The Rooster Call: Global Deflation, High Unemployment and Weak Physical Commodities

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

The OECD has cut global growth forecasts yet again by half a percentage point. 2013 is forecast at 2.7%, whilst 2014 global growth forecast is lowered to 3.6%. The largest upgrade for any country is the UK expected to show 2.4% in 2014. The Euro zone is expected to grow 1% for 2014. What does this tell us? Well, of course this is just a snap shot in time by policy wonks and economists. But these are the people charged with analyzing the reams of data and making sense of it all. They are some of the best and brightest.

The trader takeaway is having an expectation of continued threats of global deflation, high unemployment levels, and continued weak performance of physical commodities.

Stocks and equity index futures are waiting for the next catalyst for direction inside an extremely strong trend and momentum environment. Fear does not exist as measured by VIX. However, underneath the surface a tension of concern over who will start a sell-off is surely present. Yesterday, famed investor Carl Icahn warned of equities getting ahead of themselves hitting record highs suggesting the stock market could face a “big drop.” The market fell on his comments.

Hedge fund managers are constantly working to make a buck. If a hedge fund is rumored they are selling stocks, this word is transmitted through trading clerks and others see the paper flow thinking, “they must know something,” joining in as if someone yelled “fire” in a theater. This type of behavior is discussed in Jim Cramer’s Confessions of a Street Addict. Can a hedge fund manipulate the process sending false flags testing the water? Absolutely. Anything can happen.

As concerns mount, we are reminded that history has shown no matter what the worry or economic data point, equity index futures climb a wall of worry. The only real threat we’ve seen is concern of FED QE taper. The market discounts all other negative news.

Today’s Reports and FED Activity

2:15 PM ET – FED Evans Speaks
7:00 PM ET – FED Bernanke Speaks
6:50 PM ET – Japanese Merchandise Trade

Wednesday we have CPI, Retail Sales, Business Inventories, Existing Home Sales, and FOMC Minutes.

Overnight/Pre-Market

Quiet action overnight over-all.

  • ES and American equity index futures are lower.
  • Nikkei 225 lower.
  • DAX higher off positive ZEW report.
  • STOXX 50 incrementally lower.
  • FTSE 100 lower giving up yesterday’s gains.
  • US Bonds incrementally lower, nothing special.
  • US Dollar incrementally higher, nothing special but the currency is trying to start new trend versus continue weekly trend. Keep watching.
  • Euro working on a “no never mind” day.
  • Yen higher thanks to Nikkei lower. Partial profit taking and tightening stops was advised previously.
  • Euro Yen currency cross locked in wide side way channel as discussed last night.
  • Brent crude is consolidating last week’s rise.
  • US crude we are trading January now. 93 is very key support. A break below argues for our long standing 90.60 target. Crude has not moved from last night’s levels where we set-up our Tuesday intra-day trading expectations. You have your game plan.
  • DEC Corn hit our long-term bottom target yesterday so tighten protective stops on the short from 462, our third corn trade. Thank you DEC corn. This morning corn is quietly higher.
  • January Soybeans flat.
  • Gold and silver are working on “no never mind” day.
  • Copper fell then recovered to yesterday’s trading range.

Day Trader Bench Marks

Intraday ES Floor Pivots – Using 24 hour electronic market hours 1800-1715 ET.

R3: 1813
R2: 1806.25
R1: 1798

Main floor pivot: 1791.25

S1: 1783
S2: 1776.25
S3: 1768

Intraday Euro Floor Pivot – Using 24 hour electronic market hours 1800-1700 ET.

R3: 1.3605
R2: 1.3574
R1: 1.3537

Main floor pivot: 1.3506

S1: 1.3469
S2: 1.3438
S3: 1.3401

Think About This…

As the third quarter earnings season winds down, we blink through the smoke and mirrors finding that while most firms beat watered down Wall Street analysts’ expectations… what we don’t hear about is how the ratio of firms reducing 4th quarter earnings expectations compared to firms providing positive guidance has reached the highest point since the start of 2010 (Financial Times). This is called deteriorating fundamentals.

Allendale reports Brazilian analysts are reporting reduction in corn planting by 8.4% as farmers plant more soybeans in response to higher prices. Weather conditions in Brazil and Argentina are beyond favorable…just perfect.

DEC Corn options expire on Friday.

Have a great trading day!

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