03JulyA kind of a perfect storm occurring in the sector...
Bad news is good news is seen in the that poor economic data has ramped up the markets' thirst for more stimulus of some kind. The "solution" to the European crisis last weekend kicked off the relief rally on stronger Volume Sunday night, most likely a lot of weak shorts covering. Then poor manufacturing data on a global scale briefly interrupted the rally before melting up on lower Volume on more rumors of central bank stimulus. Then Iran's reaction to oil embargoes sparked another leg higher. They are drafting a bill to block oil traffic through the Straits of Hormuz for those countries participating in the embargo:
90.10: 38.2% retracement of the March to June decline.
94.00: 50% retracement of the March to June decline.
Comment: Our Momentum indicator remains solidly positive, sustaining its 14June positive turn after flirting with going negative last week. We are "on hold" about Volume, as the rally was supported by much stronger numbers, indicating short covering and a market trying to put in a bottom. Since then, it has tapered off, most likely due to the US Independence Day holiday tomorrow. We are very interested in action and Volume on the global and US economic releases and announcements that remain this week.
Thursday's DOEs are forecast to show more than a 2MB draw from stocks and is likely providing some "low octane fuel" for prices squirting higher.
The 21-day moving average is still well below the 200-day (96.25), but has started to turn higher. Our Volatility measure has propelled to Very High levels and may handicap any option purchase strategies.
Seasonal Snapshot: (cash contract): All three patterns consolidate with an upward bias until a culmination high on 15July.
2.18: -2STD below 21-day moving average and 20Apr low
Aug Resistance: 2.885: Mid May peak
2.985: +2STD above 21-day moving average
3.11: 200-day moving average
3.315: 38.2% retracement of the June 2011 to April 2012 decline.
Comment: A tug of war between increasing cooling demand and bulging supplies.
We are somewhat surprised that our Rate of Change indicator is still showing signs of leveling off, given the projection that recent warm weather across the country's midsection will last well into next week, serving to increase cooling demand supplied by natgas turbines. This speaks to bulging supplies. The August contract is still struggling with the late May peak and our Overbought indicator (75) is the highest we have seen since the 81 that accompanied that peak.
That said, our Momentum indicator remains solidly positive.
Seasonal Snapshot: All three patterns chop lower, then higher before starting a period of protracted weakness from 16June-22July.
SP Resistance: 1368.50 +2STD above the 21-day and the upper end of the brief consolidation period after the early May peak.
1405: 01May high.
Dow support: 12829: 19June high.
12581: 21-day moving average
12387: 25June low
12381: 200-day moving average
12288: 12June low
12240: -2 STD below 21-day
11985: 04June low
Dow resistance: 12922: +2STD above 21-day
12975: Upper end of the brief consolidation period after the early May peak.
13284: 01May high
NASDAQ support: 2637.50: +2 STD above 21-day.
2628: 20June high
2561.50: 21-day moving average
2521: 25June low
2505: 12June low
2477: 200-day moving average
2479.20: -2 STD below 21-day
2433.75: 04June low
NASDAQ resistance:2648: Upper end of the brief consolidation period after the early May peak.
2753: 01May high.
Comment: Our Momentum indicators are now solidly positive for all three of our tracked markets and they are the most Overbought we have seen since mid-March. "Event-risk" is very high right now with economic data and announcements from around the world culminating with Payroll Friday.
We are watching the +2STD above the 21-day moving averages very closely. We remind readers that while they may expand and there may be occasional strays outside, the +-2 Standard Deviation Bollinger Bands have offered consistent support and resistance throughout this year.
All three found support just above the previous lows, noted above.
Seasonal Snapshot: (Cash Indices) All three patterns for all three markets track strengthen until the end of July.
03July The continuing drought story remains as the primary driver of higher prices, generally being dragged higher by the Corn market.
First Notice: Sep: 31Aug; Dec: 30Nov 03July The drought continues. It has and is occurring at the exact worst time, pollination. Iany damage at this point is irreversible. Yesterday's crop progress report was bad. Look for meaningfully lower crop expectations. This will offset the negative pressure from the large planted acreage.
