Into the Futures--April 25, 2016

Into the Futures – April 25, 2016

Are there any surprises in store when the Fed meets on Wednesday?
• Will the e-mini pause before the Fed meeting or will traders view this as all systems go until June?
• Is demand for gasoline supporting crude oil?
• Will gold hold the $1225 support level?
• Are the shorts being squeezed in natural gas?
When you look at the list below investors will realize the Fed will have just about every government report they will need, every metric to decide and yet the decision has been made. There will not be a rate hike when the Fed meets on Wednesday. Janet Yellen has been clear they will take an extremely cautious approach and that involves telegraphing rate hikes not pulling surprises on markets. Even though a hike is not in store there will be plenty of data points to analyze and digest. Except lately, traders have read the reports, they have seen the numbers –earnings I am referring to—and have disregarded that and have bought the market. Valuations are becoming slightly rich but have been at worse levels in the past before a correction. 2100 has been a difficult number to hold and even though the Fed will not raise there could be some profit taking before the meeting on Wednesday. The new homes, durable goods, GDP, jobless claims and inflation are the most important reports to be watched. After the Fed meets will the mindset be buy until June which is the next meeting and if data points are in-line with expectations the most likely time the Fed will raise rates? If recent history is any indication then yes;, earnings this season are terrible when you factor in the fact that expectations have been somewhat scaled back and yet the market continues to rally—It almost as if we are back in 2012-2013. Shorting the e-mini or going long for that matter has proven to be a grind lately with profits fleeting, this week could give us some direction in which way we are headed. It won’t be the Fed meeting that moves the market it will be the chatter that comes out of it afterwards. I am betting there will be a dovish tone—but also a few hawks. MY bias is lower to start the week and then neutral as the week progresses and we get closer to the meeting. My direction for late week will be dictated by the tone of the meeting.
The freeze talks failed miserably, supplies continue to build and crude rallies? Well, it might not have rallied so much as it held support levels and has remained firm in spite of weak fundamentals. Some of the strength can be attributed to the weak dollar but more of it should be credited to the demand factor for crude in general this time of year that not only includes demand for gasoline but for diesel, and jet fuel. It’s the summer and not only Americans but every northern region around the world experiences increased economic activity. Let’s cut to the chase—why am I short crude then? I am short because technically the market is overdone—supplies continue to build and I am not expecting a large move to the downside-. Gasoline demand has been strong but prices have risen almost 35% from their lows and are due for a correction. Gasoline experiences the higher price, falling demand syndrome more than any other commodity. Managed money has increased the number of longs held and reduced shorts which signals they are bullish on crude oil prices –the ratio continues to run between 4-5 times number of longs versus shorts and that has not changed since March. The relationship between crude oil prices and equities has not been as strong lately but if there is a minor correction in the Mini it will not be supportive of crude oil prices. My bias is lower I will remain short but watch the market closely. A dovish Fed could boost crude prices and a weak dollar off dovish comments will certainly do the trick.
Gold has traded back towards support levels in which it has bounced higher from a number of times over the past few weeks. The dollar strengthened some on Friday and I cannot see the correlation between Wednesdays Fed meeting and the sell-off in gold prices. If traders know the Fed won’t raise rates then why wouldn’t they want to hold gold positions as the dollar will not strengthen? If its profit taking in front of any potential fed surprises it seemed a bit extreme to me. The latest COT report shows that managed money has added to their overwhelming long gold positions and has done so at a steady pace over the last 6 weeks. The dollar bounced off a recent new low and because the belief is the Fed won’t lift rates it should not strengthen with any conviction. In commodity trading it’s important to go with what works and over the last few weeks buying gold above $1225 has proven to be profitable. If the $1225 level is breached there is support all the way to the $1200 level. And even when the Fed does raise rates next gold could be supported if the action causes negative reactions in equities. My bias is higher and I will consider buying gold near current price levels.
Temperatures not only in the northeast but around the country have fallen into a late spring pattern supply injections above estimates and natural gas prices are at their highest levels in months. I completely admit I did not see this move coming and have been completely caught off guard. There is a time where prices rise in anticipation of summer demand but it’s much too early in the season for that. The COT report shows that shorts have been reduced and long positions increased but the overall position is still short. Temperatures over the next 10 days will be exactly normal in the northeast which means there will be little natural gas used as far as heating homes is concerned. The market is headed toward the 200 day MA and while I have been wrong about direction up until this point. I cannot see prices breaking that level unless there is a steep drop in production or an increase in demand. The export market is still in its infant stages and not enough to influence prices in a large IMO. My bias is lower as the weather for the remainder of the contract will not be supportive of prices. I will attempt to short the open of trading on Sunday.

