Into the Futures June 6, 2016

Into the Futures – June 6, 2016

The jobs number was such a huge miss a June hike is probably off the table.
• If June is off the table will July be on?
• What will a no rate hike mean for the price of crude oil?
• Has gold made its no hike move or is there more room higher?
• Have natural gas prices reached a near term peak?

It was such a poor jobs number with revisions down in previous months that experts are stating there is no way the Fed will raise rates when they meet in less than two weeks. Labor gains have been trending lower for the past few months so the poor number should not be a total surprise, but 38,000 created was much less than anyone had anticipated. I don’t see what difference one month of data will make and I have stated that raising rates is not the smartest thing to do but Janet and company seem determined to raise twice this year and realize that the earlier the first hike takes place the better. What difference does one month of data matter especially when the result of any hike regardless of timing will be negative for equity prices, IMO? After 6 years of tepid growth the economy seems to be slowing---auto sales were surprisingly lower last month and while interest rates have been at historic lows for 5 years, housing sales are half of what they were during their peak. The initial reaction to the jobs number was the correct one—the rally at the end of Friday can only be explained as the punch bowl has not been taken away rally—in other words it was a bull crap rally—pardon the language. Valuations are starting to become a bit rich and I don’t see a catalyst that will push us higher except –interest rates are low—and that is dangerous and how a bubble begins. If the government wants the economy to grow they must first eliminate some of the regulations that have been put in place, second would be to revamp the tax code for businesses and individuals then give these measure’s 6 months to a year to work and raise rates after that. Unfortunately, I believe it will take another administration to get this done. My bias for equities is lower—I don’t believe any rally is sustainable and while I don’t believe the Fed will raise in June there is still a possibility. The market is again near strong resistance and has failed to break through numerous times.
A no hike means a weaker dollar and in the case of crude oil another small reason the market will be supported throughout the summer. Crude’s rise over the last few months has had little to do with monetary policy and much to do with falling production and increased demand. Both of those factors will be put to the test in about 6 weeks so it will be interesting to see whether crude oil can stay at current price levels. When I say both factors will be put to the test here is what I am talking about. Canada has started to let people move back into the oil production areas that were impacted by the wildfires and Nigeria will begin to pump some of the oil that has been lost to rebel attacks on the facilities. On the demand side of the equation much of the gains in crude can be attributed to the thirst for products especially gasoline. Demand for gas usually peaks around the July 4th holiday and afterwards historically has only rallied due to threats from hurricanes. That pattern could continue this year as conditions are right for storms to develop, but the most active part of the season is still months away. Saudi Arabia and OPEC surprised no one when their meeting ended and no production freeze/cap/cut was announced. Most traders knew there would be no chance of a cut---the cap idea is a new one and one that didn’t gain traction and the freeze? Well, we all know what the results of those meetings were. The Saudi’s have to be pretty satisfied –production is down around the world-prices have rallied 80% from their lows and market share has been kept. Disregard the fact they need prices $40 higher to pay the bills. Iran is on the march to produce at pre-sanction levels and because of the price rise some US producers will come back to the market. So it will be interesting to see in a couple of months whether we are back to the conditions that brought the price of crude to $30. In the fall demand will fall for products as summer ends and it could be coming at a time where more oil is put on the market. For now however demand is high with gasoline hovering around 9.6 mbd and overall production is down so I believe the market should be traded from a buy the dip side—rather than sell rallies. My bias is neutral to higher and when I look at the position held by managed money in the latest COT report I see they have an extremely long bias for crude with 274,000 longs versus 63,000 shorts- I am in good company.