Support: 6.56 ¾: 6/26 high trade
6.45: June 2011 highs
6.39 +2 STD over the 21-day moving average (5.53)
6.17 Oct 2011 highs
5.94: Gap left on 26June opening.
5.75: March high trades,support in early January, bullish support inflection level back to 7/1/2011 low.
5.69: Previous high and gap left on 25June opening.
Resistance: 6.73: Aug 2011 highs
7.00: psychological level
Comments: Technicals clearly are very positive and should remain so until a correction occurs. While the drought continues and additional damage to the current crop is implied, this is unlikely.
RSI continues to head higher, but isn't spiking higher.
Technically, gaps remain between 5.94and 5.96 ¼, between 5.54 and 5.70, and then well below last weeks consolidation between 5.34 and 5.36 ¼. The one to watch is the 5.54 and 5.70 gap. It's close enough and large enough to actually have an impact on the market.
We leave some recent comments and observations in place to give some context to recent action and to remind our readers of the large supply and demand dynamics at play this crop year.
Any new long positions should be sensitive to any factors that could be construed as taking the Momentum impetus away from the bullish case. Such as
Weakening technical actionRainContinuing global economic weaknessWeak energy prices
We leave a portion of a recent comments in place as their relevancy to further thoughts in the market:
Despite today's strength, we believe any new longs are likely to be jittery due to the previously noted vulnerabilities:
A potential record cropEarly completion of plantingAhead of trend Crop ProgressDeclining U.S. personal automobile fuel demandDeteriorating global economic conditions
Seasonal Snapshot: For July- All 3 patterns are due to be seasonal under pressure from 6/11 until delivery starts at the end of June.
For December-All 3 patterns are under a very negative seasonal bias until 7/3. The 5 and 15-years peak on 7/13.
First Notice: Aug: 31July; Sep: 31Aug; Nov: 31Oct; Jan: 31Dec
A drop in crop conditions keeps the ongoing drought as the primary driver of rising pricing.
Support: 14.50: Psychological level
14.47: +2 STD over the 21-day moving average (13.48)
14.37: 6/25 high trade also right at the +2 STD over the 21-day moving average.
13.95-14.00: Major level as November peaked here from 8/31-9/12, then failed again from 4/2-6/21
13.90: Gap left on 25June opening
13.63-13.68: 4/16-/4/23 multiple failures to go higher, support 5/2-5/4, failure to go higher 5/10 and 5/11
Resistance: 15.00: Major psychological and round number price level, and measures to the $1.00 move higher from the previous high.
Comment: Soybeans' move higher, supported by its own fundamentals, is exacerbated by the Corn market's crop deterioration. Its technicals, while clearly positive, are not as consistent over the period sine the Corn started its massive rally. In some ways, this can be see as more constructive, with the 3 distinct consolidations allowing the market to build chart structure.
Any news of rain in the Illinois or Iowa will likely spark another violent move lower.
Seasonal Snapshot: For July- 5-year is in a shallow falling period until 6/23. 15-year is biased lower until June 28. The 30-year is in a falling mode until June 29.
For November-Both 5-year and 15-year are in a negative bias: the 5-year until June 26, the 15-year until July 7. The 30-year is in a falling pattern until July 7.
First Notice: Sep: 31Aug; Dec: 30Nov
03July Wheat continues to rise in sympathy with Corn. Additionally, Foreign countries' output in seen at risk and export restrictions have been mentioned.
Support: 8.00: psychological level and mid-Sep 2011 resistance.
7.80: 8/9/11 and 9/15/11 low support
7.66: 10/11 settlement, upper level of late October through early November rally
7.60: 6//25 high, near the 6/27 low
7.45: 5/21 high.
7.30: just above 5/21 settlement, general resistance area on rallies in early January and early February
7.17-7.20:Intermediate support and resistance inflection point, was support in mid-October, resistance in late December/early January, support in early February, and resistance on rallies in early and late March
7.00: Psychological level, extends on a traded level down to 6.90 and has acted as an inflection point around which lots of trading has occurred going back to December.
