Caterpillar Inc., the largest maker of mining and construction equipment, forecast earnings that topped estimates. The MSCI Emerging Markets Index slid 1.5%, extending this year’s decline to 6.7%. Equity volatility jumped the most in two years last week.
Equities: The MAR14 E-mini S&P 500 (CME:ESH14) is up 4 points to 1786 after sliding below 1780 overnight. We believe the market may have found a short term bottom in the mid-1770s, especially since we saw a positive earnings report from Caterpillar. We aren’t necessarily believing the market will rally back up to highs anytime soon, but we believe this is STILL a bull market, and the overall U.S. economy is looking healthy. 1786 looks to be a magnet level, with 1798 as a key resistance level in our view. Our key downside levels have been hit, thus we don’t really have any projections for more downside action at this point.
Bonds: The MAR14 30-year bonds (CBOT:ZBH14) up down 6 ticks to 132’21. This is “Fed Week,” and the bonds may find it tough to rally further in the face of a potential taper this week. It will be interesting to see if the Fed does taper in light of the recent sell off in the stock market as well as the emerging market rout of currencies and stocks. We would not be surprised at all if the Fed DID NOT taper this week, which would likely cause a significant rally back up in the U.S. stock market. However, the Fed seemed fairly committed to a steady tapering process, thus the odds may favor a taper.
Currencies: The MAR14 Canadian dollar (CME:D6H14) is up 14 ticks to 90.39, after bumping up against a key resistance level of 97.50.The MAR14 Swiss Franc (CME:SFH14) is down 30 ticks to 111.48 after not being able to surmount the 112 level. It seems to us that the positive Caterpillar earnings was just what the doctor ordered to soothe some of the recent bearishness in the market, and the franc may be falling because the market is thinking the world is not ending after all.
Commodities: FEB14 natural gas (NYMEX:NGG14) has been on a very wild ride this past week, and this morning it spiked all the way up to $5.44, only to come right back down to negative territory, now trading down $.09 to $5.09. We believe the $5.10 level may serve as a magnet for today and tomorrow, which is when the next options expire. FEB14 gold (COMEX:GCG14) is down $6 to $1,258, perhaps because of the positive Caterpillar earnings in addition to the uncertainty regarding the next taper move potentially occurring this week. We are closely monitoring the heating oil market, specifically the spreads. The MAR14/JUN14 heating oil spread spiked to 1000 on Friday, and is now a 893. We believe this may be the high region for this spread, as the cold weather has really caused a major uptick in volatility for key energy products such as natural gas and heating oil.