Into the Futures- June 20, 2016
Into the Futures – June 20, 2016
Brexit will be topic of conversation among investors this week.
• What will an exit mean for equity prices?
• Is crude oil immune from a severe price drop?
• Will gold experience more volatility than all other commodities?
• Have natural gas prices reached a peak?
When I say Brexit will be the topic of conversation this week I might be understating it in a big way as all scenarios and schemes of what an exit will mean will be discussed among experts. Does it put the English in the back of the trade line as President Obama suggested? (On a side note it’s a hell of a way to address your strongest ally and destroys the Presidents argument of not getting involved in the internal affairs of another country). Will it put British exporters at an unfair advantage or will it spur Britain’s economy as it shakes the chains of unnecessary EU regulations? The polls are too close to call on what the vote will be and the uncertainty of what a yes vote will mean is sure to initially weigh on equity prices. Conversely a vote to stay in the EU would put a lot of unanswered questions aside and I believe would provide a boost to equity prices. The recent weakness in the US equity markets is due to some of the uncertainty in England but a bigger result of the poor economic data right here at home. Investors are starting to worry that with low rates or not the economy is headed for a pull back. Housing prices are on a 6 year rise---the cycle usually lasts five. Automobile sales have slowed and other data has weakened especially on the jobs front. Equity prices will be volatile this week because headlines will drive prices and volumes will be low as traders await the Fed vote on Thursday. My bias is neutral to lower. Stops will be placed tight as prices could gyrate severely. Any indication the Brits will leave and have the votes will weigh on prices. If it looks like they will stay equities should in the short term rally.
Crude oil prices traded right to the low of the range I gave at the beginning of last week before they bounced on Friday. A vote by the Brits to leave will cause equity prices to sell off but I think oil prices might be immune from a similar decline because it has already been made. Crude recently traded over $51 a barrel, its low last week was just below $46—I don’t see another $5 drop in prices. A no vote could bring prices back to recent lows but because of seasonal factors a dip to $46 would be a buy IMO. Lately, this is not a fundamental story as it is a dollar story. The dollar has strengthened on a weak Euro and Pound due to the uncertainty of the vote. If there is a vote to leave dollar strength should continue but in a global economy the dollar will only climb so far if our biggest trading partners are feeling economic pain. Yes, further dollar strength could weaken crude prices but seasonal demand has to be figured into the equation. Record numbers for gasoline continues and supplies albeit slowly are starting to fall. If there is a stay vote both the Pound and Euro will rally, dollar will fall and since demand remains the same crude prices should rise. Managed money has liquidated some of their longs and increased shorts which are bearish moves but overall they remain long by a wide margin. I expect prices to be in a tight range to start the week and volumes to drop as the week progresses. My bias is to buy dips—not a surprise-- as I think you will see price gains in products accelerate as we near the July 4, holiday.