6.78-6.80: Was strong support from 2-10-3/28, was resistance in June before the drought fears rally.
6.70: Has acted mainly as an intermediate support level since late November, but on numerous dates.
6.52-6.57: Was bottoming support in late November, mid-December,mid-April, and early June. Failure to hold here means a likely test of the contact lows.
Resistance: 8.15: mid-level support area from mid-July and mid-August 2011
8.41½: Resistance in late July and support in early September 2011.
Comment: Technically, this market has maintained its quite positive bias along with Corn during the drought induced rally. Look for it to continue in this vein while the drought continues. When the results of the drought are more evident and some sort of final yield is forecast, we should see some sort of consolidation.
We leave in place our comment from 4/5 as it addresses longer-term patterns we've noticed: Additionally, on our Momentum measure going back to late December, each positive shift has peaked at earlier and lower. This is in a period of a modestly negative bias in what has been largely range trading.
May's Volatility has peaked just below the High range (< 1 STD).
Pay attention to the harvest in Winter Wheat as it moves ahead of schedule due to warm weather and the plants benefit from rain in both Europe and the US.
This market has been in a gently falling bearish pattern for the last 2 months since peaking on 2/1. On a longer-term view, the bearish dynamic has been in place, albeit with a sizable range, since February 2011.
Volatility is now close to High (> 1 STD higher than Average) indicating there may be opportunities to sell premium in options.
Seasonal Snapshot: For July-All 3 patterns peak on June 13 and 14, then enter a period of generally lower bias until the end of June. For December- All 3 patterns peak near June 13, then enter a period of generally negative bias until the end of June.
U.S. Treasurys' First Notice: Sep: 31Aug; Dec: 30Nov
U.S. Treasurys' Options Last Trade: July: 22June; Aug: 27July; Sep: 24Aug
03July With the better than expected Factory Orders, the risk-off trade receded, with all the Treasuries and the Bunds declining.
Despite some intermittent "supportive" economic data, some of it in the crucial housing sector, we see growth as persistently anemic, and the numbers have stalled out in indicating growth going forward.
Couple the above with other disappointing global economic developments and risk-off days tend to drive a material share of investment and trading flows into the U.S. Treasury market.
Continuing Operation Twist operations should support the long end and add some moderate pressure to the short end.
BONDS: Bonds were under pressure from yesterday's Construction Spending surprise. Today's Factory Orders just added to the pressure. Bonds should continue to benefit from any risk-off action AND the expected Operation Twist induced demand.
Support: 148-16: Late May resistance,
148-07: 6/21 low, Support level from 6/13 & 6/15
148:00: psychological support level, was resistance from 5/17-5/24, and has been support since 6/7
147-24: 6/13, 6/20 support & 5/22, 5/25 resistance
147-00: Psychological level, 5/16 resistance, support area 5/1-5/29, 6/11.
Resistance: 149-03 support on 5/31, 6/6-6/8. 6/17, resistance 6/19 & 6/20
149-21: 6/21 high, settlements on 5/30 & 6/15
150-00: Big psychological level, resistance on 5/30 and 6/13.
150-09: 6/5 support, 6/8 resistance, 6/18, 6/19 high trades
Comment: Very little has changed on a technical basis today. Technically, Bonds remain negative. It seems to be a shift to a more neutral stance, although, this leaves the primary directional bias as negative. Outside the 6/29 sell-of, recent action has been on declining and/or anemic volume. This gives us pause when considering the effects of the Operation Twist news. Rate of Change does give the impression of possible bottoming action. RSI has bounced without going Oversold but seems to be heading generally sideways. Yesterday's rally did bounce off the rising trend line drawn from the 6/11 low at 146-28. Today's action has and is threatening to test the resistance at the big psychological 150-00 level.
Seasonal Snapshot: (cash contract)
Bonds: The 5yr pattern declines 7/1. It then bounces higher and lower, going generally sideways until 7/23, whereupon it enters a generally negative pattern until early October. The 15 & 30 yrs consolidate with a downward bias until August.
