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E-mini S&P (March)
Yesterday’s close: Settled at 2839.50
Fundamentals: The Dollar is getting hammered this morning on “trade war” talk. Take a step back from the attention-grabbing headlines; this is exactly what the White House wants. A weaker Dollar on the heels of historical tax-reform has empowered American multinational corporations. They are now bringing back U.S Dollars and essentially getting paid to do it. The idea is truly genius for stock market bulls. Furthermore, the tariffs on solar panels and washing machines are nothing more than a signal of power; a token move, if you will. Indices around the globe are muted as currencies paired against the Dollar are all higher. We expect to hear more on U.S protectionism policies as the World Economic Forum in Davos begins. Manufacturing data in Europe missed the mark while Markit Composite PMI was the highest since June 2006. U.S Manufacturing, Markit Composite and Services PMIs are due out at 8:45 am CT. Existing Home Sales is at 9:00. Remember, tomorrow morning at 6:45 am CT the ECB announces a policy decision. Earnings from United Technologies, Comcast, Ford, GE and others are all due this morning.
Technicals: Another day, another new all-time high. The S&P traded to 2846.75 overnight and for the sake of argument, has achieved our next major three-star target. Yes, the S&P, NQ and Dow have RSIs above 80, but the market is as bullish as it is overbought. We must now watch for support at the 2835.25-2838.25 to hold on a closing basis. Doing so will allow it the trade to build strength for its next push. We continue to watch the Russell closely, it has been a key bullish catalyst since January 11th and our upside target is 1623; traders should be cautious for pullbacks once this level is achieved.
Resistance – 2847.75***, 2869.75**, 2887***
Support – 2835.25-2838.25**, 2828**, 2805.25-2807**, 2794.25-2797**, 2769-2771.75***
Crude Oil (March)
Yesterday’s close: Settled at 64.47
Fundamentals: After settlement, Crude pushed to a new swing high in the March contract but stayed contained below February’s front month high a week ago. This high did not hold long as API released their inventory report to show what would be, if confirmed by EIA, the first build in Crude inventories in ten weeks; +4.755 mb Crude, +4.117 mb Gasoline and -1.28 mb Distillates. For two major reasons the bears cannot get excited just yet; this now shifts EIA expectations and the Dollar is getting clobbered. First, as we discuss here regularly, this read on API has now set a high bar for EIA today. With EIA expectations coming in at -1 mb Crude, +2.486 mb Gasoline and -1.471 mb Distillates these are much tempered than what we saw from API. To attract more sellers due to this storage data we must now see something in the same ballpark as API. Furthermore, we would like to see at a bare minimum increase of 30,000-40,000 bpd in production. Secondly, comments from the White House have weakened the Dollar, the Dollar Index is down more than .5% this morning. This will work to directly boost commodities priced in Dollars.
Technicals: Key resistance at 64.83-64.89 held through yesterday’s push but it must hold again today to give the bears any hope. Ultimately, we must see a move below 64.08 support to reinvigorate any bearishness and a close below 63.83 to encourage further selling. As we have stated for two weeks, our major three-star support at 62.78-63.00 is the line in the sand, Crude must close below here in order to truly signal a move to $60. If this occurred, we expect a wave lower that the bears could ride.
Resistance – 64.83-64.89**, 66.87***, 68.43**
Support – 64.08**, 63.83**, 63.58** 62.78-63.00***, 62.43**, 61.87**, 59.96-60.45***
Session close: Settled at 1336.7
Fundamentals: Treasury Secretary Mnuchin commented early this morning that Dollar weakness is good for the economy. This is the same rhetoric we have been seeing from the White House since the start of the administration but now this reemphasis comes at a vulnerable time for the greenback; it is down more than 0.5% this morning. Gold has again capitalized magnificently off the weaker Dollar and is trading at the highest level since its September top. The week is just getting started and today we have Manufacturing, Markit Composite and Services PMIs at 8:45 am CT. Existing Home Sales is due at 9:00. Tomorrow the ECB makes a policy decision at 6:45 am CT and will be followed by a Draghi press conference at 7:30. We could hear more of the same from the White House as Davos is just getting started, President Trump is due to speak on Friday.
Technicals: In our FX Rundown last night we discussed the breakdown in the Dollar Index, closing at the lowest level since December 2014. Here we gave a strong Bullish Bias on the Euro and the Yen. Both currencies are firmly in the green this morning and this move has had a huge hand in what Gold is doing today. We have not wavered from our Bullish Bias in Gold, though we have emphasized caution against strong resistance from 1350 all the way up to 1365. Price action is testing trend line resistance at 1350 this morning. Silver lost significant ground early yesterday, but has powered back strongly this morning. It is trading around its 200-day moving average and will be critical to watch if it can breakout above 17.50. Doing so will be very bullish for the metal complex as we have always said Silver and Gold work best when working together; maybe Silver can now do some of the heavy lifting to get Gold out above strong overhead resistance.
Resistance – 1350***, 1358-1365***
Pivot – 1345
Support – 1340.9*, 1334.9-1335.8**, 1326.6-1328**, 1321.6**, 1307.1-1308.9**, 1302-1303.4***
Natural Gas (February & March)
Yesterday’s close: Settled at 3.44 but rallied nearly .20 after settlement
Fundamentals: The fundamental picture has not truly changed over the last 48 hours. Headlines have signaled strong demand in China and raise caution over a polar vortex in February but ultimately, none of this is new. Storage drawdown expectations over the next four to five weeks have not mounted in the last 24 hours, in fact, those two and three weeks out have actually dissipated. Yesterday’s move in the February contract will be one that is not forgotten for a long time to come and for many reasons. Mainly, if this proves to be only a front-month near expiration cash squeeze. With no substantial evidence to justify this move, we see a potential short opportunity in the March contract, where the gains were much more modest yesterday, see technicals below. Our belief is that after February settled at 3.44, a day in which price action was already up more than 6%, there was a large fund or short position that had to get out. Furthermore, open interest in the February contract has been cut in about half from yesterday.
Technicals: Yesterday’s strength was undeniable, but can this continue? We have advised all week, from lower levels, if you are trying to sell Natural Gas you must do so in the March contract. We do not believe this level is sustainable in the February through Friday’s option expiration and should begin to come back in, we would imagine the March contract is a more prudent way to trade (plus all the volume is now in March). The March contract has tested and has not broken out above major three-star resistance at the 3.12, a trend line from the September highs. We want to see price action settle back below 3.058-3.063 in order to encourage further selling. This market will remain highly volatile, so traders must manage risk properly.
Resistance – 3.12***, 3.164-3.188*** 3.32**
Support – 3.058-3.063**, 2.90-2.93***
Yesterday’s close: Settled at 122’135
Fundamentals: Treasuries await a big ten day stretch ahead with the ECB tomorrow along with news coming out of Davos and President Trump speak Friday. Next week is the Fed Meeting and a gauntlet of U.S data. First, today we have Manufacturing, Markit Composite and Services PMIs at 8:45 am CT. Existing Home Sales is due at 9:00. Price action is retreating a little this morning after solid Mortgage data. We maintain that it is an attractive to position long over the next week with the anticipation for a rally once this ten day stretch passes.
Technicals: Price action struggled to hold out above resistance at the 122’09-122’125 level and is retreating slightly this morning. Solid support should come in at and above the 122 area and we are looking for this to hold. We must see a close out above first resistance to neutralize recent weakness and attract buying from both fresh longs and shorts covering.
Resistance – 122’09-122’125**, 122’245-122’29***, 123’10-123’135**, 123’215**, 123’27-123’28**
Support – 122’015**, 121’25**, 119’20-120****
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