The Rooster Call: Yellen and the Senate Banking Committee

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

Good Morning Traders!
It’s “turn around Tuesday!” 

  • In overnight news, Brussels signs off on the Greek reform plan as the European Commission says the deal should be approved (Financial Times).  This news is market positive.
  • Home Depot profits beat expectations. The firm announces an 18 billion stock buy back. – This is market positive viewed as a window on healthy consumer spending.
  • Rumors are flying OPEC will call an emergency meeting addressing the impact of lower oil pricing on member nations after Nigerian Oil Minister comments – This rumor is market positive.
  • Toll Brothers beats on higher home sales. Market positive after yesterday’s dismal Existing Home Sales report missed consensus and missed consensus broad range. New Home Sales are reported Wednesday.
  • Last night we reviewed the typical Monday ES trading and the usual end of day save pushing ES higher as set up for Tuesday…”turn around Tuesday.”

Negative news comes from BHP Billiton reporting a 47% year over year drop in net profit due to declines in iron ore and crude. 
So let’s just say the table is set for typical Tuesday equity index futures action as we move into the Yellen testimony to the Senate Banking committee.  If you had a choice between tickets to the circus, or watching the Senate Banking committee, it would be a difficult decision since both are designed for entertainment.  I believe the FED congressional meetings are for the most part scripted events.  Ron Paul was a wild card before he left the Senate and now its Elizabeth Warren, who had the ability to make Bernanke uncomfortable.  The other members of the committee use the opportunity for sound bites especially those who act interested in the national debt. Remember talk is cheap. Actions speak louder than words.

You have to remember the FED is the credit facility to Congress.  All this talk of not raising taxes from politicians is done with full knowledge they have unlimited IOU from the FED.  Without this powerful credit facility, Congress would be forced to balance the books and provide meaningful tax code revisions. Forget about that happening.

Getting back to the Yellen comments…the market will look for any dovish comments as likely market positive.  Talk of raising the interest rates mechanism is considered “hawkish.” The FED has not raised interest rates in 8 years. 
Yellen in the past said lower oil prices were good for the USA, so let’s see if this is discussed.  The strength of the US dollar cannot be held back since the US dollar is the best currency in a bad neighborhood. We will see if any US dollar strengthening is discussed as hurting exporters.  Yellen, if asked about bond holdings might reiterate the FED shall continue holding bonds purchased under QE.  If this statement is made, it is re-affirming support for bond prices. Yellen speaks at 10AM ET. On Wednesday, Yellen speaks to the House.

News OPEC might hold an “emergency” meeting came from Nigeria’s oil minister. She told the Financial Times, “it is hoped that [the price] will stabilize at no less than $60, but we cannot be sure.”  The next regularly scheduled OPEC meeting is scheduled for June. At this point in time, traders are showing via price they think OPEC will not move, but oil initially moved higher.  This is important.  If OPEC announces an official emergency meeting, we should expect the market will react moving crude higher.
Our Sugar trade is working, but we know we are tied to crude movements (ethanol is the linkage). Structurally we require a price close below 14.04.  We have protective stop and expected profit targets in place on this trade entered last week. If we are unable to close below 14.04, we are looking at a potential triple bottom.  Seasonality contributes to our trade thankfully, but again, we are moving more it seems on crude than sugar fundamentals.
Homeland Security Fiasco – I don’t think the trading crowd is reading anything into this potential shut down. Spending authority for the department of Homeland Security ends on February 28. 
Soybeans are supported by a trucker strike in Brazil. This is a seemingly annual event at harvest time and bulls latch onto anything supportive of beans. Brazilian beans are cheaper than US beans, but if you can’t get them due to a trucker strike, so the trader mind works…this means more US beans sold.

If today is Tuesday, that means crude traders might start wringing hands about the Wednesday crude inventory report.  This worry could push crude lower today. The charts suggest lower prices. I reiterate $47.97 area as an important level you should keep on your day trading charts.

Economic Reports and Events
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
9:45 PMI Services Index Flash
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
10:00 State Street Investor Confidence Index
10:00 Yellen delivers semi-annual monetary policy testimony
1:00 PM Results of $26B, 2-Year Note Auction

Markets

  • Equity index futures Europe and USA are VERY quiet in front of Yellen’s testimony. She calls the market shots today.
  • Nikkei 225 higher.
  • VIX lower incrementally.
  • Bonds lower incrementally after an UP day Monday.  Yellen’s talk directly affects bond pricing perception.
  • Currencies side way except for lower Yen. Aussie drops with BHP results and management discussion. Canadian dollar incrementally lower.
  • US dollar can move dependent on Yellen testimony.
  • Grains incrementally higher.
  • Copper side way consolidates and dangerous.
  • Gold and silver incrementally lower.  Gold looks ready to give notice it wants to depart 1200 area.  Yellen’s talk can affect gold.
  • Heating oil big drop after rising on winter storms.
  • Natural gas hits resistance yesterday and falls.
  • Crude almost flat. Turnaround Tuesday, horse shoes, and a rabbit’s foot will try to push crude higher today against concern over Wednesday’s crude report. 
  • Sugar – Our trade working, but we are tethered to crude.
  • Coffee teases incremental green.
  • We don’t cover Orange Juice, but price squeezed lower in aggressive trading last 5 days.
  • Cotton stabilizes.
  • Cocoa retests early January highs.

Think About This…Reuters – The US Department of Justice and the CFTC are investigating at least 10 major banks for a possible rigging of precious metals markets, the Wall Street Journal reported.

Enjoy your trading day!

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