Market Synopsis 5-18

No US Data Today.

Crude:

We are trading within value. Yesterday was balanced trading with a decent excess single-print low from 9221 - 9209.  This should be the support level if we are going to hold and rotate higher in today's trading. If we do hold the single prints, we should rotate through value to yesterday's 7-wide POC at 9293. If we can trade through this, upside targets are the overnight high 9288, then value area high 9312, then single print selling tail 9365 - 9375. If yesterday's high is taken out, we can test Wednesday's large single print selling tail from 9380 - 9416 which should be stiff resistance. If we don't hold support, we can trade through yesterday's low 9209, then overnight low 9160. Below this are old support levels 9005, then 8842. 

SP:

Right now we are trading within range, within Thursday's single prints from 130250 - 1308. This is not bullish, as this single print excess low should have been important support within the downtrend. If we open here, we need to hold part of the single prints and rotate into value for the SP to be a buy. Upside targets are bottom of value 131075 then 8-wide POC 131250, then top of value 1320, followed by single print selling tail 1322 - 132450. If we break above this, we could test Wednesday's significant untested POC at 132950. If we fail here and continue lower, support is overnight lows 129350, then old swing high 128775.

Euro:

We are within yesterday's range but trading below value, closer to the lows. Thursday had a significant POC at 12711 which is a likely upside target if we hold the buying tail from 12682 - 12679. If we trade through the POC, likely target is top of value 12722 then single prints 12737 - 12739. If we fail here, support is yest lows 12679, then overnight low 12644. Below this is January low 12627. Below that are much older lows at 12580.

Gold:

Gold had a double-distribution trend day up yesterday and is now gapping higher. Important support will be yesterdays single prints 1579 - 15798, then POC 15739, then single prints from 15703 - 15683. The overnight lows were below the single prints at 15678, so all of this should be good support for a continuation move higher. Below this is the huge single prints from yesterday's A period at 1557 - 15654. If we hold any of this support, we should continue higher with important tests at the overnight high 15942, then 5/10 high 16039, then a gap from 16158 - 1632.

Market Synopsis 5-17

Jobless Claims
8:30 AM ET

Bloomberg Consumer Comfort Index
9:45 AM ET

Philadelphia Fed Survey
10:00 AM ET

E-Commerce Retail Sales
10:00 AM ET

Leading Indicators
10:00 AM ET

EIA Natural Gas Report
10:30 AM ET

3-Month Bill Announcement
11:00 AM ET

6-Month Bill Announcement
11:00 AM ET

2-Yr Note Announcement
11:00 AM ET

5-Yr Note Announcement
11:00 AM ET

7-Yr Note Announcement
11:00 AM ET

James Bullard Speaks12:35 PM ET

10-Yr TIPS Auction
1:00 PM ET

Fed Balance Sheet
4:30 PM ET

Money Supply
4:30 PM ET

Crude:

Crude is in balance, within Wednesday's value area. Yesterday gave us a nice excess low in the J period as a reference of support, from 9250 - 9228. The bottom of value should be support as well, 9272. Yesterday's signficant 8-wide POC should be another reference at 9322. Above this is the VAH and ledge at 9344, followed by the overnight high of 9372. If we can get to the overnight high on the upside, we will be close to the large single print selling tail from yest. at 9380 - 9416. Yesterday was a balanced profile with good highs and lows, so it would make sense that we had a rotational consolidation day. If we fail to hold these support levels, most importantly the J spike from yesterday, downside levels are yesterday's all-session low at 9180, then the old October swing high at 9005, then spike low 8842.

SP:

The SP is trading within yesterday's range, although close to the single print buying tail support level 132325-132225. This coincides with the bottom of value 132375. If we manage to hold support, upside targets will be yesterday's 7-wide POC at 132950, also close to the overnight high at 133075. POC's have been selling areas over the past 2 sessions, indicating longer term sellers stepping in, so that will be an important test point. Above this is top of value 133325, followed by the ledge with single prints above from 133900 - 133975. If we manage to get above yesterday's high, upside target should be the Tuesday high of 134250, then the gap from 134475 - 134550. There are large single prints from 5/11 at 134550 - 134925 that should be significant resistance. If we fail to hold the overnight low at 132075 (also yesterday's all session low), downside targets are the 150 dma at 131050, then the January swing low 129850.

