It may finally be time to go against the crowd and play the dollar for a swift slide.» Read More
Natural gas is now trading at the lowest level since August and is poised to break below the key $3.40 level. It has been a rough road for the fuel, but with so much working against it, things could get worse before they get better.
The main problem is that demand has failed to materialize in any sustained way. Looking at long-term weather forecasts, moderate temperatures will be in place for most of the country through November.
Crude oil has continued to trade to new swing lows, and on Monday morning it is trading below the major $94.76 level. This is the lowest level we have seen since June, and at this point, the $93.71 level from June 26 will be seen as the next level of support.
So what has driven crude down so sharply from late August, when it made a high above $112?
First, any geopolitical tensions have largely left the market. Second, inventory data have been bearish, as we have seen a continued build in supply. Third, the knowledge that the Federal Reserve will have to begin tapering its bond purchases has led to a stronger dollar, and consequently hurt crude.
(Read more: Libya may deepen Brent's premium over US oil)
With both the pace of economic growth and the Federal Reserve's next move up in the air, traders say that this week's trading will be dominated by the expectations around, and the reaction to, Friday's employment report.
"It's definitely going to be the jobs report that I'm keeping my eye on, and it's too bad we have to wait till Friday, because I think it's going to make for a very choppy week of trading coming up," said Anthony Grisanti of GRZ Energy. "I think that a lot of traders are just going to focus on that, so you'll see volumes very low."
The jobs report is doubly important, because it will not just give investors an estimate of how many jobs were created in October—it will also help determine the Federal Reserve's next move.
In its Wednesday statement, the Federal Open Market Committee said that it would maintain its $85 billion monthly asset-purchasing program, but noted: "The Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program. ... However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
(Read more: The market is getting the Fed all wrong: Nomura)
Economists expect to see 125,000 jobs added according to the nonfarm payrolls metric, which would be the second-lowest number of jobs added of 2013. But as the FOMC indicated, if employment growth suddenly gets much stronger, then the Fed is likely to taper sooner rather than later, which could be very damaging for the market.
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.
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