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By: Brian Price
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Suddenly, the greenback is looking a lot greener.
The U.S. dollar index soared more than 1 percent on Thursday, hitting its highest level since Oct. 2. The move was fueled by the decision from ECB President Mario Draghi to leave interest rates unchanged and hinted at further easing. But some experts warn that traders should use the rally as a rare opportunity to get short the currency ahead of next week's FOMC meeting.
"I would be very careful buying the U.S. dollar at this stage," Kathy Lien told CNBC's "Futures Now" on Thursday. According to Lien, recent government data shows a lot more weakness than strength in the U.S. economy, which means the Fed's "hands are tied" in terms of raising interest rates in the near term. "The FOMC is the perfect catalyst for [a move lower] in the dollar."
Crude oil prices are down this week as uncertainties over China's economic growth and oversupply continue to weigh on investors. Oil is now down more than 10 percent from its October high of $50.92, and according to one expert, a "pile up" of bearish factors this week could spark the next leg lower.
"A meeting of OPEC and non-OPEC oil producing countries on Wednesday should end in disarray, leading to another round of selling," John Kilduff told CNBC's "Futures Now" on Tuesday. OPEC is hosting a special technical meeting on Wednesday, and while Kilduff expects it to be a nonevent, he does suspect it could result in "more protestation from Venezuela and countries getting hurt the worst," which will continue to put pressure on the commodity.
Furthermore, Kilduff anticipates this week's EIA inventory report to show another "substantial" number. "You're going to get a big crude inventory build in the weekly report. That's going to be a downward catalyst," said the CNBC contributor.
Third-quarter earnings season has begun, and the numbers do not look great. While 71 percent of the first 58 S&P 500 companies to report have beaten analysts' estimates, overall earnings are still expected to slide 3.9 percent versus the third quarter of 2014, according to Thomson Reuters data.
Those figures "blend" reported results with analysts' expectations of earnings yet to be released. Meanwhile, revenues are set to decline 3.7 percent.
But amid the apparent weakness, three specific industries within the S&P 500 Index are expected to see their earnings rise by about 50 percent year-over-year: automobiles, airlines, and construction materials.
Louise Yamada has a strong message for investors: Don't get complacent.
The markets have been in rally mode since the start of the fourth quarter, with the S&P 500 and Dow Jones industrial average each surging more than 5 percent. Both indices are trading at levels not seen since late August. But according to Yamada, any strength should be used as an opportunity to sell.
"You always get a rally after a big decline," the renowned technician told CNBC's "Futures Now" on Thursday. "The point is that we initiated a downtrend in August and once a downtrend is initiated after something that looks like a larger top, these rallies tend to go back into resistance." Yamada identified the next levels of resistance as the falling 200-day moving average, which comes in at around 2,050 to 2,060.
As commodities continue their recent rally, one analyst says that the group may have already found a bottom this year.
Andrew Hecht of Commodix.com said the last few months have been exceptionally weak for commodities, which could be a good signal for the fourth quarter. According to data from S&P Dow Jones Indices, the past quarter was the third worst Q3 returns for commodities since 1970.
Although Hecht expects to see more volatility in Q4 this year, he said there are several catalysts that could push commodities higher.
"While we have to keep our eyes on China, and that's going to move commodities prices, we might have seen a bottom for the year during Q3," Hecht said Thursday on CNBC's "Futures Now."
"The commodities sector in general was down about 9 percent at the end of the third quarter. And it's down about 13 percent as of Sept. 30 across the board. So a bounce that's happening now is not out of the question," he said.
With Fortress' macro hedge fund closing, and Glencore struggling to manage its debt, the market could see much more contrarian plays that drive upside for commodities, Hecht said.
Read More Should you fear a 'Glencore' moment?
Hecht is particularly bullish on gold, which he noted has "blasted off." The yellow metal has risen more than 6 percent in October. He said that gold could break through $1,200, but to watch key resistance around $1,234.
"I see pretty clear sailing" for gold, Hecht said Thursday. "I think we're going to put a print up above $1,200, maybe up to $1,225, but I think up there it gets a little more dicey."
Hecht said he is also watching soft commodities such as rice, sugar and coffee, which could soar as the El Niño weather phenomenon pushes prices up for producers.
When it comes to the market this quarter, bad is good.
Some of the S&P 500's worst-performing sectors on the year have emerged as some of the recent winners. Energy, Materials and Industrials, which were all down heading into the fourth quarter, are the three best-performing S&P 500 sectors since Oct. 1, up a respective 11, 9.5 and 6.5 percent over that time. And according to one technician, that could mean trouble for the market.
"The obvious theme since the September lows has been this outperformance from the lagging sectors," Jonathan Krinsky told CNBC's "Futures Now" on Tuesday. "Our general sense is that's not healthy for the market going forward."