Euro:

The Euro is trading within yesterday's single print buying tail, from 12688 - 12714. This area should have been major support, so it is crucial that the Euro hold Wednesday's low of 12688 if it is going to continue higher. Weds has a value area low at 12722, then a significant POC at 12730 which should be upside resistance. If we can get above this we can test top of value 12750, then Wednesday's poor highs of 12762. Below this is the 2012 low of 12627, then old daily pivots at 12529 and 12514.

Gold:

Gold is trading above yesterday's value area high of 15447, and significant POC at 15414. It is the only market trading above value which shows relative strength. Upside resistance areas will be Wednesday's single prints at 15513 - 15522, then Tuesday's signficant untested POC at 1557. Above this is Tuesday's single prints from 15598 - 15606, then more single prints 15634 - 15644. Above this is the large gap 15658 - 15782 which should be significant resistance. If we do not hold above Weds value, we could test the significant POC at 15414, then the ledge at 15386, then value area low 15336, then single prints 15308 - 15304. Below yesterday's low, support lies at the Dec low, 15239.

Market Synopsis 5-16

MBA Purchase Applications
7:00 AM ET

Housing Starts
8:30 AM ET

Industrial Production
9:15 AM ET

EIA Petroleum Status Report
10:30 AM ET

James Bullard Speaks12:30 PM ET

FOMC Minutes
2:00 PM ET

Crude:

Crude is gapping down below Tuesday's lows. Monday's low was very close to Tuesday's low (which ticked it), so anybody who bought this week is now underwater. Like most recent gap down days, it should probably be rotational, but if we begin to fill the gap after the inititial balance by more than 3 ticks, its likely that we try to fill the gap. If that does happen, upside resistance is the overnight high of 9344, then December primary session low 9355, followed by the Monday-Tuesday balancing range low of 9378. Above this is Tuesday's value area low of 9420 and then Tuesday POC 9444 (which is not very significant at 6-wide). If we fail to close the gap, downside support is an old October balancing range high of 9005, then November spike low 8842. 

SP:

The SP is gapping down below the week's lows as well, but it is actually quite close to unchanged because of the selloff from 4:00-4:15 yesterday.  Like crude, bias is downside if we do not try to fill gap by more than 3 ticks after the initial balance.If we do begin to trade higher, upside resistance is the overnight high 133250, followed by Tuesday's single print lows 133275, then the bottom of value 133450, then the significant POC 133825. If we trade lower, downside support is a February gap fill of 132675, then overnight low 132075, then a January gap from 131575 - 131225.

Gold:

Also gapping down. Same scenario with the initial balance as the other markets. If we begin trading to the upside, resistance is overnight high 15452, then Tuesday's low 15498. Above this is value area low at 15528, then the significant POC at 1557. If we fail to the upside, downside targets are overniht low 15267, then old all-session low from December at 15239. Below this is July 2011 lows of 14724.

Euro:

Also gapping down, same scenario as the other markets. If we test to the upside, targets are Tuesday's poor low at 12734, the overnight highs 12744 (also Tuesday's value area low). Above this, there are single prints from 12750 - 12755, and then and upper distribution from 12755 - 12776. If we continue lower, downside targets are overnight lows 12683, followed by 2012 lows at 12627, which is major long term support. Below this is then June '11 balancing range high at 12514.

Market Synopsis 5-9

MBA Purchase Applications
7:00 AM ET

Wholesale Trade
10:00 AM ET

EIA Petroleum Status Report
10:30 AM ET

Sandra Pianalto Speaks10:45 AM ET

Charles Plosser Speaks12:00 PM ET

10-Yr Note Auction
1:00 PM ET

Crude:

Crude is trading within value. Yesterday was a balanced day with lower value on the day, indicating a market that was comfortable moving lower without making an excess or exhaustion low. The POC was only 6-wide at 9636, which should not be that strong of a support or resistance level. Yesterday had a rather poor high and low. If we can trade through the overnight lows of 9608, then the bottom of value 9582, we should test yesterday's low at 9552. It would be best to make an excess low and come back into range if we will expect a rotation up. Otherwise it is likely that crude trades down to longer term support levels of 9524 (5/6 low), and then fill its December day session gap to 9658 - 9509. If we manage to trade above yesterday's value area high 9674, we should take a shot at yesterday's poor high of 9720. Above this is 5/7 significant POC at 9736 (which is close to overnight high of 9739) followed by 5/7 single prints at 9804. Above this is the 5/4 ledge at 9858.