Gold prices could see the biggest swings next to the Euro and Pound once the results of the vote are known. The hype that has enveloped this whole process is taking the gold market by storm. There was a delayed rally to the no hike decision by the Fed—in fact both equity prices and gold had a delayed reaction to the Fed and why not? There is so much double speak coming from Janet Yellen and company it is amazing the Fed hasn’t been called out more on it. The confusion they are creating is causing investors to begin to worry about economic strength and the recovery in general. For example, In May after the jobs number of 160,000+ created was released Ms. Yellen stated that if all economic conditions were taken into account at that time she could not see why the Fed would not be able to raise rates now and twice this year. Just a few weeks later after the poor June jobs number was released her tone did a complete reversal and she indicated she didn’t know when rates would rise. Are you kidding me, because one month of data everything changes? To many investors it seems the Fed is making this up as they go along, now add that to the prospect of the EU crumbling and it’s no wonder gold prices rallied. Yes, due to headlines that England might stay they did retreat $25 from their highs on Friday which makes my point that this could be the most volatile market leading into the vote. I received a letter from my clearing house on Friday saying that margins on gold, silver, Euro and Pound futures would be rising over 200% greater than exchange requirements in anticipation of the vote Thursday. They say they are being proactive but it is a way to get customers to liquidate what the clearing house might deem risky positions before the vote. The strange thing is, I have never received an email or letter regarding rising margins before an event—usually it’s a result of something that took place and caused volatility. The latest COT report shows that managed money has drastically added to their long gold positions and stand near record numbers once again. In a nutshell, if the vote is to leave gold prices could rally $50 on the uncertainty that will cause—even in the face of a strong dollar IMO—If the vote is to stay gold prices will drop but not as severe. My bias is neutral to higher---This will be a very dangerous market to trade and for the inexperienced could cause a severe loss. I do not recommend trading it until the dust settles. But at the same time I realize some will want to trade –if that is done I recommend tight stops but watch them closely—because once a stop order is elected it turns into market order and sometimes there is vacuum that causes one to be filled much worse than expected. If a stop limit is used the market might trade through the stop and never get filled as it never gets back to the limit. TRADERS SHOULD BE VERY CAREFUL.
Temperatures will be summer like in the northeast over the next 10 days and scorching in the south for that same period. Demand for Nat gas will be high and prices are starting to react. The market has been trading up to resistance and then breaks through and makes new highs which is similar to when it was heading down as it would sit on support levels before a move lower. Last week’s injection number was bearish but the market still held price gains. Demand will continue to be high—there is a depression forming in the gulf that could be supportive of prices but more so for oil than Nat gas as production of Nat gas is spread throughout the country. Either way this should be watched as this could be the catalyst that pushes prices through the resistance. The latest COT report shows little change in positions held. My bias remains to buy dips—but there has not been one deep enough for me to enter into a long. I will have to raise my bids.
These are the numbers to watch:
The e-mini has resistance starting from 2086 to 2092 which includes the 21 day MA, above this there is resistance from 2099 to 2105 and above this the resistance runs from 2115 to 2121. Support in the e-mini begins from 2076 to 2071 and includes the 50 day MA under this support runs from 2064 to 2058 and below this support runs from 2049 to 2043. My bias is neutral to lower and I feel the best place to sell is between the second and third levels of resistance.
Crude oil has resistance starting from $4880 to $4930 and includes the 21 day MA above this there is resistance from $5020 to $5070 and above this resistance runs from $5130 to $5180. Support in crude oil begins from $4770 to $4730 below this support runs from $4620 to $4560 which includes the 50 day MA, and under this support runs from $4440 to $4380. My bias is neutral to higher and I would buy on a dip close to $47-4650.
Gold has resistance starting from $1308 to $1315 above this there is resistance from $1328 to $1335 and above this there is resistance from $1347 to $1354. Support in gold begins from $1284 to $1278 below this there is support from $1267 to $1261 and below this support runs from $1255 to $1248. My bias is neutral to higher but I would like to buy near the $1280 level.
Natural gas has resistance starting from 265 to 270 above this there is resistance from 279 to 284 and above this the resistance runs from 290 to 296. Support in natural gas begins from 261 to 255 below this support runs from 247 to 242 and under this there is support from 238 to 232 and includes the 21 day MA. The market is poised to break out and once above 270 could make a move to 300. My bias is higher and I would like to buy dips.
Government reports scheduled for release this week will include:
Jun 22 7:00 AM MBA Mortgage Index
Jun 22 9:00 AM FHFA Housing Price Index
Jun 22 10:00 AM Existing Home Sales
Jun 22 10:30 AM Crude Inventories
Jun 23 8:30 AM Initial Claims
Jun 23 8:30 AM Continuing Claims
Jun 23 10:00 AM New Home Sales
Jun 23 10:30 AM Natural Gas Inventories
Jun 24 8:30 AM Durable Orders
Jun 24 8:30 AM Durable Orders, ex-transportation
Jun 24 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