Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day
Today the US Federal Reserve starts their two-day FOMC (Federal Open Market Committee) meeting. Typically currency, bond, and equity index futures markets go quiet during the meeting of the world’s largest central bank discussing the world’s largest economy. And since the US dollar is the reserve world currency, you can see why this meeting of policy direction is so incredibly important.
The FOMC policy statement is announced on Wednesday at 2PM ET. We’ve seen all types of asset classes respond to this statement in the past including large moves in gold. So let’s just say the market is on needles and pins until Wednesday’s announcement.
The FED maintains the QE monetary policy experiment shall end this month. If the FED back-tracks now, we could see a loss in credibility. Most likely the FED will end QE on schedule, while at the same time reminding markets that the FED stands ready to act again if required.
The FED knows a knee-jerk response is likely. This is why I expect the FED to deliver the message gingerly as if to say, “the rich uncle stands ready if you need another check.”
Will bonds sell off at the prospect of the end of QE? The FED has gone over-board telling the market the FED has no intention of selling the securities acquired in QE. This FED position acts as a huge support line for bonds. Meanwhile, banks…saved by the tax payer, continue buying bonds rather than lending. Regardless, a knee-jerk is possible on Wednesday in bonds.
The FED has maintained very low interest rates in the USA will continue. This stance is supportive of US stocks as investors seek return on investment greater than certificates of deposits, Treasury Notes, and Bonds.
We are especially interested in any discussion of low inflation / deflation, which all central banks abhor. If the FED mentions continued low levels of inflation not meeting the target 2% as a concern, then we should assume the market will think the FED stands ready to grease the wheels of stimulus again.
Your standing orders on Wednesday FED meeting days is take an extended lunch since markets go quiet after the morning rush hour. The 2PM ET policy statement should move markets as bull and bear forces contemplate life without QE asking “is it really over?”
If the FED stops QE, this typically is US dollar positive. If the FED extends QE, this is US dollar negative providing a boost for stocks and bonds.
Retracement – ES futures have retraced 75% of the recent drop. We discussed the line in the sand for ES futures last night in the nightly video. Today’s Durable Goods orders could help set the pace for today’s trading…especially if better than expected.
Overnight reports of better than expected Japanese retail sales provides incremental rise in the Nikkei 225 futures. Bank of Japan’s Kuroda last night said inflation moving below 1% won’t happen and that the Bank of Japan will not hesitate to add further stimulus if necessary (BMO Capital Markets). This is market positive for risk assets/risk acceptance and by extension major equity index futures. Kuroda said the BOJ is only half way to goal of stabilizing inflation around 2%. In other words…expect continued low Yen.
France says it will reduce its budget deficit next year. UBS profits increased 32% (even after paying legal bills). European equity index futures are higher.
US equity index futures are higher in sympathy to Asian and European action. Durable Goods orders report is the next catalyst.
Agricultural futures find Soybean Meal leading the pack. Grains are a lot like chickens in the field…if one does something, the others want to follow. So Soybean Meal lifts the entire complex. Don’t over-think this business. From what I can discern, the rise is based more on transportation issues getting the beans to processors. Allendale cites lack of farmer selling.
Corn harvest is 46% complete versus an average harvest completion rate of 65% at this time of year. Soybean harvest is 70% complete versus an average completion rate of 75% (Allendale).
As chart watchers, let’s call this move in soybeans a simple retracement. USDA harvest reports will likely spur the next leg of selling, in my opinion. The drop in the Brazilian Real along with beneficial rains in the Brazilian soybean growing region will likely conspire putting a lid on sustained upward action in grains. Get ready for new shorting opportunities.
The fear of Ebola killing off cocoa workers looks like the work of traders who have run cocoa higher only to sell it down hard breaking though support. Day traders, you can trade cocoa.
The market kicks Twitter hard for missing earnings expectations. Meanwhile, industrial DuPont beats and pharmaceutical firm Pfizer beats.
Today’s Reports and FED Activity
FOMC meeting begins
7:45 ICSC Retail Store Sales
8:30 Durable Goods
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
10:00 Richmond Fed Mfg.
10:00 Consumer Confidence
10:00 State Street Investor Confidence Index
1:00 PM Results of $29B, 2-Year Note Auction Overnight / Pre-Market
- Equity index futures higher across the board.
- Bonds incrementally lower. Could knee-jerk drop on Wednesday FOMC.
- US dollar incrementally higher…with Euro incrementally higher.
- Pound higher.
- Yen lower.
- Crude incrementally higher.
- Natural gas incrementally higher.
- Gold and silver incrementally higher.
- Copper higher in run to resistance remains dangerous in my view.
- Look for pork sales at the grocery store based on the drop in lean hogs.
- Corn, Soybeans, and Wheat higher.
- Wheat possible reversal bar yesterday.
- Softs are quiet. Our sugar trade hit profit target. Either exit the trade or tighten stops as discussed in last night’s video.
Think About This!
Today, I discuss day trading in a Trader Kingdom webinar after market close. I look forward to seeing you in the room!
Free Trading Webinar: I do hope you will join us…
Mark your calendars…I will hold a webinar hosted by Trader Kingdom on October 28. You can sign up using this link
NEW FALL BOOT CAMPS!
November 4-6 6PM to 8PM ET
November 18-20 3:30PM to 5:30PM ET
In addition to our normal Boot Camp material – IN DEPTH TREND AND MOMENTUM TECHNIQUES, I will review our Fall trades for seasonal trading of equity index futures. We’ve placed these educational trades for the last 4 years winning every single year. I have a couple of other long term trades I am sharing and will demonstrate how to enter with risk completely known and relatively small capital outlay.
I will send a separate Boot Camp announcement this week. I am raising prices in 2015 at the urging of clients who have attended.
Anyone purchasing the Boot Camp video recordings is provided a free seat in the upcoming Boot Camp.
Have a great trading day!
To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.