Yesterday’s close (Tuesday, Jan 30): Settled at 2824.50
Fundamentals: The fundamental narrative in this market might feel sharply different between Friday’s close and yesterday’s. As much as this week’s volatility seems foreign these days, it is healthy. On Sunday’s Tradable Events this Week, which was written over the weekend and on the heels of Friday’s melt-up we, did discuss the potential height of exuberance this week given the landmark events and reports (State of the Union, Fed meeting, tech earnings and Nonfarm Payroll).
However, we have seen something in the last 48 hours that we have not truly seen in quite a while; traders and investors taking something off the table (selling) ahead of an event and not because of such. Yes, strong selling is likely coming from pension funds, insurance companies and other similar asset holders that need to rebalance stock and bond portfolios after such a strong January.
But ultimately, what we are getting at is this is as healthy as it comes, and our long-term Bias has not changed; we expect this volatility and lower price action to pave the way for a buy opportunity. Our technicals signal the potential for about 1% more to the downside. We remind you, if you jumped on yesterday’s ship as it sailed through our key support anywhere from 2840 to 2850, it is just as important now as it was yesterday ahead of the State of the Union to lock in some sort of profit; maybe that is a stop or maybe it is trimming a position. Doing so gives you the flexibility to trade this market and reposition.
Also, when trading multiple contracts, you have don’t have to be all in or all out on each trade. Last night’s State of the Union was presidential, and this is no surprise, the market is responding by working higher from yesterday’s close. On the flip side, maybe you used yesterday’s weakness ahead of the State of the Union as a buy opportunity and the same trade management applies. Eurozone CPI data this morning was in line with expectations. Ahead, there is ADP Payrolls at 7:15 am CT, Chicago PMI at 8:45 and Pending Home Sales at 9:00. The key event today is the Fed policy decision at 1:00 pm CT. They are not expected to raise rates, but we could see a little bit of a hawkish tone in Fed Chairwoman Janet Yellen’s last meeting. Boeing among others are reporting earnings before the bell today. Facebook, AT&T and Microsoft among others report after the bell.
Technicals: Our Bias yesterday was Neutral because, as stated above, we believe this selloff paves the way for a buy opportunity. The Morning Express has been adamant about a 1% downside at minimum if key support at the 2850 area were taken out. We discussed here and in the Midday Market Minute that the first target is 2807-2808 and the main target is below there at 2798. The technicals do signal that the downside has not completed its full wave, however, traders must remain nimble. First resistance comes in today at 2841.50; this is a level for bears to sell against and those who went long before the State of the Union to profit against. A move above 2847.75-2848.50 will completely neutralize the tape while a move above 2855.50-2858 is bullish. A continued close below 2825.50-2828 will signal immediate downside risk.
Resistance – 2841.50**, 2847.75-2848**, 2855.502858**, 2878.50**, 2887***, 2920***
Pivot - 2825.50-2828
Support – 2815-2818*, 2807-2808.50**, 2798***, 2770-2777**
Crude Oil (March)
Yesterday’s close: Settled at 64.50
Fundamentals: Crude began weakening yesterday ahead of inventory data and as the dollar attempted to stabilize. API data after the bell showed a build of +3.229 mb of crude and this added to downside pressure sending it to an overnight low of 63.67. Expectations were for a smaller build of +1.5 mb. They also reported a build in gasoline at +2.69 mb and a draw in Distillates at -4.1 mb. Gasoline is something to keep an eye on as it is under the most pressure and retreated sharply yesterday. The EIA expects much more modest numbers across the board of +126,000 barrels Crude, +1.81 mb gasoline and -1.45 mb Distillates.
Ultimately, today’s EIA read must be in the ballpark of what API reported or it risks the same bullish effect we saw last week. Remember, many of those who are willing to sell because of inventory data have already sold, we must see nearly as bearish data in order to incur fresh selling. Also, on our radar is production data. Last week’s increase of 128,000 bpd put estimated production at 9.878 mbpd. Another increase of this magnitude will send U.S. production through the 10 mbpd milestone. Lets also not forget about the Dollar. The Fed delivers a policy statement and decision today at 1:00 pm CT a stronger Dollar will put pressure on commodities while a weaker Dollar will help support them.
