The Rooster Call: Drops in Copper and Crude

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

Good Morning Traders!

I think we have a busy morning today.  Soybeans are testing the bottom channel and the alarm set last night sounded. The price action represents two closes out of the wedge. Day traders you should monitor soybeans.

Position traders, you should consider soybean trade entry as discussed last night.  If you see price trade below 995 for an hour or so, chances are it is the real deal, but starting the trade as a day trade gets you in earlier.  Note S2 is 984.40 area. Price may linger at this level.

Coffee’s cci pattern had formed exactly as we discussed in the videos.  I am teaching you nuances about how to read the cci and extrapolate expected moves. The overnight development…if it holds…is a bulllish signal.

Separately, the coffee seasonal spread chart I showed you on the weekend has soared from -3.50 to 5.25. The value of this move is $3281.00. How’s that for a quick pop?  The spread dipped as low as -7.50 before turning.  We will monitor the wedge as this kind of chart and trading style is new for many clients.

Copper’s large drop yesterday and in the overnight attributed to aggressive Chinese selling (Financial Times). Finally copper is reacting normally to the global slow down.  The fundamentals are driving the market once again and that is a GOOD development. 

A stock crushed by both the drop in copper and crude is FCX. Expect continued downside action. The dividend is suspect in current natural resources implosion. I suggest you monitor for bottoming action looking for a grave-dancer trade.  The debt load is tremendous and copper’s falling kicks out the last leg of the stool the stock was balancing on.  The day crude starts moving higher on news from OPEC is when FCX becomes a screaming long term buy…big time.  In the short-term…the firm will enter a precarious survival stage awaiting word of renewed Chinese buying. FCX reports earnings January 22 (not confirmed) according to earningswhispers.com. 

Speaking of crude…the US Energy Department said crude output would rise by 600,000 barrels a day this year in the USA to 9.3 million barrels per day.  In 2016 production is expected to rise to 9.5 million barrels per day.  Futures markets show contango.  Contango exists where front month futures are cheaper than farther out months.  The crude futures market started falling last summer / early fall during a period of backwardation (pointed out by Rooster Call), whereby farther out months were cheaper than front month. 

We have fundamental reasons to think backwardation could appear again.  The reason the market switched back into contango is a belief that the Saudis were not in this price war for the long haul along with the belief the normal seasonal crude rise would occur starting first quarter of 2015.  Who is right?  The market filled with speculators or the producers run by Saudi Arabia?  If we find crude moves to backwardation, my goodness, but much lower prices would occur, as in $30.00 or lower per barrel. Start monitoring farther out months…just take a glance and know what is going on in the future of futures.

Be very careful trading crude today as range is extremely tight.

The World Bank cut global economic growth concerned the world is running on a single engine…the USA. 2015 world economic growth is forecast at 3.0% and 3.2% for 2016.  Previously the World Bank suggested 3.4% and 3.5% respectively.  This is a rare negative during the seasonal best period for stocks.  However, the World Bank took a swipe at the US FED saying the idea the FED could raise interest rates as soon as April could lead to a sudden tightening of financial conditions hurting emerging market governments and corporations (Financial Times). In other words…”FED, if you raise rates you have fiscal blood on your hands.”

DAX and STOXX 50 remain elevated. FTSE 100 shows a large red candle due to miners falling thanks to copper’s drop.  The ES is lower fulfilling the prophesy of price moving below the 50 simple moving average. Can USA traders pull the ES back up? ES dropped to 1987.25 as I write. This means gap down on many momentum stocks.  Why are DAX and STOXX 50 higher?  The ECB’s earlier pledge to save the region from economic ruin by buying government bonds is compatible with EU law, announced ECJ advocate-general Cruz Villalon today (Seeking Alpha).

The Yen is higher and bonds are higher as evidence of renewed flight to safe harbor.

Metals other than copper doing nothing.  Silver giving up yesterday’s gains. Gold unsure of itself as if resistance is simply not worth the fight.

All grains are lower.

Economic Reports and Events
7:00 MBA Mortgage Applications
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Atlanta Fed’s Business Inflation Expectations
10:00 Business Inventories
10:30 EIA Petroleum Inventories
1:00 PM Results of $13B, 30-Year Note Auction
2:00 PM Fed’s Beige Book

In the “no surprise” department…

JPMorgan hit by $1 billion in new legal charges associated with rigging the foreign exchange market. Am I the only person wondering why JPMorgan has not replace their CEO?   Am I the only one thinking this is a gigantic criminal enterprise based on a lack of internal and external oversight?  You see the real power of JPMorgan’s survival is in their ability to write checks to congress. 

Looking like a blood bath today in equities and risk acceptance. Up to USA traders to reverse course at the open. If the market moves higher, be aware a repeat of yesterday could occur. The FED Beige book might provide late afternoon relief, but trade the technical signals of your system. Do not under any circumstances deviate from your plan because you feel you have magical powers to know what the market is going to do.  Betting against the trend is the biggest threat to smaller funded traders.  This is a law of the jungle…respect it.

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