Rooster Call: Following the Oil Money

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

In the News…

Gasoline supplies are at a 21 year high. Crude in what history will refer to as a “super glut.”  And yet traders are wildly bullish on crude according to the COT report. This is the professional crowd who piles into contracts they have no intention of taking delivery, but rather just roll each month into the next delivery month. There is no down-side risk in the professionals mind of being long. Why?

  • Global economies are SLOWLY improving.
  • OPEC has a production quota and vocal about how wonderful compliance will cut the super glut.
  • On the cusp of seasonal uptick in crude.
  • Geopolitical tensions are rising in the Middle East.

Professional crude traders politely ignore…

  • Breadth of crude super glut outside of physical USA and Europe. I am talking of crude stored on tankers
  • Ever increasing USA rig weekly rig counts = increasing supply.
  • Gasoline supplies = less demand for crude if refiners decide on slowing production in order to bleed off excess supply.
  • Non-OPEC members compliance rate with production quota reported at 40%.
  • USA crude producers selling forward production on the futures market in order locking in profit so they can pay their bills and have an assured market.

Professional crude traders only see one thing…the glory days of higher priced crude. Therefore, any hint or inkling of support for crude serves as a buying event. Yesterday OPEC “talked” up crude. Professionals jumped in early knowing others would follow. Price hit $55.00, yet profit taking and large hands entered the market selling against the rise. We are in a “wash, rinse, repeat” type cycle keeping crude side-way for about 3 months. Take price up, take price down, take price up, take price down. This is no market for the position trader. Day traders are fine.

Natural gas says “help, I can’t get up.” Price re-tests lows of last March with yesterday’s strong sell-off. Overnight price tries it’s luck forming a price reversal bar as technical analysis around the world see a double bottom on the weekly chart. Monitor the chart and monitor seasonal tendency.

Today we have FED Minutes release. The pattern for professional equity index futures traders is buy weakness. Therefore, we expect morning sell-off followed by afternoon rise and no doubt the FED Minutes citing an improved economy will help, in my opinion. Traders will note comments on inflation and wage growth.

Are equity index futures over-bought? Yes. Could markets pause or pull-back? Anything can happen. Are there alternatives to stocks? Not really. Physical commodities and bonds are trapped in congestion.  Equity index futures are the only consistent mover. At this point in time…as we know in the nightly video service, all pull-backs are opportunities for launching new longs.

Coffee rose 1.5% yesterday closing over our desired 150. Coffee higher this morning. Yes, this expectation part of seasonal tendency. We are using JO for an educational trade using longer dated call options.

The EU is requesting Italy take action against rising debt levels. Since there is no teeth in the Euro structure, the EU can only make requests instead of threats. The EU forecasts Italy’s debt currently at 132.8% of GDP will rise to 133.3% in 2017.  The EU has a ceiling of debt to GDP allowance of 60% for member countries…yet enforcement mechanisms are non-existent. I do not think the professional trading community has fully priced in the Italian debt debacle as it has the Greek debt circus. Populists within Italy will blame rising debt levels on the EU, the Euro, Germany’s record trade surplus, and whatever else rather than themselves mired in non-performing loans. A reckoning must occur in Italy and eventually shall. For now, Euro traders appear accepting of Italy’s high debt and high debt levels in general as part of the “new normal.”

Why doesn’t Germany just buy Italy? Would that work?

Bank of Japan today says further monetary easing is unlikely. Yen higher, yet remains in consolidation. Kuroda told Parliament, “With economic growth accelerating, however, the chance of deepening negative rates is low.”

Economic Events

  • US:MBA Mortgage Applications – 7:00 AM ET
  • US:Redbook – 8:55 AM ET
  • US:Existing Home Sales – Important Report – 10:00 AM ET
  • US:FOMC Minutes – 2:00 PM ET

Markets

Overnight we see equity index futures have no real news so traders just follow the crude market. Crude is lower, so equity index futures are incrementally lower. Everyone is waiting for USA traders setting the tone of the day. Yesterday, all USA equity index futures we follow registered new highs.

Gold remains side-way. Nothing special.

Grains try catching a bid higher today…nothing special.

Coffee tests 152.40. Buy your buddy a cup today!

Sugar higher yesterday and today, but frankly traveling in side-way action big picture.

Bonds are higher catching a bid from French election uncertainty. Lower equity index futures also helps bonds. Be careful with bonds on FED Minutes release.

US dollar higher against all currencies except Yen. Yen supported by Bank of Japan comments. Rising Yen hurt Nikkei 225.

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