A risk and rotation trend has emerged in the markets as Wall Street braces for its fourth-consecutive quarter of negative earnings growth. » Read More
The S&P has rallied 19 percent in 2013, which is impressive by any measure. But the market did far better in 1987, when stocks added more than 30 percent from the beginning of the year to Aug. 8. The problem?
The market ended up tanking in the second half of that year—dropping 36 percent from the Aug. 25 peak to the October low, before closing out 1987 nearly exactly where it began.
And Marc Faber, publisher of the Gloom, Boom & Doom Report, predicts that the very same thing will happen in the back half of 2013.
"In 1987, we had a very powerful rally, but also earnings were no longer rising substantially, and the market became very overbought," Faber said on Thursday's "Futures Now." "The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks."
Faber says that's exactly where we find ourselves this August.
"If you look at the last two days," Faber said, referring to Tuesday and Wednesday, "it's remarkable. We are close to the all-time high, at 1,709 on the S&P, and yet yesterday and the day before, there were 170 new 52-week lows. That's a very high figure."
(Read more: The S&P stalls—here comes the fall)
Gold is making an attempt to break out of its trading range, but we still need to see it close above $1,320.
Gold cleared out cleared shorts on Thursday when it reached above $1,296.90, and followed through to break above the psychologically important $1,300 level. And the rally didn't stop there; as shorts covered, gold reached a high of $1,313.6 in the session.
After putting in a new swing high of $1,316.20 in Friday's session, which is just shy of our light resistance point, the market has settled back slightly.
Traders need to understand that this is still a trading affair. After a week that was dominated by discussion of the taper, with some thinking it could come as early as next month, gold still did not break further. This tells us that Federal Reserve tapering is already priced into gold. And the big players, if you will, have already sold out.
(Read more: Gold heads for weekly loss as Fed doubts persist)
The gold trade has become very interesting over the past few months. Both the yen and the euro have recently rallied against the dollar, as the market believes that aggressive accommodation in Europe and Japan has begun to wane.
But despite the dollar's weakness, gold has traded in a indecisive sideways pattern of late. To me, that indicates that the sentiment in gold has changed, as the U.S. recovery has gained some mild strength.
Have you been paying too much for gasoline? The culprit might be corn. But a shift by the Environmental Protection Agency could alleviate the situation.
In an attempt to spur usage of biofuels, the EPA mandated that refiners blend a given amount of ethanol into gasoline. That requisite number of gallons of renewable fuels required has risen over time, and is set to rise further.
The problem is that fuel consumption is falling. And since the law enacted by Congress simply requires more gallons of biofuels to be used (rather than requiring a certain percentage of biofuels in each gallon), declining gasoline usage makes it difficult to blend in the growing amounts of ethanol required.
This is because few cars on the road can safely take gas with more than 10 percent ethanol, leaving refiners searching for another solution.
So to substitute for additional ethanol, refiners have bought Renewable Identification Numbers, known as RINs. These RINs have become a new input cost for gasoline, and they have been rising in price. Many have worried that as the standards for the amount of biofuels needed increases, the situation will become worse, driving the cost of RINs yet higher.
"The problem is that you're trying to put more renewable fuel into a declining market," explained Andy Lipow of Lipow Oil Associates. "If standards continue to rise, the industry will be in a situation where they can't comply. And as a result, refiners announced that they will reduce the amount of crude they're processing due to the high cost of RINs. That decreases supply [of gasoline], and over time, prices go up."
So as a palliative measure, the EPA has said it might lower the biofuel volume goal for 2014. Specifically, the EPA wrote in a Wednesday press release that because of the fact that most gasoline has no more than 10 percent ethanol, "EPA is announcing that it will propose to use flexibilities in the RFS [Renewable Fuel Standards] statute to reduce both the advanced biofuel and total renewable volumes in the forthcoming 2014 RFS volume requirement proposal."
This sent the price of RINs nearly 20 percent lower, and gasoline futures fell 1.3 percent on Wednesday.
Even after the recent selloff, gold volatility remains lower than some might have expected. But there's a good reason why.
Gold started the Wednesday session lower, after ending Tuesday on its lows. During the Tuesday session, gold initially hit a low of $1,278.10, finding our next support level dead-on. But later trading became choppy, with gold hitting $1,272.50 before recovering, and then again swinging to new lows at $1,271.80.
After two Fed presidents hinted on Tuesday that they believe we will see tapering before the end of the year, and possibly as early as September, gold's path of least resistance has been to the downside.