SP:

We are currently trading in yesterday's single print area of 134375 - 134575. This should have been an excess low that served as strong support above the Sunday night low of 134250. Yesterday reversed hard off of this level, so it can be assumed that a decent amount of the late shorts have been stopped out and buying support has been taken out of the market. If we cannot hold the 134250 level, our next support is 133850, the 3/6 low. Below this is primary session gap of 1330 - 132850. If we manage to hold any of these support levels with an excess low and trade back into Tuesday's range, we could see another short covering rally. The resistance should be at the 135175 ledge followed by the bottom of Tuesday's upper distribution at 135350. Above this is the top of value 135550, followed by the top of the upper distribution 136125, then yesterdays high 136225. Above this is Monday's significant and untested POC at 1368.

Euro:

We are trading below Tuesday's primary session poor low of 12984. Yesterday was a lower value day with no excess low so we can assume the trend is still down without completing the downward auction (no excess low). If we fail to trade back into yesterday's range, there is not a lot of horizontal support until 12863. If we manage to trade back into Tuesday's range and then back into 12992 bottom of value, we should attempt Tuesday's significant POC at 13019. Above this is the top of value 13025 followed by yesterday's single prints 13040. Bias should be to the downside today, however.

Gold:

Gold is trading below Tuesday's poor low of 15955, out of balance. This means that bias should be to the downside, however if we can trade back over the single prints 15962, we may get accepted back in value and test the ledge at 1600, which is also a key psychological level. Above this is 1610 top of value, which is also near the beginning of Tuesday's upper distribution, which continues until single prints at 16172 - 16208. If we fail at the bottom single prints or cannot fill the gap at all (probably with an open tick high), we should trade lower and attempt the primary session gap fill at 15869 - 15825. Below this is the large gap from December, 15637 - 15489 which should be strong support. 

China: WTF?

What's goin on in China? It smells bad.

First up ACH. As described in Forbes:

Aluminum Corporation of China (ACH, 13) is the nation’s largest and lowest-cost producer. It sells for 30% of my 2012 sales estimate and eight times my 2013 earnings estimate.

Weekly:

Daily:

What's going on with aluminum demand? We're way below '11 highs and head & shouldering over a broken trendline. The "head & shoulder over a broken trendline" theme continues.

HNP. Power demand? via Forbes:

Huaneng Power International (HNP, 24), one of China’s largest independent power producers, serving 18 provinces. Electrical demand in China is growing at double-digit rates. The stock sells at ten times my 2012 earnings estimate. 

Weekly:

Daily:

YZC. How you doin' coal industry?

Yanzhou Coal Mining (YZC, 22) is a leading integrated source of thermal coal for power plants and metallurgical grade coal for steel furnaces. It’s very cheap at eight times my 2012 earnings estimate.

Weekly:

Daily:

CHA. Chinese telecom has gotta be booming with all these damn iPhones being built there, #amiright?

China Telecom (CHA, 59) is the leader in broadband services with over 170 million customers—64% of the national market. It’s the third-largest mobile provider, with 117 million 3G wireless subscribers. The stock is cheap. Buy it. 

Weekly:

Daily: 

LFC. Finally, life insurance. If there's one thing China has, its a lot of lives (and, incidentally, deaths). What's up?

China Life Insurance Company (LFC, 41)spans individual, corporate and group life products, annuities and asset management. The company has a great direct sales organization, and it targets the emergent middle class. The stock sells for 15 times my estimate for 2012 earnings. 

Weekly:

Daily:

So, take a look. What do you think. Do you want to buy these charts? What are the implications here? Does China usually lead the US equity markets?

It seems that generally it may lead at times, but not to the point of being a tradable indicator in the long term. Something to be aware of, however, and something I will be watching.

Back In Action: Let's Break Down Global Energy

It's been a while. I have been actively writing for a premium subscription-based financial newsletter, so as such I have taken a hiatus from writing here. Now I am back, so let's dive in. The global energy picture is quite interesting at the moment, so lets discuss.