Technicals: Crude Oil is seeing weakness with a firm move below the 64.72-64.89 level which we denoted will neutralize this recent push higher. Price action extended losses yesterday all the way down 63.67, our minor and third support at 63.70. We maintain that we must see a close below 62.78-63.00 in order to encourage strong waves of selling. Remember, bulls have piled into an overcrowded record net-long position and the lower Crude goes, the more selling this would incur as the bulls jump ship. Major resistance now comes in at 64.74-65.07 and price action must stay below here, or the bulls will quickly regain a clear edge. Gasoline must be on everyone’s radar and yesterday’s weakness broke down below an ascending wedge. This is a bearish chart pattern that could bring it down to major three-star support at 1.8199-1.8291***.
Resistance – 64.74-65.07**, 65.80**, 66.87***, 68.43**
Pivot – 64.26
Support – 63.67-63.70**, 62.78-63.00***
Yesterday’s close: Settled at 1340
Fundamentals: Gold is trading higher this morning on a weaker Dollar ahead of today’s Fed policy decision at 1:00 pm CT. Also, this week is Nonfarm Payroll Friday and we expect volatility to pick up through here. Today is ADP payroll data at 7:15 am CT, Employment Cost Index at 7:30, Chicago PMI at 8:45 and Pending Home Sales at 9:00. Yesterday, solid Case Shiller data along with better than expected Consumer Confidence encouraged much-needed selling in gold. Still, as the dollar has weakened once again into this morning, we believe the market is not pricing in the potential for a hawkish surprise in verbiage from the Fed and because of this, the near-term risk is to the downside in gold.
Technicals: Our Bias remains neutral in the near-term. However, we are unequivocally long-term bullish gold. At this level there is little value ahead of the Fed, however, there are ways to reduce risk while maintaining a long position and we encourage you to reach out to our trade desk at 312-278-0500 in order to discuss this. We cannot become near-term bullish gold until first key support at 1329.1-1331.9 is achieved at a minimum.
Resistance: 1349.7-1351.4**, 1365-1370***, 1377.8**, 1392.6***, 1432.9**
Support: 1329.1-1331.9**, 1321.7***, 1307.6-1312***
Natural Gas (March)
Yesterday’s close: Settled at 3.195
Fundamentals: Natural gas is sharply lower this morning after prices extended higher early in yesterday’s session on continued repositioning due to the February contract expiration and headline weather risk. Natural gas usually doesn’t trade relative to weather today and tomorrow but recent volatility in forecasts has done just the same to price action; freezing temperatures yesterday have become much more moderate into today. The question right now is how moderate will this weather stay? Expectations for tomorrow’s storage report sit right about -100 bcf, nearly a third of last week’s near-record read.
Technicals: Price action traded out above major three-star resistance at 3.181-3.197 in a short squeeze. However, it stayed below R2 and managed to settle back into the three-star area. First key support remains at 3.035-3.051 and price action has dipped below here, taking out the low from earlier this week. The reversal from yesterday’s highs now extends major three-star support a little lower to 2.896-2.902 with support at 2.981 coming in ahead. We remain bearish but want to see a close below first key support to keep the ball rolling.
Resistance: 3.181-3.197***, 3.27*, 3.32**
Support: 3.035-3.051**, 2.981**, 2.896-2.902***, 2.786-2.81**
Yesterday’s close: Settled at 120’205
Fundamentals: The Treasury complex remains under pressure ahead of today’s FOMC Meeting. Last night’s State of the Union brought little volatility and higher equity prices have added some pressure to the complex. However, President Trump used the time to push his infrastructure rebuilding plans. This along with tax-reform will need to be paid for somehow; by printing fresh Treasury debt. Still, we believe a lot of this is already priced in.
Furthermore, bond traders are the smartest guys in the room and we believe that they are already pricing in a more hawkish statement from the Fed today. Whereas currency markets likely have not. If the dollar strengthens today, it does not mean that the Treasury complex must weaken. We continue to believe that this is a time in which traders will benefit from positioning long; a contrarian play.
Technicals: The technicals are undeniably weak, and bounces cannot regain the pivot at 121’31-122’015; a close above here is needed to neutralize this immediate-term weakness. Still, we believe the selling to be exacerbated and this opens the door for a recovery over the next three weeks; the 14-day RSI is below 30 for the third session in a row. Data this week will continue to be a driver as well, so traders must remain nimble.
Resistance – 122’15-122’175**, 122’26-122’29***, 123’10**
Pivot - 121’31-122’015
Support –121’25**, 121’17-121’18**, 119’20-120****