If it stalls, it falls! That's certainly the case when it comes to this S&P 500.
As the market has filled in around the psychologically important 1,700 level in the S&P, we have seen a slight stall in momentum, as the continued record highs have come in drips and drabs.
Technically, we usually like to see a blow-off top with lower closes to embrace any type of a bearish divergence. However, after such a sensational yearlong rally, it feels like the levee may be indeed dry on this Chevy.
In order to sell this market, we need confirmation under 1,692 in the S&P E-mini contract. Technically, there is a lot of room to back-and-fill on the chart, as the multiyear highs that were fiercely shattered sit down at 1,576 in the S&P.
(Read more: The secret small-cap warning sign)
Wharton professor Jeremy Siegel has long been bullish on the market—and over the past few years, he's been dead-on.
In early 2012, he famously called for Dow 15,000 by the end of 2013, and after enduring much mockery, Siegel saw the index hit his target in May.
The bull isn't changing his stripes. As the market has risen, Siegel's targets have, too.
On the Dow, "my target is 16,000 to 17,000 for the end of this year," Siegel said on Tuesday's "Futures Now." "And I think 18,000 is definitely achievable in 2014."
Why is Siegel so unabashedly bullish? Because he believes the market is in the midst of a uniquely bullish tug of war.
On one side is the Federal Reserve's quantitative easing program, which is pushing down bond yields. On the other is an economy that Siegel believes will accelerate in the second half of the year.
Corn and soybean futures have dropped precipitously this year, and both are trading near 52-week lows. This as cool weather and ample rain have led the USDA to predict a record-setting year for the corn and soybean harvest. But the view from the sky is telling a different story.
When Chip Flory of Pro Farmer recently flew over fields in Iowa and Minnesota to get the 30,000-foot view on this year's harvest—or to be more specific, the 1,000-foot view out of a "tiny little single prop plane"—he was a bit distressed by what he found.
First of all, many fields had "holes" or "washed out spots," where flooding had taken a toll. In addition, Flory saw many field that had gone totally unplanted, which occurs when farmers cannot get their crops planted by a given date (they will then file insurance claims).
The problem is that we have to wait until the middle of August to get preliminary data on these "prevented planted acres" from the USDA's Farm Services Agency. And at that point, the market could be surprised by how many of these unplanted acres are out there.
(Read more: Seed giants try tochange image of GMO crops)
"I don't want to say the USDA's getting it wrong, because the USDA has a process they go through," Flory told CNBC.com. "But it's early enough that they just don't have all the data and all the observations that they need to accurately assess everything that's going on out here in northern Iowa and southern Minnesota. As time goes on, and the USDA see how the crop matures, they will obviously be collecting all the data they need."
So if there is a disconnect between what traders and analysts expect out of supply, and what the harvest actually gives, that could be because the crop is so "late" this year—meaning that it hasn't matured as much as it normally would by early August.
"We're at a stage in development that is, in the worst cases, a month behind where it should be," Flory said. "Some of the corn and soybeans are three weeks behind, some are two, but very, very little of it is on time."
Flory blames both a "late planting," and "cooler-than-normal temperatures and cloudy conditions," which slow down the maturation of the crop.
(Read more: Why the crop crunch won't cut your food bill)
The irony is that the problems Flory points out are largely due to the opposite of what plagued crops in 2012. "We had too much rain," he said. "Most droughts are broken by a flood, and the drought of 2012 was broken with a flood in April and May in a wide area of the Corn Belt."
Crude oil has gone my way over the past few days. But now I've changed my tune on how to trade black gold.
If you watch "Futures Now" or read the blog, you know that last week I was a seller of crude oil. I sold crude futures at $108.20, with a target of $105.00 on the downside. But even though we did see a healthy drop, I have since covered my short position and am now long.
Why have I switched sides?
The bulls continue to dominate this market.
Equities enjoyed strong trading into the close on Friday, as the market reached new all-time highs. However, heading into the Monday morning open, we have seen a very small range in the S&P futures.
This week is light on U.S. data, and traders will look to ride the momentum from Friday's bad-news-is-good-news payrolls number. The unemployment rate dropped, but fewer jobs were created than was expected, and this will help investors feel more comfortable that the Fed will maintain its backstop.
Although a tapering of quantitative easing is certainly coming, Friday's disappointing number makes it less likely that it will come in September.
(Read more: July jobs data more gravity than 'escape velocity')
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