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NatGas: 05Apr The cards still seem to be stacked against NatGas with another large injection into storage (+42 BCF vs. a five-year average of +8) pressuring the entire price curve toward new lows. At some point, we expect the wave of production cuts to be supportive, but there is no evidence of that yet. Technically, the recent fall through the Sep 2009 lows (2.40) widens our charts out to identify multi year lows: Jan 2002: 1.90; Sep 2001 1.87; Feb 1999 1.62.”
We remind readers of our previous “shoulder season” notes:
“The dynamic for NatGas should shift to Spring shoulder behavior fairly soon. As the current storage is at record levels for this time of year, we expect to see storage rapidly fill and Summer supply levels should be comfortably high in June. As drilling starts to wane, care should be taken on any short side trades. A seriously hot Summer would materially increase demand as electricity usage would soar. This could shift this market to a bullish tone rapidly and unexpectedly. We feel position traders are best served by exploring trades that involve spreads of either futures calendar or selling premium.”
Look for supply issues to dominate, as demand didn’t really materialize this year with the extremely warm winter.
We did see a story today that indicated a price collapse might be necessary to fix this market.
Seasonal Snapshot: Divergence between short and long-term patterns: the 5yr pattern consolidates with a negative tone well into April, but the 15&21yr patterns have a strong upside bias.
Equities: 05Apr A modest overnight acceleration to the downside took a sniff at our noted previous support levels (SP 1380; Dow 12930; NASDAQ 2710). Since then, all three of our tracked markets have retaken unchanged levels from yesterday’s settlement. Fewer Challenger lay offs and unemployment claims (with the usual upward revisions) seem to have offered some support.
Recent chart action continues to remind us of the action before March Payrolls, all the way to yesterday’s 16 point decline (as of this writing) mirroring (rather “rhyming with”?) the 22 point decline the Tuesday before the release (this time it was Wednesday). At that time, our technical indicators for all three tracked markets were pointing lower, but each was more Oversold than current measures:
SP: 07Mar 36; currently 45
Dow: 07Mar 33; currently 41
NASDAQ: 07Mar 43; currently 54
Tomorrow will be interesting and perhaps, bizarre. Trade accordingly.
We remind readers of our recent notes:
“Our Momentum indicator for all three of our tracked markets is still negative… the NASDAQ is a relatively new contestant. We remain somewhat fascinated by the temperamental action this indicator has displayed this year… mostly by its failure to pull our Trend indicator meaningfully lower during its sustained negative turn from 10Feb-10Mar. During this time, prices consolidated with an upward bias until a large decline below 21-day moving averages on 06Mar. This was followed by events leading up to a positive Payroll number with upward revisions that boosted prices back above these averages and on their way back to the upside.
We get the sense a similar dynamic may be in the offing. It is somewhat odd that Payrolls, which normally garner so much attention, will come on a day when stock index futures will have about 45 minutes to react, then close for “digestion and reflection” until Sunday evening.
If any weakness is to be sustained, we feel either Momentum will have to go negative for an extended period of time, or the weak Volume rally will see a potentially large profit-taking decline. Most likely set off by some headline-grabbing announcement or event that will “change things.” Otherwise, it may likely be a period of consolidation before another trek higher.”
On more weakness, pay close attention to where the markets found recent (and overnight) support. Below this is the area where they struggled at the end of Feb, which roughly coincides with rising trend line support of this year’s rally (today’s action in the Dow tested the area). Last, the lows of the early March consolidation:
SP: 1380; 1370; 1330
Dow 12930; 12950; 12700
NASDAQ: 2710; 2650; 2575
We offer an interesting note about Volume from WSJ:
Seasonal Snapshot: The 5yr patterns of all three markets is in a pronounced upward bias until early May. The 15&30yrs follow suit, but are not nearly as steep.
05Mar With the Grain markets closed tomorrow, look for positions squaring near the end of the day to dominate as traders prepare for a long weekend. Markets’ recent trends are largely intact today. Monday’s action will be constrained by European absence as their Easter holiday extends though Monday.
We leave general yesterday’s comments in place to ponder over the weekend.
A piece we read this morning indicates the Corn market, despite the pop higher on the planting report last week, is still showing longer bearish tendencies. This situation may be exacerbated by the material increase in planted acreage. If this is the case, this should work to counter some of the bullish general tendencies embedded in the Soybeans complex.
To reiterate, Soybeans are in a bullish phase due to both South American drought and lower plantings in the US. The wild card on the Corn will be Petroleum’s pricing effects on Ethanol demand. The Soybeans wild card is Chinese demand.
Planting in the US Midwest seems to be proceeding ahead of schedule. At some point this will tend act as a negative factor.
The point to ponder here is what will be the overall effect on the Grains markets. Stay tuned.
We remind readers of our recent weather notes:
“As a point of weather market speculation, we wonder whether the very warm winter will lead to an equally warm, dry summer, putting pressure on the Corn crop. This may lead to a buying opportunity if a material sell-off occurs. Stay tuned for further news in this vein.”
In partial answer to this question, we read a column over the weekend referring to this issue. The Chicago Tribune’s meteorologist Tom Skilling answered a question that indicated we might be in for a very hot summer. More to follow.
Corn: 05Apr May’s problems at 665 persist with today’s highs put in near the pit reopen ad a general malaise setting in as the market settled into trading near yesterday’s close. Not a lot to take from today’s action. Look to next Tuesday’s USDA Production report for further fundamental news.
Trend seems to be peaking, Momentum and ROC are both rising, and RSI seems to be peaking. Volatility is falling with today’s light and constrained activity.
Pay attention to USDA crop reports and if Corn hits 75 on the RSI.
Volatility is now High (> 1 STD higher than Average) indicating there may be opportunities to sell premium in options.
May still has a gap below yesterday’s low and Friday’s close.
Seasonal Snapshot: 5-year heads modestly higher until Apr 5, then sideways until Apr 10. Both the 15 and 30-year patterns are entering into broad, modest declining periods until April 28. April 10-12 offers a brief, more negative period.
Soybeans: 05Apr In light, pre-holiday trading, Soybeans seem to be moving in the path of least resistance, higher.
Trend, Momentum, and ROC all point higher. RSI has flat lined for the last 3 sessions. Volatility has fallen in today’s light action. May has matched Tuesday’s high. May through Sept contracts (old crop) are all essentially bumping up against their highs of this week. The new crop (starting with Nov) isn’t testing new highs but hasn’t fallen appreciably either. Look for additional consolidation.
We maintain that until we see a material move higher from here, we go back to the WSJ story we highlighted from Tuesday:
A story we saw today on another newsletter does add a distinct note of caution to the recent action. The story noted the WSJ posted a story about the record highs in grains. It then went on to state that this type of mainstream media story typically showed up at the end of a bull rally. Additionally it stated in its opinion that the market seemed to be stretched.
Despite our worries as expressed, this market’s Technicals still point higher.
Trend, Momentum, ROC, and RSI all remain pointed higher. Look for support at the psychological 1400 level and resistance near today’s highs, say at 1435.
Volatility isn’t great for options purchases, but it isn’t very high, either.
Seasonal Snapshot: Relatively modest patterns now in place. The 5-year is sideways for about a week. The longer 15 and 30 years are negative until Apr 4 then mostly sideways.
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Past performance is not indicative of future results.