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E-mini S&P (March)
Yesterday’s close: Settled at 2656, down about .5% and off the session high of 2673.50
Fundamentals: Equity markets ran out of steam early in yesterday’s session, but the real selling pressure didn’t come in until the last couple hours. The market has priced in a healthy dose of tax-reform and as congressional talks hit headline snags, which have been nothing more than negotiating tactics, we begin to see waves of selling. Ultimately, we view these pullbacks as buy opportunities through the next week and a half when support is achieved. Yesterday, J.P Morgan unveiled bold predictions for 2018, calling for S&P 3000 and siting Trump initiatives that garner strong economic growth. Equity markets around the world are mixed this morning as an exciting week sets to finish out; Europe is seeing slight pressure though the FTSE is unchanged while China is down about 1%. We look to NY Empire State Manufacturing at 7:30 am CT and Industrial Production at 8:15 am. Let’s also not forget that today is quadruple witching.
Technicals: Price action has recovered well from yesterday’s closing pressures as it held first key support beautifully at 2650.25-2654 with a low of 2651.75; this level is now tightened up a bit. Our major upside target of 2666-2667.75 is still in play to close out the week and we want to see a weekly close above here to truly confirm a breakout and bullish leg higher to our next target of 2715.25.
Resistance – 2673-2675.50*, 2681.50**, 2688**, 2694.50**, 2715.25***
Pivot – 2666-2667.75***
Support – 2651.75-2652.50**, 2649*, 2640.75**, 2632.75**, 2622.50**, 2506.25**, 2596-2598****
Crude Oil (January)
We will reference January today and begin February on Monday.
Yesterday’s close: Settled at 57.04
Fundamentals: Some say that Forties pipeline shutdown in the North Sea that could last weeks was the cause for yesterday’s rally, and others site the lingering effects of OPEC cuts. We are not saying that is wrong, and rightfully so, those bullet points have surely had some hand in price action gravitating back up ahead of the weekend. How could one argue that a declared force majeure at one of Britain’s most important pipelines hasn’t supported prices on fear of further tightening after OPEC announced the lowest output in six months. Considering that the pop in Brent Crude has remained somewhat contained, we believe yesterday’s move to be more about the technicals, both simple support and trend line applications but also supply demand technicals.
Technicals: Yesterday was January option expiration and we sited how calls outweighed puts by more than 2:1 and we believed this would be a key driver in pushing Crude Oil through support early in the session. Support at the 55.82-55.95, now 55.82-56.09, did not give. This was last week’s low as well as trend line support. After trading higher than last week’s high, a move below here would have created a significant failure on a potential outside bearish week; one that would have likely set up a bear leg lower to take out major three-star support at 55.00-55.25. Another factor that we did not consider ahead of options expiration but instead in making sense of the lack of pressure seen early yesterday was the timing of many of the calls and puts purchased that expired yesterday. Many of those January 55 to 56 calls were likely purchased more than a month ago and costed a hefty premium ahead of the November 30th OPEC meeting, while a clear majority of the put position were likely purchased much cheaper. All in all, we remain bearish and believe that patience will pay off. Friday’s have not been favorable for Crude, but staying contained below resistance at 57.32-57.61 through today’s session should set next week up nicely. Ideally, we will get a close below 56.93-57.04.
Resistance – 57.32-57.61**, 57.98*, 58.35-58.56**, 58.97***, 59.96***, 62.58**
Pivot – 56.93-57.04
Support – 55.82-56.09**, 55.00-55.25***
Yesterday’s close: Settled at 1257.1
Fundamentals: What if I told you a story about the Federal Reserve hiking interest rates and in the same week PPI and Retail Sales crushed expectations while CPI only missed by a tenth. Where would Gold be? How many of you would be surprised to hear that it is set to finish the week up more than 1%? Not us of course. This is exactly what we have been calling for, a bottoming to begin after the December Fed meeting. The setup was as true as they could come after last week’s sell off cleansed the overextended speculative long position by more than 33%. If you aren’t in though, don’t worry. As with any trade there is risk. However, Gold has finished the month of January positive 9 out of the last 12 years. To be more precise, if you purchased Gold on December 23rd and held through January 11th it is positive 13 out of the last 15 years with an average gain of $27. NY Empire State Manufacturing is due at 7:30 am CT and Industrial Production due at 8:15 am. Traders should also keep an ear to the ground on tax-reform and any hiccups will put pressure on Gold and present a buying opportunity.
Technicals: Yesterday gave aggressive buyers an opportunity to buy ahead of support. Price action is running into first key resistance at 1262.8-1263.2 and buyers should be cautious chasing the market into here. Today’s price action coming off yesterday’s settlement is creating somewhat of a mini bull flag but again, if you have not bought yet, it is ill-advised to buy against resistance and we believe patience should pay off.
Resistance – 1262.8-1263.2**, 1273.9-1276.8***, 1289**, 1303.4-1304.7****
Support – 1247-1250**, 1237-1241.7**, 1214.5-1225***
Natural Gas (January)
Yesterday’s close: Settled at 2.684
Fundamentals: Yesterday’s storage draw was slightly more than expected and this has helped hold price action from extending losses. This was also more or less in line with projections earlier in the week. With winter here, so is the demand, at this point we just need momentum to change hands which will force the shorts to begin to cover. There is still a question mark about consistency of the cold about two-three weeks out and this has kept price action subdued to lower.
Technicals: The key for today’s session is to achieve a close above 2.745-2.747 and neutralize the immediate term weakness; this is the previous low and 50% retracement on the week. A close above the .618 and last week’s close at 2.77-2.772 might just be enough to spark further buying back to 2.85-2.88.
Resistance – 2.77-2.772**, 2.85-2.88**, 2.946**, 2.9825-3.01***
Pivot – 2.745-2.747
Support – 2.643-2.656*, 2.486-2.522****
Yesterday’s close: Settled at 124’18
Fundamentals: Pressure on equity markets through the second half of the session as questions again swirled around tax-reform helped prop up the 10-year. Ultimately, we believe tax-reform is going to get done which will then put pressure on Treasuries in the near term. However, for now, what might seem like hurdles are just negotiating tactics. In summary, we are range bound until January and we will become outright bullish closer to the end of the year.
Technicals: Resistance at 124’21 held well through yesterday and price action is back to hugging the 124’15 level. The market is range bound and we believe that one more test to the bottom side is in store before a hold and sharp reversal north in January. The 10-year has not broken last year’s low while the 5’s traded to the lowest since 2011 and the 2’s to the lowest since 2008 this week; the curve is flattening and could potentially invert. However, we believe this is a hard low in the 10-year and a hold on the next test should present a tremendous buy opportunity.
Resistance – 124’21**, 124’295-125’00***
Pivot – 124’15
Support – 124’09**, 124’015**, 123’27***, 123’10**, 122’29****
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