The Rooster Call: Mild Draw Down in Crude Oil and Gasoline Lead to Buying Yesterday

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

Good Morning Traders!

The crude boys and girls on Wall Street relished a mild draw down in crude and gasoline inventories as a reason for pumping up the CL contract yesterday. As expected, all equity index futures rose including a turn around in DAX and STOXX 50.

Ahhh, the power of nothing to do something. It’s all about crude traders trying to start a short-cover rally. They push price higher taking out protective stops and forcing shorts to cover, which means the short have to enter the market buying back their positions…bidding price higher in the process. Traders pushed crude higher by 3% yesterday.

Overnight, crude fell in profit-taking, but USA crude traders might today give the long side another whirl. We expect any up moves short-lived. Nothing has changed with the historic levels of crude stocked in Cushing, Rotterdam, or on tankers at sea. Nothing has changed with the production levels of OPEC and the increase in oil rigs in USA.

What has changed is the momentum of ES thanks to yesterday’s rise…we have follow through overnight. As well, overnight price action finds follow-through in Nikkei 225, DAX and STOXX 50.

We can draw a price box around ES with 2145 on the bottom and 2169 on the top. Until price breaks the box, we expect no great shakes in ES. This attitude is also reflected in VIX futures showing complacency as if professionals are thinking…nothing special going on.

Within the ES box, we have already identified 2159 and 2169 as a favored tight range. Just remember these levels. Breaking over 2159 launches an assault on 2169. Breaking below challenges 2152 and 2145 area. Both saw price action yesterday.

In the Wednesday’s Rooster Call, I suggested the US equity index futures were ready for more active day trading. Only TF showed strong range. For the bulk of the day NQ acted like “don’t wake the baby,” and ES was comatose. This was agony for the active trader in the morning…total agony. ES saw a miraculous save at 3:15PM ET as professionals pushed ES higher, lifting other indexes…and setting up for the Asian traders. It’s kind of like baiting the hook to see if the Asian traders will bite pushing up markets. Europeans then jump on board and follow-through is established. Any positive news is like grease on the track helping movement.

Overnight grease comes in the form of the expected Bank of England monetary policy statement. Interest rates cut to 0.25%. Rather than face the facts of why stimulus is enacted, traders rejoice knowing the lower rates go, the more likely more money shall enter the market chasing return. As well, the well-connected and well-financed can easily tap into the lower rates.

It gets better!
The Bank of England signaled further rate cuts are available. So what Carney has done is look at Count Draghi and the Bank of Japan as if at a poker table saying, “I will see your rate cut and also cut mine…this game is not over and I can cut more.” This is how currency wars continue.

It gets even better!
In order to justify his position, Carney and the Bank of England cut UK growth prospects then announced a 60 billion Pound bond buying program increase to 435 billion pound QE. 2016 GDP forecast is 2%, 2017 GDP 0.8% and 2018 GDP 1.8%.

The Bank of England will purchase both government and an additional 10 billion pounds directed at corporate bonds. Borrowing a line we have heard over the last 4 years from Draghi, Mr. Carney said the Bank of England would take “whatever action is needed.” Here we go again folks!

And lo, the equity index futures markets rejoiced!

US dollar rose with Yen. Aussie dollar rose perhaps due to the higher rate of interest which strengthens a currency. Pound understandably fell. Yield on the 10-year Gilt fell to an all time low of 0.673%. US bonds rose. Yes, this action by the Bank of England guarantees more global cash flowing into US bonds.

Economic Events

Jobless Claims within consensus range coming in at 269K new applications for unemployment insurance staying near record lows.

Source: econoday.com

Chain Store Sales; FED Kaplan Speaks – 6:15 AM ET

Challenger Job-Cut Report – 7:30 AM ET

Jobless Claims – 8:30 AM ET

Gallup Good Jobs Rate – 8:30 AM ET

Bloomberg Consumer Comfort Index – 9:45 AM ET

Factory Orders – 10:00 AM ET

EIA Natural Gas Report – 10:30 AM ET

3-Month Bill Announcement – 11:00 AM ET

6-Month Bill Announcement – 11:00 AM ET

Fed Balance Sheet – 4:30 PM ET

Money Supply – 4:30 PM ET

Markets

USA traders will pass judgement today on the Bank of England’s stimulus, which typically is bullish. Taking out the low of Tuesday in USA equity index futures is a chart event calling for lower prices.

DAX and STOXX 50 giving up earlier overnight gains from when I started writing.

VIX futures lower.

Crude giving up gains perhaps exerting downward pressure on equity index futures. Gasoline follows crude. Natural gas popped in sympathy with crude yesterday.

Gold ignores stronger US dollar moving higher on Bank of England.

Copper whack overnight.

Soybean oil higher on crude helps lift November Soybeans. Corn received little help as ethanol futures have plunged. Wheat moving higher off multi-year lows in consolidation.

Sugar flirts in side-way action causing our October short concern. We are using an $800 protective stop.

Coffee whacks lower.

Bonds higher.

US dollar higher, yet lower off overnight highs. Euro lower incrementally. Yen incrementally higher. Pound lower obviously. Canadian dollar higher incrementally. Aussie higher even as metals fall.

Think About This!

Today is the “action” day for Bank of England ripple effects throughout global markets. Tomorrow is “reaction to the action” AND Friday is the mother of all economic reports…USA Employment Situation Report. Traders are pulled from two different directions today. Be careful.

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