Stocks are down 9 percent in 2016, and according to market pundit Peter Schiff it's about to get much worse, unless ...» Read More
On this first day of November, you can expect capital inflows to give stocks an upward bias. But the overall technical picture still looks quite weak.
Friday's and Monday's sessions will be pivotal, as we will see if there is fresh, beginning-of-the-month buying coming into the market from fund managers this late in the year. Meanwhile, it is worth remembering that many traders and investors locked in profits ahead of the FOMC statement on Wednesday.
Equities have continued to consolidate, with the S&P 500 holding one of the tightest overnight ranges we have seen in recent weeks. In Friday morning trading, the S&P December e-mini has stayed quiet, holding Thursday's low of 1,750.25.
Stocks and bonds dipped after Wednesday's Federal Reserve statement, as investors seemed to think a December taper now looks more likely. But George Goncalves, the head of U.S. rates strategy at Nomura, says the market is overreacting, and that the Federal Reserve will continue its $85 billion asset-purchasing program at least into 2014.
"The knee-jerk reaction that we saw yesterday in the equity market and the bond market, and the follow-through today with what's going on with the dollar and currency markets in general" is "really more of a buying opportunity," Goncalves said on Thursday's "Futures Now." The Fed "has to keep [tapering] on the table, but that doesn't mean that they're actually going to pull the trigger come December."
(Read more: Did the Fed just say December?)
Still, Goncalves admits that he, too, was a bit surprised by the Federal Open Market Committee statement. "We were expecting more of a dovish spin," Goncalves wrote in a post-statement note.
Goncalves points to the following description of the economy found in the statement: "Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economy activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy."
Crude oil may have dropped sharply in recent days. But with the latest build in supplies, and weak job growth numbers from ADP, one wonders why crude oil isn't trading at $90 rather than $96.
The fundamental side of the equation looks very weak. Crude oil supplies have increased by over 28 million barrels in the last six weeks, and with ADP reporting that only 130,000 private sector jobs were created in October, demand should remain quite low. The geopolitical front is quiet, and Europe's economy is struggling.
(Read more: Battered US crude flirts with worst month of 2013)
With all eyes on Wednesday's Fed statement, gold traders continue to play the range. The choppy trading in bullion has continued, marked by $10 to $15 swings. December gold futures reached a new low for this week at $1,338.30 on Tuesday night, but on Wednesday morning, the market has rallied back sharply, approaching $1,360.
The Fed is not expected to announce any adjustment in bond purchases in its Wednesday statement. But we will still get some insight about the health of the economy, and the Fed's plan.
JPMorgan's Tom Lee has long been a bull on stocks, and even as the S&P 500 has risen impressively to meet his 1,775 year-end target, he has not lost his enthusiasm for the market's potential. In fact, the unrelenting bearishness among so many on Wall Street is precisely the reason he foresees stocks sailing higher still.
"No one's really embraced this as a sustainable bull market, and I think when we start to see the market that way, multiples could expand a lot—especially for sectors like technology," Lee said on Tuesday's "Futures Now."
Lee, who is JPMorgan's chief U.S. equity strategist, draws on personal experience to make the case that investors "aren't really that bullish": "I still continue to find that both in my meetings with professional managers and with individual investors that they're viewing this rally purely as a Fed-induced sugar high."
Because they take such a dim view of the market, investors are still positioned relatively bearishly, according to Lee.
Gold has held against the major $1,352 level in early Monday trading and has been unable to surpass Friday's high of $1,356.40. This makes sense, as traders can expect gold to stay in a range ahead of Monday's November options expiration.
Another reason gold is likely to remain range-bound as we head into this week: All eyes are on the two-day Fed Open Market Committee meeting, which begins Tuesday. It's unlikely that the Fed will announce a taper of bond purchases, but investors will still be scrutinizing the Fed statement that will be released on Wednesday. They're looking for clues to when tapering may begin.
(Read more: Hilsenrath to Wall Street: You don't know Fed)
Gas futures are trading around a 52-week low, which is not too unexpected—gasoline demand is always weakest in the fourth quarter. But with the recent selloff in crude, and more downside predicted, gas will trade even lower.
If you look at the charts going back 10 years, you will see that in just about every one of them, gas sells off around this time of year. That's because of the declining seasonal demand for gasoline. After all, the market focuses on fundamentals, and the fundamental story right now is that there is plenty of supply, and demand has not gotten over 9 million barrels per day, the usual pivot point for prices.
Brent Johnson, the CEO of Santiago Capital, believes that economic problems in the United States will lead to a $200 rally in gold over the next two months.
"It wouldn't surprise me to be back at $1,500 or $1,550 by the end of the year," the portfolio manager said on Thursday's "Futures Now."
Gold, which settled on Thursday at $1,350 per troy ounce, hasn't touched $1,500 since early April, when it shed more than $200 in two harrowing sessions.
Johnson does note that sentiment around gold is "really low." The latest example of that came on Oct. 8, when the head of commodities research at Goldman Sachs, Jeffrey Currie, said that gold would become a "slam dunk sell" after the government shutdown ended and the debt ceiling debate was settled.
"A number of different firms around the world are saying 'Sell gold,' that it's a 'slam dunk sell,' so there's still a lot of negative sentiment out there," Johnson said. "And there are a lot of shorts out there."
To Johnson, this is actually good news.
"You can get a bit of a pop, and all of the sudden those shorts start to cover, people start to realize that QE is here to stay and not going anywhere, and things can change very quickly," he said. "I mean, gold can go up just as quickly as it came down."
In early Wednesday trading, crude has dropped below $96.50, and has blown through most major support levels below $100 just this week. The next major level of support comes in at $94.75.
Ralph Acampora is not looking forward to next year. While Altaira's director of technical analysis is bullish into the end of 2013, he fears that a year-end rally could set stocks up for a painful 2014.
"2014 is a year that we should have some sort of a decline," Acampora said on Tuesday's "Futures Now."
Acampora, often known as the godfather of technical analysis, then went on to enumerate the three reasons that next year makes him so nervous.
Reason one: The market will be overextended
Acampora believes that stocks will have a sweet end to 2013, with the Dow Jones industrial average closing out the year "somewhere between 16,500 and 17,000"—or 7 to 10 percent higher than where the index is trading today.
But once the market gets to that level, buyers might suddenly make themselves scare.
"Assuming I'm right, and we get a little bit of a correction here and then we go higher and it's across the board—all-time highs in the Russell averages and the S&P, and the Dow catches up and everybody's euphoric—if that happens and we go into the new year, 2014, then we're going to be facing extended price charts," Acampora said. "The market will be very overbought."
(Read more: Cashin: Tech valuations remind me of dot-com bubble)
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