Gold dove on the jobs report, then soared. Here's the surprising reason why.» Read More
In the week since Friday's better-than-expected jobs numbers, the stock market has been buoyant. Oddly, the Treasury market has also stabilized, and has been able to attract buyers.
The return of this positive correlation between stocks and bonds is due to the realization that the Federal Reserve has no immediate intention of slowing Treasury note purchases, so stocks will continue to move higher along with bonds.
That being said, it's difficult to argue against the theory that the stock market rally is approaching its expiration date. In the last five years, the S&P futures have had five significant rallies before a correction. If we ignore the first rally, based on the highly unusual oversold condition in which it occurred, the remaining four rallies have seen gains of between 16 and 27 percent.
The current rally has brought us up 22.9 percent from November. From a technical standpoint I believe we are about to embark upon a down move that could easily turn into the correction we have been waiting for.
(Read More: Smartest Money in US Is Dumping Bonds)
I am adopting a bearish bias in the June S&P E-mini futures at current levels, with a downside objective of 1,606. If we see the market trade 1,637, I will throw in the towel.
In the event that this downtrend occurs, I believe that the June 10-year Treasury futures will shoot up to 133.10.
Don't let the recent slide in natural gas fool you. This is a strong market with dynamics that have changed immensely over the past year.
The main reason that the market has been strong is that the rig count for natural gas has hit an 18-year low. Now, plenty of fracking is going on around the country, but the oversupply that we enjoyed just a few months ago is gone. Blame that on a winter that never seemed to end.
The second reason is one that I am sure everyone is well aware of: There are more uses for natural gas: from cities converting their buses and utility vehicles, to truckers retooling their rigs to run on nat gas instead of diesel, to coal-fired electrical generating plants being converted to natural gas.
The recent slide is a result of us being between seasons. In this time of year, natural gas is not widely used for cooling or heating, so demand is lower. But make no mistake—as soon as the weather heats up, look for the natural gas market to do the same.
I am looking to buy nat gas at $3.88, and I would buy more at $3.75. On the upside, once we trade above $4.20 again, look for a move up to $4.50.
The crude oil market has been quiet—but expect black gold to get a move on soon.
Crude oil has been in a healthy consolidation over the past 24 hours, finding session highs at $95.98, and it has pulled back to just above $95.50 in the middle of the session's lows.
Better trade numbers out of China have helped support this market. Additionally, there is a lack of desire to sell this market given the current tension in the Middle East.
(Read More: Why Oil Isn't Sweating Syria: Traders React)
Traders will be looking to the Energy Information Administration inventory report Wednesday for a knee-jerk reaction, to either find a better buying opportunity or momentum to kick-start a bullish engine.
As mentioned Tuesday, resistance will be found at $96.16 to $96.39, and a close above here will be bullish. Only a close below our support at $95.15 will signal a consolidation lower.
The market has held above previous highs from April 29 and 30, and a sudden drop to $94.69 could bring a solid buying opportunity.
On the other hand, a close below $94.69 would allow the bear camp to take some control, and could lead to a consolidation down to the $93.30 to $93.50 range.
The S&P's run continues, as the market hit an all-time high for the fourth straight day. This as Dow surpassed the 15,000 milestone, boosted by better-than-expected economic data from Germany and a gain in Japan.
The S&P 500 is the gift that keeps on giving.
The equity market was able to consolidate yesterday, as the June S&P futures put in a slightly new high, reaching 1,615.25 after holding support against 1,605. The S&P futures have begun grinding higher in today's session, and are seeing aid from the central bank in Australia which cut their key interest rate to 2.75 percent to the surprise of some. We are seeing the global theme of easy money policy continue, just when many were started to believe earlier in the year that it was going to be curtailed.
(Read More: Reserve Bank of Australia Cuts Rates to Record Low)
German factory orders unexpectedly increased, and many investors are encouraged to see positive data out of Europe. Look for a test of 1,623 in the S&P today. The short-term range will be between 1,605 and 1,623. A close above here will find our first target of 1,631, and do not forget our ultimate upside target is 1,655. Only a close back below 1,605, and furthermore 1,600, will lead to a consolidation. And it will take a close below 1,593 to 1,595.50 to signal a further correction.
Keep an eye on Friday's high, as a close above it will further confirm immediate upside momentum. The low in the June futures is 1,609.25 this morning. If the market falls back slightly after the cash open, use this level (a slight new low) as a buying opportunity.
The situation in the Middle East grew increasingly tense over the weekend, as Israel struck Syria with targeted air strikes, leading to increasing concern that a broader Middle East conflict could be imminent.
While oil traders and analysts credited the tension with driving crude up nearly two dollars on Sunday, crude quickly retreated on Monday morning, and traded below its Friday close.
"Surprisingly enough, we're selling down," said Addison Armstrong, director of market research at Tradition Energy. "It will be different if Syria launches strikes against Israel, but for now, the market seems to be taking it as not such a big deal."
One aspect to note is that neither Israel nor Syria is a major player in the oil markets. However, "it's not about Syrian oil," Armstrong notes. "It's about tensions in the Middle East. This conflict is not just Israel versus Syria, it's a proxy war that involves Iran. And wars can be very unpredictable—that's the risk premium that the oil market always has to face. And sometimes it's less, and sometimes it's more."
