Into the Futures- June 13, 2016
Into the Futures – June 13, 2016
The Fed has a decision to make this week.
• If the Fed decides not to raise will equities continue to rally?
• Will crude prices rally on a no decision by the Fed?
• What will happen to the price of gold in a raise/no raise scenario?
• Have natural gas prices reached a short term peak?
Although most experts say they won’t, there is a possibility the Fed raises rates when they meet starting on Tuesday and concluding Wednesday. My thoughts are a rise is not going to happen since the data released over the last month has shown a definite slowing of growth and economic activity, but traders must be prepared for either possibility. There is a hawkish faction in the Fed that will be calling for a hike although many analysts will say now is not the time. I believe there are structural issues that should be addressed first and after those changes are implemented and allowed to take effect – then rates can start to rise. I don’t believe the current administration will work to change regulations-- in fact they are looking to add more-- and you won’t see any movement in addressing the tax code this close to an election. So the economy is stuck with tepid growth for the foreseeable future –did you know that president Obama’s administration will be the first one in history not to experience a year where there was 3%+ economic growth. That’s eight years of sub 3% growth and interest rates are at their lowest levels in history. There is something structurally wrong. For the start of the week I would expect a quiet but supported market, supported because most feel the Fed won’t act. There will be some traders that stay on the sidelines and will enter the market only when the Fed decision is made which means if it’s a no hike we could get a catalyst that takes the market over 2110 and near new highs. If the Fed pulls a surprise and raises rates the market will experience a selloff and if a trader can get short I think it would be the right decision. Besides the Fed meeting there will be a huge amount of government data released this week and a close eye should be kept on that. My bias is neutral to lower and if the Fed raises rates I believe after the initial positive reaction the market will be a sell because the data, earnings and overvaluation does not jibe with a market on the verge of making new highs.
Crude oil experienced some profit taking at the end of last week and it coincided with the selloff in equities and the slightly stronger dollar. The dollar has been range bound and supported around the 92 to 93 handle and I would have expected some of the shorts that are in the market to cover before the Fed meeting. They would cover because if the Fed pulls a surprise and raises rates they will be on the wrong side of the market. As with equities I would expect crude oil to be supported because most feel the Fed will not raise and if it’s a no decision the dollar will resume its move lower and support oil. Technically crude did breach the 21 day MA but settled above that number and that is supportive of prices. On the fundamental side demand for gasoline and products remains strong and although US production did rise by 10,000 barrels last week it’s still well below the peak set last year. Nigeria is now the number 2 oil producer in Africa falling behind Angola which means their production is off around 1 million barrels per day. There will be 3 more weeks of strong demand and I expect crude oil prices to make the move to $55 in that time. Some have said peak seasonal demand is past—I don’t see it that way…maybe what the anticipated demand would be has peaked but the actually demand figures have only begun to grow IMO. The latest COT report shows that managed money have added to their long positions as well as their shorts which is neutral. My bias is higher –I am long although looking back I should have placed the buy closer to the 21 day MA.
Gold prices could be at the low end of the week’s range as the pattern has shown that when the Fed misses an opportunity to raise rates prices jump at least $20 per ounce. If there is a no decision the dollar will come off and be supportive of gold. If the Fed pulls a surprise and raises rates then gold will sell off hard. That is why a tight stop will be needed for any position. The latest Cot report reflects what I predicted on Futures Now last week in that managed money will add to longs and reverse the liquidation that started a few weeks ago. They have added 20,000 longs since last week and reduced the number of shorts by 10,000. Another factor that is supportive of gold is the selloff in the 10 year –as investors receive lower returns from the 10 year --the yield now stands at 1.66%-- they will look more and more to gold. I advised buying gold around the $1250 level early last week and raised that to $1260 by the end but I am afraid the market won’t trade there as investors anticipate the Fed no decision. My bias is higher as I believe gold will be supported in the beginning of the week and certainly after the Fed comes out with the highly anticipated—we do nothing.
Natural gas has been the best performing commodity over the last 2 weeks as demand and injection numbers have been near record levels for this time of year. I mentioned last week how I totally screwed up trading this market and I will mention it again because it’s a lesson to be learned. My bias was buying the dips and I should have stuck with that. I underestimated the demand numbers even though we were on the cusp of what all major weather organizations have been predicting--which is a hot summer. Remember the NOAA prediction I wrote about a few weeks ago—it’s starting to come true. While the northeast had been cool the mid part of the country was experiencing triple digit temperatures. Over the next week to 10 days the country will feel the heat and I expect demand to be high. I cannot buy at these levels but I will on a pullback to the mid 240s. This is the beginning of the summer heat season and my bias will be buying the dips. The latest COT report shows last week managed money reduced shorts from 330,000 to 270,000 which represent 60,000 bought contracts and a large bullish bet.
These are the numbers to watch:
The e-mini has resistance from 2114 to 2120 above this there is resistance from 2128 to 2135 and above this resistance runs from 2147 to 2153. Support in the e-mini begins from 2086 to 2079 and includes the 21 day MA, below this support runs from 2073 to 2067 and includes the 50 day MA. Below this support runs from 2055 to 2049; My bias is neutral and I would not be surprised to see the market start the week unchanged with tight ranges as we await the fed decision.
Crude oil has resistance starting from $5050 to $5090 above this there is resistance from $5140 to $5180 and above this there is resistance from $5310 to $5360. Support in crude oil begins from $4880 to $4840, below this there is support from $4770 to $4730 and under this support runs from $4620 to $4560. My bias is higher, I am long, and stop is in place.
Gold has resistance starting from $1284 to $1290 above this there is resistance from $1300 to $1307 and above this resistance runs from $1321 to $1328. Support in gold begins from $1264 to $1259 below this there is support from $1251 to $1244 which includes both the 50 and 21 day MA’s and under this there is support from $1236 to $1231. My bias is higher and I would like to see the market dip to the first support level. Once the market is at the first support level I would look to buy and use the area below the second support level as a place to put my stop.
Natural gas has resistance starting from 260 to 265 above this there is resistance from 274 to 280 and above this resistance runs from 288 to 294. Support in natural gas begins from 251 to 246 below this there is support from 240 to 234 and under this support runs from 225 to 219. My bias is higher but I would like the market to dip to the first support level before I buy.
Government reports scheduled for release this week will include:
Jun 14 8:30 AM Export Prices ex-ag.
Jun 14 8:30 AM Import Prices ex-oil
Jun 14 8:30 AM Retail Sales
Jun 14 8:30 AM Retail Sales ex-auto
Jun 14 10:00 AM Business Inventories
Jun 15 7:00 AM MBA Mortgage Index
Jun 15 8:30 AM PPI
Jun 15 8:30 AM Core PPI
Jun 15 8:30 AM Empire Manufacturing
Jun 15 9:15 AM Capacity Utilization
Jun 15 9:15 AM Industrial Production
Jun 15 9:15 AM Capacity Utilization
Jun 15 10:30 AM Crude Inventories
Jun 15 2:00 PM FOMC Rate Decision
Jun 15 4:00 PM Net Long-Term TIC Flows
Jun 16 8:30 AM CPI
Jun 16 8:30 AM Core CPI
Jun 16 8:30 AM Initial Claims
Jun 16 8:30 AM Continuing Claims
Jun 16 8:30 AM Philadelphia Fed
Jun 16 8:30 AM Current Account Balance
Jun 16 10:00 AM NAHB Housing Market Index
Jun 16 10:30 AM Natural Gas Inventories
Jun 17 8:30 AM Building Permits
Jun 17 8:30 AM Housing Starts
Jun 17 8:30 AM Building Permits
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