There is still a possibility the Fed might hike in June and that could put a cap on the current gold rally—the poor jobs number gave the gold bulls plenty of reason to cheer and the weak dollar helped to support prices-- but over the next few weeks the chatter that the Fed will hike in June or July could weigh on prices. The market held $1200 and managed money which had liquidated huge amounts of long positions have surely put that on hold with Friday’s jobs number being so poor. I would not be surprised if they started to add long positions again. If June is off the table as many are now saying and July has another poor jobs number then I cannot see how the Fed will be able to raise once let along twice this year. If there were not a Presidential election going on things might be different but I don’t see how they could raise twice and not have it influence the markets and maybe voters. Gold is getting to the point where it’s a buy no matter what the Fed does. Valuations in the stock market are getting overdone and if the Fed raises rates equities will sell off and gold will be a buy—if the Fed decides to put the hikes on hold because of economic conditions then gold will be buy. So in either case gold will be a buy. My bias for gold remains at neutral to higher and I would like to be long on dips.
Temperatures in the middle part of the US and the West reached triple digits over the weekend and the northeast had a mostly hot one --but relief is on the way. After a couple more days of temps in the 80s, NYC by the the middle of the week and towards the end will see numbers in the low 70s and in some areas north and west of NY won’t see days were the thermometer gets out of the 60s. It has been a crazy weather pattern this year and while the injection number for natural gas fell right in line with expectations last week it was still a huge number for this time of year reflecting how demand and production have been strong. Supplies are still running a surplus year over year and while last week’s injection was big I would not expect as big a number the next two weeks. Prices rallied about 10% last week and the market is due for a pullback. This is the time of the year where I approach the market from a buy the dip side but in the case of the position held now –I am short because I feel we are a bit overdone to the upside. Managed money added to long positions in Nat gas and reduced some of their shorts but overall remain short by about a 2 to 1 margin. My bias for now is lower but if we trade into the high 220 handle I will look to cover my short and reverse to get long. Overall with summer around the corner my bias will be buying the dips.
These are the numbers to watch:
The e-mini has resistance starting from 2102 to 2107 and represents 8 tops in the last 21 trading sessions above this there is resistance from 2118 to 2124 and the resistance above this runs from 2130 to 2136. Support in the mini begins from 2082 to 2075 below this there is support from 2068 to 2062 and includes both the 21 and 50 day MA’s below this there is support from 2050 to 2043. My bias is lower—I don’t believe the market can ignore how poor growth is.
Crude oil has resistance starting from $4960 to $5010 above this there is resistance from $5100 to $5150 and above this there is resistance from $5300 to $5350. Support in crude oil begins from $4810 to $4750 and includes the 21 day MA, below this there is support from $4670 to $4610 and below this there is support from $4500 to $4450. My bias is neutral to higher and I still believe the market could trade near the $55 level before the 4th of July. My bias is to buy dips.
Gold has resistance starting from $1247 to $1252 and includes both the 21 and 50 day MA’s above this there is resistance from $1261 to $1266 and above this there is resistance from $1281 to $1285. Support in gold begins from $1234 to $1228 below this there is support from $1221 to $1215 and under this support runs from $1206 to $1197. My bias is higher but I would like to purchase the market on a dip or buy if it trades through the first area of resistance.
Natural gas has resistance starting from 246 to 251 above this there is resistance from 258 to 264 and above this there is resistance from 270 to 275. Support in Nat gas begins from 240 to 235 under this there is support from 231 to 226 and below this support runs from 219 to 215 and includes the 200 day MA. My bias is lower –I am short and I am looking to cover under the second area of support.

Government reports scheduled for release this week will include:
Jun 7 8:30 AM Productivity-Rev.

Jun 7 8:30 AM Unit Labor Costs - Rev.
Jun 7 3:00 PM Consumer Credit

Jun 8 7:00 AM MBA Mortgage Index
Jun 8 10:00 AM JOLTS - Job Openings
Jun 8 10:30 AM Crude Inventories
Jun 9 8:30 AM Initial Claims

Jun 9 8:30 AM Continuing Claims
Jun 9 10:00 AM Wholesale Inventories

Jun 9 10:30 AM Natural Gas Inventories
Jun 10 10:00 AM Mich Sentiment - Prelim
Jun 10 2:00 PM Treasury Budget

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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