Into the Futures, April 18, 2016
Into the Futures – April 18, 2016
Earnings and OPEC will share the spotlight equally this week.
• Can better than expected earnings reports carry the e-mini to new highs?
• Will the oil production freeze lead to a cut?
• Is gold poised to break lower?
• Will warmer weather drive natural gas prices lower?
The expectations have been low for earnings during this latest release season so beats by companies should be within reach. The upcoming week will be huge with major names such as Goldman Sachs and Yahoo reporting. It will be a broad section of the health of the economy as many others beside those two give their numbers. I have included a link https://biz.yahoo.com/research/earncal/20160419.html from Yahoo because there are just too many companies to list. I don’t foresee any major beats on the list and actually see a couple of potential red flags—Goldman Sachs just paid a huge fine to the Federal government over its role in the mortgage meltdown a few years back and Yahoo has never seemed to gain its footing with Marissa Meyer at the helm. The E-mini has had a great run over the last few weeks, but earnings and a couple of other potential headwinds could derail that. Some have said the stability in oil prices is the reason equities have stabilized and that could be in jeopardy as the deal to freeze production is looking shaky as the writing of this letter begins. If oil prices fall it could drag equities with them and I would not be surprised if they did. Technically the e-mini and the S&P are coming up against strong resistance that alone should warrant a small pullback. My bias is lower and will look to sell rallies near recent highs.
There was no agreement on freezing oil production with Iran not showing up at the meeting and the Saudi’s stating they would not agree to anything if the Iranians did not freeze themselves. Oil prices showed quite a bit of weakness at the end of last week and it’s a reflection of what I have stated in past letters in that the market would need another catalyst to trade higher. I have also pointed out how prices have been range bound and we were nearing the top of the range. The dollar has been in a range too and is near the bottom of that which means if it bounces higher crude oil prices will be under pressure. I would not expect crude to trade through the $36-$35 level but as measured against current prices there is more room to the downside. While rig counts dropped, production remained steady and over 9mbd. There are conflicting reports on whether crude production has suffered a more serious blow down the road with some saying since CAPEX spending has been reduced it will take the industry years to recover once the supply imbalance returns to normal and then there are those that point out there are thousands of fracking wells ready for production once prices rise. I do not see prices rising over $50 in the near future and I am expecting crude to be in a range of $35 to $42 for much of the spring—unless some geo-issue breaks out. My bias is to sell rallies and I will look for areas to short.
Gold continues to hold above $1200 and I see little on the horizon that will push it through that level or lower. There is too much uncertainty on when the Fed will act. The dollar continues to be weak along with economies around the world. I read a graph on earnings expectations that tracked them over the last few years and it shows a downward trend that looks troubling. It’s as if all the forward purchasing the Fed has pushed on the economy is running out of steam and there are few options left on what to do. More stimuli is not doing the trick and signs of economic weakness have begun to crop up. My bias for gold doesn’t only include trading it in the futures market but I want to own some and put it away. Not a huge amount but some. I don’t want to sound like Chicken Little but something just doesn’t feel right. The gold market has found support at the $1232 to $1225 level and I will watch to see if we hold that area.
Spring has sprung with a vengeance in the northeast with temperatures this weekend hitting a high of 70, and more of the same is in store for the upcoming week. Natural gas prices should come under pressure and the market will start to see larger injections as consumers turn off the furnaces. Supplies are above normal and while prices are cheap demand will do little to boost them. There has been good resistance between the 200 and 205 levels and any rally to those areas should be shorted. The market is trading in the high 180s now but I feel it could make a move to the mid 170s. My bias is lower and I will look to short rallies.
These are the numbers to watch:
The E-mini has resistance starting from 2075 to 2083 above this there is resistance from 2098 to 2107 and above this the resistance runs from 2118 to 2125. Support in the e-mini begins from 2057 to 2048 and includes the 21 day MA, below this there is support from 2033 to 2024 and under this the support runs from 2014 to 2006 and includes the 200 day MA. My bias is lower and I believe the market can be sold in the current price area with a target of 2050.
Crude oil has resistance starting from $3880 to $3930 and includes the 21 day MA above this there is resistance from $4040 to $4110 and includes the 200 day MA and above this the resistance runs from $4190 to $4260. Support in crude oil begins from $3740 to $3670 and, under this there is support from $3570 to $3490 and includes the 50 day MA, and below this there is support from $3380 to $3320. My bias is lower but I would like to see the market trade near the $40 level before I sell.
Gold has resistance starting from $1241 to $1248 above this there is resistance from $1255 to $1262 and above this there is resistance from $1269 to $1275. Support in gold starts from $1236 to $1228 and includes both the 21 and 50 day MA’s under this there is support from $1218 to $1211 and below this there is support from $1202 to $1195. My bias for gold is higher but I would like to see how the market reacts to the first level of support. I could be missing a good buying opportunity and keep the stop tight but I will wait till tomorrow’s session.
Natural gas has resistance starting from 191 to 195 and includes the 21 day MA above this there is resistance from 201 to 208 and above this the resistance runs from 215 to 219. Support in natural gas begins from 187 to 183 and includes the 50 day MA, under this there is support from 179 to 174 and below this the support runs from 171 to 165. My bias is lower but I would like to see a rally to the 195-200 area before I short.
Government reports scheduled for release this week will include:
Apr 18 10:00 AM NAHB Housing Market Index
Apr 19 8:30 AM Building Permits
Apr 19 8:30 AM Housing Starts
Apr 20 7:00 AM MBA Mortgage Index
Apr 20 10:00 AM Existing Home Sales
Apr 20 10:30 AM Crude Inventories
Apr 21 8:30 AM Initial Claims
Apr 21 8:30 AM Continuing Claims
Apr 21 8:30 AM Philadelphia Fed
Apr 21 9:00 AM FHFA Housing Price Index
Apr 21 10:00 AM Leading Indicators
Apr 21 10:30 AM Natural Gas Inventories
Before deciding to participate in the commodity futures market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is substantial risk trading commodities.
Past performance is not necessarily indicative of future results. There are no guarantees of profit nor of avoiding losses when trading commodity futures contracts. No representation is being made that any trade will or is likely to achieve profits similar to those in the past. No part of this letter may be reproduced without the consent of Anthony Grisanti