The primary trader's gauge of trouble in the MENA is the Brent-WTI spread. This is the difference between the price of a barrel of brent crude, which is the international standard for oil, and for a barrel WTI crude, which is the US standard. WTI (West Texas Intermediate) is a very localized oil contract which is only stored in Cushing, Oklahoma. The reasons for this are mired in the history of the futures exchanges (for a history, see Asylum, a nonfiction interrogative story of the NYMEX). The main takeaway is, the Brent-WTI spread is a relatively accurate gauge of geopolitical speculative premium for global crude.

As you can see from this chart, the spread just exceded the previous 2012 record wide, indicating higher speculative premium for crude. This comes as headlines seem to pour out of Iran and Israel, indicating hawkish developments. It is extremely hard to tell what is real and what is rumor (i.e. the recent Saudi headline about an attack on a pipeline that sent the price of brent and WTI up 3$ after hours and immediately faded 6$). That is why the entire energy sector, complete with term structure curve and product cracks and spreads, must be monitored for irregularities.

A rule of thumb is that the "products," meaning RBOB unleaded gasoline futures and HO heating oil futures, are much more correlated to the price of brent than WTI. This is the main reason that the RBOB crack (long RBOB, short WTI) and the HO crack (long HO, short WTI) correlate very closely to the Brent-WTI spread. This also is the reason that although WTI is not making new yearly highs, Brent is, and therefore RBOB is. Did I lose you?

What this really means, is that the headline price of WTI crude is really almost irrelevant at the moment. The structure of the energy market has relegated WTI to sideline, niche market status, and refiners and oil companies are mostly taking delivery of higher priced brent-style oils. This is also the reason that gas prices seem to be accelerating so much faster than what we are seeing on the TV as "price of crude." Here is a daily chart of the RBOB crack, the premium of one contract of RBOB gasoline to one barrel of crude.

The energy picture is more complicated now that it ever has been in the past. The price at the pump is growing increasingly separated from the headline price of  oil. RBOB and Brent are also fully in backwardation at the moment, meaning that there is premium paid to take delivery sooner rather than later, surpassing even the storage and carry fees associated with holding barrels of oil for later use.

Here is a chart of the J/Q RBOB spread, which is the premium paid between front month, April delivery gasoline and August gasoline. This represents the driving season part of the term structure curve. It is the most important spread from a supply/demand standpoint at the moment. As you can see, new highs look to be in the cards from a purely technical standpoint.

So, judging from the state of the market, the conculsion I draw is that we have not yet seen the highs of the year when it comes to energy products. I also draw the conclusion that a large part of the additional price at the pump for consumers is derived from geopolitical tensions, due to escalated wides in the Brent-WTI spread, which in turn reflect on the RBOB market.

I hope this helps to clear up some of the mystery in the market, not add to the confusion, but I can see how this informaton might be confusing to newcomers to energy futures. Any questions, please direct to my Twitter handle, @amb5160. Cheers to a great trading week.

Waiting For Direction

Alright, we're up huge. People are nervous for a number of reasons, but they are starting to get pretty bullish on a technical level. They are also bullish on a "hope that this was QE3" "can't fight the Fed" mentality. Hey, they could very well be right. Fighting the Fed crushed me last November and December.

However, it really is all about this chart.

This is the US Dollar ETF, UUP. We are currently consolidating in a triangle pattern at the top of the upward channel which has been formed between this summer and today. If we break to the upside, we likely complete a cup and handle formation which should bring us to new 2011 highs. It will take a break of 22.64 for this to trigger, and it would likely happen in mid-December, says an eyeballing of the chart.

If we break to the downside of this triangle, equities and commodities would likely rocket skyward. This would probably take a serious downside hit to the Euro. If the Fed's swap lines have successfully strengthened the Euro for good, the dollar should weaken. If this is so I will cover shorts and change my mid to long term options strategy, however day trading has started to work better from the short side again.

UPDATE: Speaking of the Euro, I just went through the daily and weekly chart, with fresh lines. There is a massive head and shoulders visible on both forming over the course of this year. Check them out. They could invalidate, or they could trigger. There is significant trendline and pitchfork resistance above and below.

Short term it looks possible for a move to the upside, which would break the UUP triangle to the downside, bullish for equties. If we have a significant selloff in the Euro within about 1 week, we should see a break to the upside of the UUP triangle, moving towards confirming the C&H.