Tens (10-YR NOTES):
Tens remain exhibiting similar action as Bonds (or is the other way around?).
While Operation Twist news automatically adds a bid to the Tens, the action has failed to break out above the recent range trading zone. Until that happens, this market is going to appear to be under moderate pressure on technicals.
Support: 133-17 intra-day chart high trades 6/11, 6/13, 6/17, 6/19, 6/20, 6/21, just above 21-day moving average (133-16), near mid-point of 3 week consolidation range.133-08 supported on 6/14, 6/17
132-28: near 6/13 & 6/20 lows, resistance in late May
132-16: 5/15 resistance, 5/2/ support, near midpoint to 5/17-5/25 consolidation action
Resistance: 134-00: Psychological level. Support from 5/31-6/4, just above highs on 6/11, 6/15-6/19
134-16: near +2 STD over the 21-day moving average
135-00: Psychological level, just above 6/1 & 6/2 highs
Comment: While our Technicals point to a generally negative bias, there is some evidence of bottoming in the Rate of Change, which may show a slowing in negative Momentum. Chart action has been largely consolidating between 133-00 and 134-00 since 6/6. RSI did bounce higher after failing to go Oversold but is now heading sideways. Volume's material decline indicates consolidation.
Seasonal Snapshot: (cash contract)
Tens: The 5yr pattern is in a modest bounce and fall off sideways pattern until 7/23, whereupon it enters a more profound falling pattern until early September. The longer-term patterns are in a modestly downward bias that accelerates toward the end of July and lasts until October
2-YR NOTES: Two's finally seem to have real negative impetus. Let's see how the market responds after the holiday before we make a pronouncement of quite negative action. The 7/3 settlement remains above the 6/28 settle low and right at the last 2 weeks' support. Is this the first phase of the next move?
While we continue to maintain that Twos being allowed to fall is counter to current stated Fed monetary and QE policy, with the 6/20 news regarding the continuation of Operation Twist, some modest pressure on the short end is to be expected as the Fed reconfigures its balance sheet. If the Fed decides it needs to break out the QE nukes again, we should see a lurch higher.
Support:110-03.5: resistance after 6/20 FOMC sell-off, support after 6/21 overnight rally
110-03: Support on 5/25, 6/20, & 6/21.
110-02: 6/20 low post-FOMC sell-off.
Resistance: 110-04: support from 5/29-6/19
110-04.75: Declining trend line fro 6/4 peak, resistance from 5/25-5/30
110-5.25: 21-day moving average
110-06.25: resistance on 5/30, support from 6/6-6/8
Comment: The Twos' negatively biased technicals remains stubbornly on the negative side. Momentum just can't crack the 0 line which demarcates the point where Momentum heads positive. Trend spent one day in positive territory before declining again. If the current support levels fail to hold, the downside may be severe.
However, it should be noted that the decline this may call for is again, as noted above, counter to official Fed policy.
: (cash contract) All three patterns bounce higher from 6/25 until 6/28, and then resume a generally negative bias until 7/10. The longer term Trend is negative until it seems to bottom in early October.
SEP 13 EURODOLLARS:
Support: 99.525: Support level back to 6/20
99.515: 4/3 & 5/2 highs, settlement on 6/15, support on 6/18, low on 6/21
99.500: high trade from 4/12-4/19 & 4/26-4/27, low from 5/1-5/4, settle on 5/7
99.490: high trades on 6/7 & 6/11 Resistance: 99.535: high on 6/18 & 6/19, settlement on 6/20
99.555: high trade on 6/20
99.560: 2/3 and 3/2 highs and mid-August support.
99.570: 9/21/11 & 3/2 high trade.
Comment: Today's positive action is in the context of a broader negative move in our primary directional indicators.
BUNDS (German 10-yr):
Bunds seem to be in a consolidation mode near a support level. Some increase in Volume seen.
Support: 141.50: general support and resistance inflection area since 6/13 lows.
