Bond and oil are throwing off some very negative signals about the U.S. economy. So why don't investors care?» Read More
When the weather outside is frightful, natural gas bulls are delighted. And as new forecasts predicted more cold weather ahead, natural gas traded up to six-week high.
"It's been much colder this year, and as long as the weather pattern calls for colder temps, I will not be shorting this market," said Anthony Grisanti of GRZ Energy. "Instead, I will be looking for dips to buy."
Because people use natural gas for heating in the winter and cooling in the summer, the market is extremely beholden to weather forecasts.
"What you will see is that nat gas prices will tend to spike in extreme weather of either variety—hot or cold," said Michael Khouw, managing director at DASH Financial and a former trader of natural gas futures and options. "When it gets extremely cold, you expect natural gas demand to increase."
Weather is "extremely important" to natural gas, said Stephen Schork, editor of the Schork Report. "If the weather turns, it's going to have a significant impact on the cash market in the next day, and will certainly spill over to the futures as well."
And as anyone who has tried to plan a picnic three weeks in advance knows, acting on short-term forecasts makes a lot more sense than listening to longer-term prognostications.
"A one-week forecast is reliable, two weeks is a stretch, and anything above that is tantamount to rolling a die," Schork said.
In fact, so great is the need for short-term forecasts that "all the people who are trading nat gas significantly have private meteorologists," Schork told CNBC.com. That gives them "much more timely information, because the government only updates forecasts once or twice a day."
With December gold options expiring Monday, the market will likely remain in check. But it is still important to watch the U.S. dollar for cues.
December gold futures traded to a low of $1,225.70 in the Sunday overnight session, the metal's lowest level since July 8. Already in a bear market, gold is being led lower by a stronger dollar and by a decrease in global risk premium due to a deal the Iran nuclear deal.
(Read more: Bargain hunters get ready to buy gold)
The expiration of the December contract is traditionally the biggest of the year. After a quiet day on Friday in which gold remained in a $10 range below resistance at $1,251 and above $1,240, the stronger dollar sparked selling ahead of expiration.
I'm betting that the market will close higher on New Year's, and here's why.
First of all, for all the fretting about how stocks may have become over-extended, the market's fantastic uptrend is still intact. This rally has been a three-year story, and the story doesn't seem to be over just yet.
(Read more: Good news: Bubble concern is at 5-year high)
In addition, there's a strong seasonal wind at traders' sails in December. Over the past 31 years, if you bought the March e-mini S&P contract on Dec. 1 and sold it on Jan. 17, you would have had 26 winners and five losers, for a conversion rate of 84 percent.
The 10-year Treasury yield hit 2.84 percent on Thursday, the highest level in two months. And MacNeil Curry, the head of global technical analysis at Bank of America Merrill Lynch, warns that if yields continue to rise, it will be a very rocky ride for markets.
"If we take out 3 percent, we'll probably get a move up to about the 3.17, 3.30 area," Curry said. "And if we do it with some momentum, then it's going to cause quite a bit of panic."
If yields rise even higher, then more than panic will result.
"Where things would be truly unhinged, you'd need to see a break of, say, 3.6, 4 percent," Curry said on Thursday's "Futures Now." "If that were to transpire, you want to talk about volatility? It's going to be a different ballgame."
(Read more: US Treasurys turn higher on weak Philly Fed)
People are more interested in the concept of a "stock bubble" than they've been at any time since the housing bubble collapsed. But ironically, that very concern could be what prevents another bubble from forming anytime soon.
According to Google Trends, worldwide search interest in the term "stock bubble" is higher in November 2013 than in any month since October 2008. The rise in interest is even more pronounced in the United States, where in data going back to 2004, the volume of searches for the term is the highest it's ever been (with the exception of the bubble-period around November 2007.)
Paradoxically, many market participants say this should actually calm those who fret that equities are currently in a bubble.
"That means, conclusively, that there is no stock bubble," Jim Iuorio of TJM Institutional Services told CNBC.com. "It means that people aren't caught up in the hysteria of being deluded that there is no bubble, which is the only way that a bubble can exist."
Mark Dow, a former hedge fund manager who writes at the Behavioral Macro Blog, diagnoses investors with a bad case of "disaster myopia."
"If you went through an earthquake, or were mugged, or whatever traumatic event it might be, you overestimate the probability of that event occurring again," Dow said. "It's because we just went through a bubble that everyone's looking for them. Generals always fight the last war, and firemen fight the last fire."
Dow similarly believes that the tremendous deal of concern about a bubble will "probably prevent it," at least for a little while.
"It's never obvious, by definition, or you wouldn't get the bubble," he said.
(Read more: 3 technical reasons to be nervous about stocks)
As a horrible year for gold continues to get even worse, several traders say that we've just about reached the level where gold is good again. And as gold futures show even more weakness on Wednesday morning, several bears are just about ready to become buyers.
