The Rooster Call: Crude Cashing Out of Shorts

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Good Morning Traders!
We have a short-covering rally in crude going into the weekend, showing weak hands and those who have made wonderful profits are leaving the party.  This is caused by Thursday’s move higher likely triggering moving average crosses followed by funds. They watch the charts, take action, and ask questions later are technician rules.

With crude rising back over $30.00 (we are trading $31.06 now), all crude traders know that crude has potential of faster acceleration, without merit or cause. Thus, cashing out of shorts is the name of the game today.

This rise in crude is attributed in part to the hope, wish, and prayer of additional central bank easing. When Count Draghi said the ECB would “review and possibly reconsider” its monetary policy at the next ECB meeting…this is all traders around the world needed to hear….code words: ECB wants to save the stock markets.  Draghi also told the world (in unspoken words) traders selling the Euro makes sense because the currency shall likely be debaunched further. 

Today, Goldman Sachs targets Euro at 0.95 (ft.com).

Pavlov did an experiment with dogs causing them to salivate at the sound of a bell rang before feeding time.  Central banks use the same tactics with talk knowing the market will salivate expecting market fuel.  “Talk” is a tool of policy makers. Draghi wanted to move markets. Mission accomplished.

Draghi said the ECB has “plenty of instruments” to revive inflation.  Hmmm, pandering to the crowd…pandering to the crowd. This statement begs the question for Draghi…where?  Why are you hiding such tools? I am telling you, it’s just talk to move the markets…and apparently the talk is working.

Do not sit idle.  Run with new momentum. We will have a full-blown review in the Trader Weekly Review this weekend.

As you trade today, you think about two things mentioned repeatedly in Rooster Call…seasonal studies forecast the bottom is in for equity index futures after January 22.  Also, Crude calls the shots in risk acceptance/risk aversion.

All USA momentum stocks should gap higher at the open based on overnight action in ES.

Yesterday the chairman of Saudi Arabia’s state oil company, Aramco said crude price below $30 was “irrational.” He also said current production levels will continue.  The market focused on his $30.00 comment.

Do not apply logic.  If you want to see how market participants behave, I will send out a video of chickens in the back yard. It’s crowd behavior. One of my chickens finds something and all the rest follow that chicken, not knowing what it is…but thinking, the other chicken must have something good. This is Wall Street behavior.

Day traders you will stick to your game plan and bench marks. If reversal comes, you will not fight it. You will always strive to “go with the flow.”

The market has a tendency to think the worst is behind us!  This attitude excuses the upcoming disastrous earnings reports by oil companies.  What I am saying is don’t be surprised if this two day rally finds legs to run longer than you can imagine. Let’s call it “the Draghi rally.”

We also see help from Shanghai Composite shares ending higher in quiet trading up 1.25%.

ES has put forth solid follow-through moving above Wednesday and Thursday highs.  If we cross 1900, the target is 1930 area. Our chart lines are phenomenal. I say IF, because USA traders can easily sell the overnight rally down, only to bring it right back up as is the normal afternoon pattern. They did this yesterday, but sold off at the close banking profit.  Action today depends on what happens at the 1900 area. Will it hold?  Will it see sell-off?

GE reports profits fell 8%.  

Euro zone PMI flash composite number is the worst in 11 months, yet still shows economic expansion at 53.5 reading for January. The December reading was 54.3.

There is a report Putin is telling Assad to step down.  The market will perceive this geopolitical event (if true) as a done deal AND will find comfort in geopolitical sphere. This kind of comfort tends to lift markets.

Moodys must be about the most worthless institution in business.  Today Moody’s puts 175 energy and mining companies on downgrade watch (ft.com).  All I can say is the analysis is much too late. This is old news, Moody’s. Once again, you bring nothing to the party.

Now that Moody’s has finally placed companies on downgrade watch, the vultures will start eyeing their prize. The next phase are downgrades to debt followed by industry consolidation.

Economic Events
8:30 Chicago Fed National Activity Index
9:45 PMI Manufacturing Index Flash
10:00 Existing Home Sales
10:00 Leading Indicators
1:00 PM Baker-Hughes Rig Count

Markets
The overnight rally in global equity index futures is now dependent upon USA traders. Wednesday reversal bar cemented. VIX falls back below 26.  1900 a key hurdle for ES.

DAX and STOXX 50 gapped higher.

Crude pops as follow-through and traders look at a massive blizzard headed toward the Northeast as yet another reason supporting crude (forget massive inventories…bulls look at anything and report everything to the media pushing for greater short-cover action).

Natural gas quiet for now. Cold weather reports can move this one.

Gold suffers as US dollar strengthens.

Silver and industrial metals participate in “risk-on” attitude incrementally.

All grains higher in “risk-on” enthusiasm affecting most all trading instruments.

Coffee surges in the “risk-on” attitude.

Sugar already lower off overnight gap higher.

Bonds lower as risk-off takes over.

US dollar higher.

Euro lower.

Yen lower (risk off mode).

Pound wakes up! Reversal price bar Thursday.

Canadian dollar up with crude.

Aussie dollar up with industrial metals and general “risk on” attitude.

Think About This!
We finished the Just Day Trade! sessions yesterday. I will have recordings of this event ready later today on the website available for those unable to join us.  Deep intensive day trading based on a simplified method of trading. Really good practical trading information! It’s time you invest in your trading education.

Have a great trading day! 

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.