(Read More: US Crude May Hit $100 on Payrolls, Geo-Politics)
But in the broader picture, a nod lower for crude makes sense to Armstrong. "We're pushing up against the highs for the year, and the fundamentals don't support it," Armstrong said. "The only thing that will get us moving into new highs for the year is the situation in Syria. Otherwise,the fundamentals are pointing lower."
Anthony Grisanti, founder and CEO of GRZ Energy, believes that the market is consolidating after Friday's 1.7 percent jump. "We were overdone because of the jobs number," he said. "One-hundred-sixty-five thousand jobs doesn't equate to a huge uptick in demand for oil products."
For that reason, if not for the news out of Syria, "we would be a lot lower today," Grisanti said.
As oil trader Dan Dicker pointed out, "We've had a nice rally here. We had oil under $90 just under a week or so." He thinks WTI crude oil will continue go higher, but not because of Syria.
"There is continued catching up of domestic crude to global crude pricing, and that will continue," said Dicker, who is the president of MercBloc.
Jeff Kilburg of KKM Financial says the bottom line is that volatility is back. "We have zero certainty right now, and it seems like tensions are finally escalating," he said. "The political tension over there really ripped up a lot of shorts."
So how is Kilburg playing oil now? "As long as the stock market is up here, oil prices will continue to tick higher to $100," Kilburg said.
GRZ Energy's Grisanti is of a similar mind: "In this situation, you probably want to be long crude oil."
Gold has firmed up and is consolidating higher after trading more than $20 off of the highs it made on Friday.
On Friday, nonfarm payroll data beat expectations with 165,000 jobs added, causing equities to remain the main focus over gold for fund managers and institutions. However, gold is attempting to find some footing to begin the new week.
Gold has consolidated in a range that we have defined to be between $1,437.50 and $1,487.50. After testing the exact high of this range on Friday, gold put in a session low at $1,455.40, which was very important for the bull camp, since Thursday's low was $1,448.10 and so a higher low avoided an outside bearish day.
After closing nearly $10 off of the lows on Friday, gold reached $1,478.40 on Monday morning, a major level that we have eyed. Look for this high to be a solid level of resistance on Monday. A close above this level will give a bullish feel, likely allowing the market to extend the range up to $1,505.50 before week's end.
On the downside, $1,467 is a major pivot point. As long as we can continue to see closes above here, the bull camp will remain in control. Only a close below Friday's lows against support at $1,455 to $1,458.50, and further below to $1447.20, will send this market into bearish consolidation territory.
Crude is benefiting from a good jobs number, but I believe it has moved a little too far, too fast
On Friday morning, crude rose well above $95. But I don't think demand at this point supports $95 crude. Still, crude has obviously been helped by the strength of equities, which were buoyed on Friday by a better-than-expected April jobs report, as well as huge revisions of the March and February numbers.
I won't ignore the strength in the oil market today, but if we get to $96.50 to $97.00, I am looking to sell. After all, we have record supply in Cushing, even while demand for products is still lagging.
But I'm not selling forever. The market looks like it has established a range between $90 and $95, so if crude dips to the $90 area, I am a buyer.
Gold shorts covered on Friday morning. That led gold to press new swing highs to $1,487.20, which is our major resistance level.
After the European Central Bank lowered rates, many traders questioned how much of this was already priced into a euro that is currently about 5 cents from highs, and could not break 1.30 euros against the dollar upon the announcement. This hold has allowed commodities priced in dollars to rally back from a midweek sell-off. This has pushed gold higher, helping it to find a solid base at our $1,458 support over the last 24 hours, and to test the top side of our expected trading range ($1437.5 to $1487.5).
Now that we see nonfarm payroll data beat expectations,with 165,000 jobs added in April, gold will be even less attractive, as equities become the main focus for fund managers and institutions. However, we find the revisions from last month to be the major story Friday, as the March payrolls were revised from 88,000 to 138,000. This is a green light for equities, and gold's luster will continue to diminish.
Gold has consolidated in a range that we have defined to be between $1,437.50 and $1,487.50, and now we are trading $20 to $30 from the session's highs, as gold has proven to be just that: a range trade. A close below $1,437.50 will be very bearish, and will cause those who chased a run higher, as well as value investors, to once again hit the sidelines. This will likely cause a consolidation closer to the psychologically important $1,400 level at $1,402 to $1,404.20. The next line in the sand though will be $1,383.90. If that goes, then $1,320 and below will likely be in the cards.
On the other hand, if gold can consolidate above $1,466 on Friday, then major resistance will still be the $1,474 to $1,478.20 levels, and a close above there will negate the downside action.
Gold edged up on Thursday after the European Central Bank cut its main interest rate cut by 25 basis points to a record low of 0.50 percent.
Lower interest rates should favor gold as they encourage investors to put money into non-interest-bearing assets like the metal.
Spot gold rose to a session high of $1,473.40 an ounce after the rate decision and was last 0.9 percent higher at $1,469 per ounce.
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