These are the numbers to watch:
The e-mini has resistance starting from 2098 to 2104, above this there is resistance from 2112 to 2117 and above this the resistance runs from 2132 to 2140. Support in the e-mini begins from 2078 to 2072, below this there is support from 2062 to 2056 which includes the 21 day MA and below this support runs from 2036 to 2029. My bias is neutral to lower and I will look to short near first area of resistance.
Crude oil has resistance starting from $4430 to $4480 above this there is resistance from $4600 to $4650 and above this there is resistance from $4810 to $4870. Support in crude oil begins from $4310 to $4270 and includes a gap that will most likely be filled. The next level of support is $4220 to $4160 and below this there is support from $4080 to $4020 which includes the 200 day MA. My bias is cautiously lower –I am short and my target is right above the 200 day.
Gold has resistance starting from $1237 to $1245 and includes the 50 day MA, above this there is resistance from $1252 to $1258 and above this there is resistance from $1270 to $1276. Support in gold begins from $1231 to $1225 below this there is support from $1217 to $1212 and below this there is support from $1206 to $1198. My bias is higher and the market is right above strong support so I will look to get long in this area.
Natural gas has resistance starting from 214 to 218 above this there is resistance from 223 to 231 and includes the 200 day MA and above this the resistance runs from 235 to 241. Support in crude oil begins from 207 to 200 below this there is support from 192 to 185 which includes the 50 day MA and under this the support runs from 179 to 173. My bias is neutral to lower, I would like to short but there is an area between recent highs and the 200 day the market could trade into.

Government reports scheduled for release this week will include:
Apr 25 10:00 AM New Home Sales

Apr 26 8:30 AM Durable Orders

Apr 26 8:30 AM Durable Goods -ex transportation
Apr 26 9:00 AM Case-Shiller 20-city Index
Apr 26 10:00 AM Consumer Confidence

Apr 27 7:00 AM MBA Mortgage Index
Apr 27 10:00 AM Pending Home Sales
Apr 27 10:30 AM Crude Inventories
Apr 27 2:00 PM FOMC Rate Decision
Apr 28 8:30 AM GDP-Adv.

Apr 28 8:30 AM Chain Deflator-Adv.
Apr 28 8:30 AM Initial Claims

Apr 28 8:30 AM Continuing Claims
Apr 28 10:30 AM Natural Gas Inventories
Apr 29 8:30 AM Core PCE Prices

Apr 29 8:30 AM Employment Cost Index
Apr 29 8:30 AM PCE Prices

Apr 29 8:30 AM Personal Income

Apr 29 8:30 AM Personal Spending
Apr 29 8:30 AM Personal Spending
Apr 29 8:30 AM Core PCE Prices

Apr 29 8:30 AM Employment Cost Index
Apr 29 9:45 AM Chicago PMI

Apr 29 10:00 AM Michigan Sentiment - Final

Before deciding to participate in the commodity futures market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is substantial risk trading commodities.
Past performance is not necessarily indicative of future results. There are no guarantees of profit nor of avoiding losses when trading commodity futures contracts. No representation is being made that any trade will or is likely to achieve profits similar to those in the past. No part of this letter may be reproduced without the consent of Anthony Grisanti

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