Comment: Technically, Bunds are shifting to a less overtly negative bias. Trend is showing signs of bottom and Momentum's negative bias is decelerating. Rate of Change is rising but that has been slowing. With the RSI bouncing out of the Oversold conditions from last week, some moderating of the recent negative bias is in place. However, Tuesday's material rise in Volume on reversal action is a poor sign for the Bunds. Look for failure at technically significant levels.
We saw another fall in Volume in the continuing positive follow-through from last week's post summit rally.
Along with the U.S. Twos, the Schatz falling will end up being counter to official policy desires so we have our doubts as to any negative bias sustainability.
Support: 110.50: psychological level
110.445: support in early April.
110.355: resistance in late March/early April, at various times support or resistance going back to late December. Resistance: 110-59: resistance zone in early April, support and resistance inflection in late April/early May, support on 6/6, resistance on 6/14 & 6/15
110.625: 6/25 high and 6/11 low
110.6756/8 settlement and level of declining trend line drawn from 6/6 high.
Comment: Schatz's technical pressure is now shifting to with Trend and Momentum having already or about to turn positive. This is in keeping with Central bank policy.
METALS: Options Last Trade:Aug: 26July; Sep: 28Aug; Oct: 25Sep
03July We shorted Gold on a low Volume run up to our noted falling trend line resistance. Tight stop at 1625-1630. Support: 1600: Psychological level and 21-day moving average (1600.2) 1588: 26June high. 1555.9: -2STD below the 21-day moving average 1540: Rising trend line from the 15May low (1529) 1525-1530: Horizontal trend line that extends back to the previous low (26Sep 1532.7). 1500: Psychological support 1478.3 to 1462.5: Cluster of lows between 02May & 27June. 1456.8: 38.2% retracement of the Oct 2008- Sep 2011 rally Resistance: 1621: Falling trend line in place since the $90 drop on 29Feb. 1644: +2STD above 21-day moving average 1667.2: 200-day moving average
Seasonal Snapshot: All three patterns spike higher until 20June, when the 15 & 30 yr patterns decline precipitously until 05July. The 5yr pattern consolidates until 06July.
First Notice: July: 29June; Sep: 31Aug; Dec: 30Nov
03July Support (continuous): 3.4775: 18June high 3.3680: 21-day moving average 3.2375: -2STD below the 21-day moving average has acted as a brake. Also rising trend line from the June 2010 low (2.7200) through the Oct 2011 lows (299.40) on any weakness. 3.2380: 04June low 3.2325: 15Dec 2011 low 3.2040: 25Nov 2011 low 3.0915: 20Oct 2011 low 2.9940: 03Oct 2011 low Resistance (continuous): 3.4995: +2STD above 21-day moving average 3.5280: The 38.2% retracement of the April to May decline and also clusters around the upper end of a brief consolidation range in late May. 3.5680: 200-day moving average Comment: After a drastic narrowing, our +-2STD Bollinger Bands are expanding and the market is riding the upper band, but on... low Volume. We remind readers that it has effectively capped any rallies. Additionally, at its current 76, the continuous contract is the most Overbought we have seen it since January: 82 on 26Jan; 93 on 19Jan.
Seasonal Snapshot: All three patterns rally until the beginning of August.
First Notice:Sep: 20Aug; Dec:
Options Last Trade: Aug: 06July; Sep: 03Aug; Oct: 07Sep
03July Continuing weather and concerns (where have we heard that before?) are still driving prices higher. An improvement may take the legs out from under this market.Support: 2315: Declining trend line that extends back to the 27Jan high (2519).
2271: 15June high and topping action
2165: 21-day moving average and support going back to 08June.
2080: early April support.
2031: 04June low and horizontal trend line support extending back to Dec 2011.
Resistance:2372: 07May high
2412: Mid-January high and late March lower Comment:
All our directional indicators are headed higher. A pretty rapid rise. May look for some sort of retrenchment consolidation. Overbought, but not excessively so. Yesterday's action tested and held above the declining trend line drawn from the 1/27 highs.
