Wednesday, February 24–Jim Wyckoff’s Morning Markets Report
Global stock markets were mixed overnight, with Asian shares mostly down and European shares mostly up. A big government tax hike on trading shares in Hong Kong hit markets there and in London. U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins. This week marks the one-year anniversary of markets starting to get hit by the Covid-19 pandemic.
The marketplace pretty much took in stride Fed Chairman Jerome Powell’s testimony on U.S. monetary policy to the Senate Banking Committee on Tuesday. He speaks to lawmakers again today. In his testimony Tuesday, Powell said the U.S. central bank is committed to a very accommodative monetary policy as long as the economy remains negatively impacted by the pandemic. “The economy is a long way from our employment and inflation goals,” he said. Powell said he expects a temporary rise in U.S. inflation, maybe over the next year, but not larger or persistent price increases, adding that he believes the big stimulus packages from the U.S. government will not cause problematic price inflation. As for rising bond yields recently, Powell said that is just “a statement of confidence” for an improving U.S. economic outlook.
The “reflation trade,” whereby notions that inflationary price pressures will rise and thus support upside price action in raw commodity futures markets, is gaining in popularity recently—or at least in marketplace discussions. Longtime market analyst Jeff Wilson of Pro Farmer has pointed out something which has apparently flown under the radar screen of much of the marketplace, but yet is still a significant development. The CME Group has successfully lobbied the Commodity Futures Trading Commission to raise for many markets (and some dramatically) the speculative futures contract trading limits that any one trader can hold, effective March 15. For example, in silver futures the limitation on one trader holding spot-month futures contracts was doubled from 1,500 to 3,000. Gold was left unchanged at 6,000 contracts. So what does this mean? It suggests to me that CME Group officials are suspecting much bigger trading volumes are coming in many futures markets later this year as the world comes out of the pandemic and amid a global financial system awash in cash from government central bank stimulus programs. This is potentially very good news for raw commodity market bulls and suggests there could be much bigger participation in trading raw commodity futures markets from the long side in the coming months, including gold and silver.
The key “outside markets” today see Nymex crude oil futures prices up and trading around $62.00 a barrel. The U.S. dollar index is slightly weaker early today as the bulls have faded recently. The yield on the U.S. 10-year Treasury note is presently fetching 1.371%.
U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, new residential sales and the weekly DOE liquid energy stocks report. Several Federal Reserve officials are also slated to speak today.
–Jim
U.S. STOCK INDEXES
March S&P 500 e-mini futures: Prices are slightly up in early U.S. trading. Bulls have the solid overall near-term technical advantage but have faded a bit this week. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at Tuesday’s high of 3,896.00 and then at this week’s high of 3,914.50. Buy stops likely reside just above those levels. Downside support for active traders is seen at the overnight low of 3,851.75 and then at 3,825.00. Wyckoff’s Intra-day Market Rating: 5.5
March Nasdaq index futures: Prices are slightly lower in early U.S. trading. Bulls still have the overall near-term technical advantage, but are fading badly this week. Shorter-term moving averages (4- 9-and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day average is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral early today. Shorter-term technical resistance is seen at the overnight high of 13,263.00 and then at Tuesday’s high of 13,335.75. On the downside, shorter-term support is seen at the overnight low of 13,027.00 and then at 12,900.00. Wyckoff’s Intra-Day Market Rating: 4.5.
U.S. TREASURY BONDS AND NOTES FUTURES
March U.S. T-Bonds: Prices are lower and hit another contract low in early U.S. trading. Bears have the solid overall near-term technical advantage. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at the overnight high of 162 29/32 and then at this week’s high of 163 13/32. Shorter-term support lies at the overnight contract low of 161 21/32 and then at 161 even. Wyckoff’s Intra-Day Market Rating: 3.0
March U.S. T-Notes: Prices are lower in early U.S. trading and not far above this week’s contract low. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term resistance lies at the overnight high of 135.23.0 and then at 135.28.0. Shorter-term technical support lies at Tuesday’s low of 135.06.5 and then at the contract low of 135.01.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 4.0
EURO CURRENCY
The March Euro currency futures are firmer in early U.S. trading. Bulls have the overall near-term technical advantage and have restarted a price uptrend on the daily chart. The shorter-term moving averages for the Euro are bullish early today, as the 4-day is above the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators for the Euro are bullish early today. The Euro currency finds shorter-term technical resistance at this week’s high of 1.2186 and then at 1.2200. Shorter-term support is seen at the overnight low of 1.2147 and then at this week’s low of 1.2096. Wyckoff’s Intra Day Market Rating: 5.5
NYMEX CRUDE OIL
April Nymex crude oil prices are higher in early U.S. trading. Bulls have the solid overall near-term technical advantage amid a price uptrend firmly in place on the daily chart. The shorter-term moving averages are bullish early today as the 4-day is above the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral early today. Look for buy stops to reside just above technical resistance at this week’s high of $63.00 and then at $64.00. Look for sell stops just below technical support at the overnight low of $60.97 and then at $60.00. Wyckoff’s Intra-Day Market Rating: 6.0
GRAINS
U.S. grain futures are higher in early U.S. pre-market trading. The bulls have the solid overall near-term technical advantage as prices are mostly trending up—both on a near-term and longer-term basis. Overall supply and demand fundamentals remain bullish for the grains. The “reflation trade” is gaining steam at present, and that is also bullish for the grains. The path of least resistance for grain futures prices remains sideways to higher.
IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.
Here is what the Commodity Futures Trading Commission
(CFTC) has said about futures trading (and I agree 100%):
1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.
Jim Wyckoff