E-mini S&P (March)
Yesterday’s close (Tuesday Feb. 6): Settled at 2694.25, 6.5% from the session low
Fundamentals: Dallas Fed President Kaplan commented best early today from Germany, “this is a heathy correction from high valuations”. Adding that he believes this would not cause any long-lasting effects to the economy. There is a lineup of Fed speakers today; NY Fed President Dudley is due at 7:30 am CT, Chicago Fed President Evans at 9:15 and San Francisco Fed President Williams at 4:20. At noon CT there is a 10-year treasury auction. Unsurprisingly, yesterday’s 3-year brought the highest yield since 2007. Today’s 10-year and tomorrow’s 30-year should be watched closely. Equity markets firmly bounced back yesterday, the S&P gained 3.3% and settled 6.5% from its session low. Today has started off much more subdued with little more than a 1% overnight range now that the aftershock of Monday’s XIV blowup is behind us (Credit Suisse’s inverse VIX ETN).
Are markets completely in the clear? Probably not. Yields still remain key and though the blame was thrown at the XIV, these movements are a product of leverage in general, coupled with extremely low volatility over an extended period of time. In August 2015, it took just longer than a month before prices were again making a run at the all-time high. Furthermore, let’s not forget that from there, sellers reemerged in January through February 2016 before breaking out to the upside. On the positive side, earnings have been good, and this move takes some air out of sky-high valuations.
Technicals: There is tremendous technical damage to the chart despite yesterday’s correction. Price action has remained contained below major three-star resistance and traded to a high of 2699.75 yesterday.
Crude Oil (March)
Session close: Settled at 63.39
Fundamentals: Yesterday’s API report was a bullish surprise, showing a draw of 1.05 mb of Crude. Analysts expected a build of 2.5 mb. Crude Oil traded higher into the electronic close on this news but the exuberance from the bulls has dissipated into this morning ahead of EIA data. Also putting pressure on the tape is a rising Dollar that has inched up another quarter of a percent this morning. The Dollar lost about half a percent from its swing high yesterday and we believe this also allowed the API data to have an open path higher as shorts covered and longs continued to speculate. EIA expects +3.189 mb Crude, +.459 mb Gasoline and -1.419 mb Distillates. There was a slight bar set by API yesterday’s draw and this opens the door for today’s data to be interpreted more bearishly. Estimated production as it sits near the 10 mbpd benchmark will also be key. Yesterday, the EIA raised its 2018 and 2019 production forecasts to 10.59 and 11.8 mbpd.
Technicals: Price action spiked 50 cents ahead of the electronic close and traded to a high of 64.18 overnight.
Yesterday’s close: Settled at 1329.5
Fundamentals: Gold is seeing selling pressure as volatility in the equity market picks up. Yes, you read that correctly. Of course, this is coupled with and more so because of a strengthening Dollar, something that we have maintained is oversold for quite some time and a key reason why we Neutralized our Bias. Remember though, Gold is owned for times of uncertainty not always bought because of it. We referenced the inverse correlation with Treasuries and Gold last week. Again, this was more because of the Dollar. However, Gold was holding steady to higher while Treasuries sold off; something that almost never happens. But why? To some degree, buyers held Gold as equity valuations ballooned and as rising yields were a ticking time bomb. Once that bomb went off and the disaster is known, the case for Gold becomes less attractive. For the third time, the Dollar is an integral part in this and for now we believe the Dollar still has some upside. Steady comments from Dallas Fed President Kaplan today did not help Gold. Traders need to keep an eye on NY Fed President Dudley is due at 7:30 am CT, Chicago Fed President Evans at 9:15 and San Francisco Fed President Williams at 4:20.
Technicals: Price action is under pressure today after trading below key support at 1329.1-1331.9. A level that allowed traders to buy and profit against multiple times. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.
Natural Gas (March)
Yesterday’s close: Settled at 2.759
Fundamentals: Cold weather, as expected in February is here. Expectations for tomorrow’s storage draw have held steady while next week continues to pick up a little. Price action would not signal such as it remains depressed due to what we still believe is the February rally and imbalance that it caused. Ultimately, January’s record draws are in the rear-view mirror and there is little concern over the weather for the next two weeks while cash prices are very depressed at 2.75 and lower.
Technicals: We have had a Bearish bias to some degree since the February contract rolled and we maintain such, though at a marginal level after this drop. Please sign up for a Free Trial at Blue Line Futures to view our entire technical outlook and proprietary bias and levels.
Yesterday’s close: Settled at 121’15, more than a point from the session high
Fundamentals: As volatility in the equity market began to subside late yesterday and into the close, the 10-year continued to see selling pressures. Data yesterday disappointed and the Trade Balance read has weighed on GDP. Furthermore, first quarter GDP by the Atlanta Fed is revised back down to 4% from its initial 5.4%. Fed speech will be critical today to see if there is any waiver on hiking rates or concern due to recent market activity. Dallas Fed President Kaplan didn’t waiver earlier. NY Fed President Dudley is due at 7:30 am CT, Chicago Fed President Evans at 9:15 and San Francisco Fed President Williams at 4:20. We have eyed today’s 10-year auction to show strong demand and a potential lift in prices as well as tomorrow’s 30-year. This comes at noon CT today.
Technicals: Price action settled at the key 121’15 level yesterday but has edged lower into this morning.