Bigger picture, we remind readers that this market has been in a declining longer-term dynamic since late January. Until it breaks above the (2519), this market is still in a bearish pattern.
The case could be made for a large, descending triangle formation that is bound to the downside by horizontal trend line that extends back to Dec 2011. If drawn from the Sep 2011 high (2950), a break below 2030 on stronger Volume could target a move to 1200.
Seasonal Snapshot: All three patterns are rising until early July.
First Notice: Sep: 23Aug; Dec: 21Nov
Options Last Trade: Aug: 13July; Sep: 10Aug; Oct: 14Sep
03July Another agricultural harvest issue, with Brazil's being hampered and/or damaged by wet weather. The general commodity rally helps, too.Support: 171.75: Consolidation highs after 7-cent loss on 23May.
166.00: +2STD above 21-day moving average (158.05)
161.50: Major failure level with high trades and much lower settles on 6/5 & 6/20.
158.40: 6/19 & 6/21 settlements. Also, early June support before the move to the lows.
157.85: 21-day moving average
150.00: Psychological level and just below 18June low.
149.60: -2STD below 21-day moving average
Resistance:180.00: just above the 7/3 settle.
182.00: Mid-level support and resistance inflection going back to 3/22.
187.00: More important resistance going back to 3/12 support, serious resistance since 4/9.
Technically strong, but getting more overbought. Market is due for some corrective action. Rally is now into the 4/16-55/23 congestion area. Failure in this zone will likely lead to much lower levels. The market is hugging just above the +2 STD (174.90) over the 21-day moving average (159.85).
Hedging for delivery is likely to be a cash intensive business unless some sort of long option strategy is implemented. Call or email us for information on how to implement.
Seasonal Snapshot: The 5yr pattern rises until the beginning of July. The 15&30yr patterns are both quite negative until 25June.
03July Cotton joined the U.S. Grains in rallying off the sweltering heat and indications of possible damage to the crop.
Dec Support: 70.15: 21-day moving average 69.50: 21-day moving average
67.75-67.95 Shoulder for an inverse Head & Shoulders
64.60: 04June low
Dec Resistance: 73.75: +2STD above 21-day moving average
74.50:Was support in early May, inflection point in late May and just above mid-June settlement high.
74.80: 19&20June double top and old support in early May
Comment: Seasonal Snapshot:
The 30yr pattern consolidates throughout June, but the 5&15yr move the entire month.
First Notice: July: 02July; Oct: 01Oct
Options Last Trade: Aug: 16July; Sep: 15Aug; Oct: 17Sep
03July: We are hearing of a rare move in the Sugar market that is being touted as quite bullish. Cargill and a top producer in Brazil are reportedly taking large deliveries in the July contract, an exceptionally rare move that hasn't been seen in 50 years. This coupled with the rise in Crude has the bid in place on the sweet stuff.
Support: 20.50: Old resistance and where the market fell to and bounced for a short time in early May.
19.80: Late May support, early June inflection, mid-June support levels and rising trend line that extends back to the 04June low.
18.86: 04June low
17.00: Target for the break below a large descending triangle and horizontal trend line (21.00) that dates back to January.
Resistance: 2100: psychological level and near last weeks highs.
21.95: 50% retracement of the March to early June decline.
Our technicals are now headed higher with the bullish action as reported since Friday's Euro prop up news. To give you a sense of this rally's speed, on 6/26, it was threatening to fall into the Oversold column. Since that date, all indicators are headed North, and it is likely there are fair number of shorts that have been and may continue to cover.
Seasonal Snapshot: All three patterns are in a pronounced upward bias until the beginning of Aug.
Disclaimer: The information presented in this report is taken from sources we believe to be reliable and accurate. This information is not guaranteed as to accuracy or completeness. The opinions expressed are based on our best judgment at the time of writing and are subject to change without notice. These opinions should not be construed as an inducement or advice to enter into any Futures or Options on Futures transaction except where explicitly stated. There is risk of substantial loss in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.
Related to Providio's Daily Futures Market Commentary for July 3, 2012