"The chart of gold still looks like it has more downside, and my near-term objective in December gold futures is $1,250," Jim Iuorio of TJM Institutional Services wrote to CNBC.com. "If that level gives way, I think we will sell to $1,200 rather quickly. But at that point, I would consider a long position."
(Read more: Gold extends losses ahead of Fed minutes)
Dennis Gartman, the editor and publisher of the Gartman Letter, has long been a fan of gold in yen terms, rather than in U.S. dollar terms (which just means selling Japanese yen to buy gold). But while he's not yet interested in owning gold outright, further declines could make him change his mind, he said Tuesday on CNBC's "Futures Now."
"What's it going to take for me to get bullish of gold in dollars? Probably another violent selloff on a Friday," Gartman said. "We've seen Friday after Friday after Friday where people just throw up their hands. Give me one $50 break on the downside in gold, and you might entice me into the market at that point."
With stocks near all-time highs, John Kosar says that the market has moved too quickly and that some elements now suggest that a correction could come soon.
"I'm a little nervous up here," the technician told "Futures Now" on Tuesday. "There are a lot of indicators we're looking at, including investor sentiment, that are about as frothy as they've been in about 10 years. So I think there are a lot of little thing that, as you add them up, show that you need to be careful up here."
Reason No. 1: Investors are too bullish
The market's extreme bullishness is a "contrary indicator," said Kosar, director of research at Asbury Research. He noted that the Investors Intelligence Survey shows an outsized number of bulls.
"This is about as bullish as this group has been," he said. "When these people are all on the boat, oftentimes the boat's getting close to tilting."
Such extraordinary sentiment often occurs just before a drop in the market.
The S&P 500 is poised to cross above 1,800 and keep on ticking, powered by the momentum that's kept bulls happy all year.
Equities are in the green, being led higher Monday by emerging markets after good data out of China. Even more significant were comments that the Chinese government will encourage more private investment in state-controlled industries in an attempt to help spark the economy. This declaration was greeted enthusiastically by Asian markets, and the optimism spilled over into the S&P futures.
With the market nervously wondering whether the Federal Reserve will start to reduce their quantitative easing program, a few critical clues could come this week. Between Chairman Ben Bernanke's speech on Tuesday night and the release of FOMC minutes on Wednesday, investors will seek to determine whether a December taper is now on the table.
In addition, the intense, taper-related scrutiny of the jobs market will give Thursday's initial jobless claims data an added importance.
"The week, we really want to be focused on the typical Fed kind of talk—but I also want to look at that jobless claims number, because the Fed is very dependent on data for their December meeting," said Jeff Kilburg of KKM Financial. "So keep an eye on all the data points once again."
George Goncalves, the head of U.S. rates strategy at Nomura, expects the minutes from the Federal Open Market Committee's October meeting to be much more revealing than Bernanke's Washington speech.
"We believe that Bernanke will continue to emphasize the committee views and be more balanced, so as not to steal the thunder of Janet Yellen as she takes over eventually," Goncalves wrote to CNBC.com. But "the minutes could be revealing, because the last meeting statement was perceived on the hawkish side, so any insights on the Fed's next steps and their thoughts on fiscal issues will be keenly watched."
All eyes are on the Fed's December 18th statement, which will be followed by a press conference. Just a week before Christmas, the Fed could finally make the long-awaited (and long-feared) announcement that they will reduce the pace of their $85 billion-per-month bond buying program.
(Read more: You're wrong—QE has not boosted stocks: McKinsey)
A debate is brewing on Wall Street about emerging markets. On one side are the bears, who say that the Federal Reserve's expected tapering of its quantitative easing program in 2014 will make next year a very difficult one for the emerging markets. On the other side are the bulls, who say that the Fed's effect on the emerging markets has been badly overblow.
"For 2014, we are very worried on emerging markets," Patrick Legland, Societe Generale's global head of research, told CNBC's "Futures Now" on Thursday. "They have benefited from low interest rates, negative real interest rates, but virtually, this is the end."
Yet emerging market bulls like Tim Seymour of Triogem Asset Management say emerging markets haven't been the gigantic beneficiary of QE that many may think.
"I don't think it's as easy to say that if the dollar strengthens and rates start to go up, you can be resolute in saying that emerging is going to sell off," Seymour said. "How much money has flowed into emerging market equities on the back of QE? Not a lot."
Similarly, Zachary Karabell of River Twice Research says that QE's economic impact on growing economies has been massively overstated.
"The emerging world is not emerging just in past two years of QE," Karabell told CNBC.com. "So while financial markets may get roiled by the momentary decision to begin to start tapering, the EM growth story did not emerge from Ben Bernanke's brow coming full-formed like Athena from the head of Zeus."
(Read more: You're wrong—QE has not boosted stocks: McKinsey)
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