Comparing the recent environment to that of October 2011, Krinsky noted one key discrepancy. "The rally coming off the October 2011 bottom was led by the leadership group," said Krinsky, meaning the sectors that were strong heading into the sell-off continued to be rally coming out of it. "Meanwhile, the laggards continued to lag," he added. "So we're seeing a completely different picture coming off the lows [now]."
It often appears that no matter what the Federal Reserve does, its actions are destined to draw the ire of market participants.
Now, it appears that what it doesn't do is at least as likely to ruffle feathers.
The recently released minutes to the Fed's September meeting showed the committee fretting about the sharp drop stocks had suffered over the past month. It was mentioned as a negative in the economic outlook prepared by the committee staff, and factored into the policymakers' economic outlook.
Those factors, along with several others, are widely seen as keeping the central bank from meting out its first rate hike in almost a decade.
"The growing debacle surrounding the election of a new Republican House Speaker and the potential crisis if Congress doesn't raise the debt ceiling within the next month are additional risks that have sprung up in the past couple of weeks," Capital Economics said in a research note last week. "Accordingly, we now expect the Fed to wait until early 2016 before beginning to raise interest rates."
However, the Fed's emphasis on downside risks is injecting a degree of uncertainty—and volatility—into markets, a factor not lost on global policymakers that are calling on the Fed to end its handwringing and begin the tightening cycle.
"In the United States, equity prices fall, on balance, amid significant volatility, and risk spreads for businesses widened," the Fed minutes note. "Many participants judged that the effects of these developments on domestic economic activity were likely to be small, but they acknowledged the risk that they might restrain U.S. economic growth somewhat."
The minutes go on to state that the stock drop was not a primary factor behind the Fed's widely anticipated decision to keep its interest rate target on hold.
However, it added that "participants indicated that they did not see the changes in asset prices during the inter-meeting period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving the Committee's macroeconomic objectives and the risks associated with that outlook."
Still, it was clearly a factor lurking in the background, to the extent that the market drop has weighed on inflation expectations.
Suddenly, stocks are hot again, with the S&P 500 is on track for its best week of the year. The index has rallied nearly 5 percent since the start of the fourth quarter, but if history is any indication, the recent rally could soon fade into the abyss.
"If you look at the seasonal data, it suggests we will see a more lackluster [quarter] than usual," technician Stephen Suttmeier told CNBC's "Futures Now" on Thursday.
According to Suttmeier, since 1928 the last quarter of the year has a tendency to be "quite bullish" with the S&P 500 posting an average return of 2.61 percent in the 87 years. However, things could take a different turn this time around.
"Bullish fourth-quarter seasonals do not work this year," said Suttmeier. "When the market has been lower through the third quarter, the fourth quarter tends to follow on that weakness," added Bank of America Merrill Lynch's technical research analyst. In the 30 instances where the market was negative at the start of the fourth quarter, Suttmeier noted that the average return was down nearly 1 percent.
Stocks opened higher Wednesday after taking a breather in the previous session. But that's not coming as surprise to one top technician, who believes the market could be well on its way to retesting old highs.
"[The past few sessions] have been the best action I've seen in many months," Ralph Acampora told CNBC's "Futures Now" on Tuesday. "We slowed down a little [Tuesday], but I think that's a good thing." The S&P 500 closed slightly lower Tuesday, snapping its five-day winning streak.
Acampora, who predicted major problems for the market in late July, said the charts are now showing signs of a bottom, and he believes the worst could be behind us. "I was very concerned after the August 24 sell-off," said the director of technical analysis at Altaira Limited. "The rallies that [immediately] followed were not impressive." Since Aug. 24, the Dow and S&P 500 are up a respective 7 and 6 percent.
Crude oil soared nearly 5 percent Tuesday to its highest level in more than a month after U.S. government data showed a decline in production. The commodity has now rallied more than 27 percent from its August low, and the recent move is giving one expert major flashbacks.
"Comparing 1985 to 2015 in crude, there are a few similarities to highlight," Darren Wolfberg told CNBC's "Futures Now" on Tuesday. "Back in 1985 we saw a 69 percent sell-off in crude, we can call it a crude depression, and I think we've seen a similar pricing pattern now where crude oil fell 61 percent from its June 2014 high to March 2015 low."
According to Wolfberg, following both sharp declines were "corresponding short covering" rallies that took approximately 34 trading days to materialize. "In both instances we then saw this double-bottoming effect that happened over the next 100 or so days," added the head of U.S. cash equity trading at BNP Paribas. "In 1985, once we saw that double bottoming process play out, crude oil then rallied 110 percent. It went from $11 to north of $20 over the next year."
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