulus. The MAR14 Swiss Franc (CME:SFH14) is also rallying on this flight to quality day in the markets.
Commodities: FEB14 Natural Gas (NYMEX:NGG14) is the big story of the week in commodities, staging a monster rally this week, almost hitting $5 this morning. It is up another $.20 today to $4.94. Our next target from market profile analysis is $5.09. FEG14 gold (COMEX:GCG14) has staged a breakout above the $1,255 level, and is up $4 today to $1,266, after hitting our Fibonacci target of $1,273 overnight. We believe it could test that level again soon. MAR14 WTI crude (NYMEX:CLH14) is waffling back and forth today, now down slightly to $92.28. We detect that this is a solid resistance level, and would not be surprised to see WTI head lower from here in the short term.