The Rooster Call: New Year, New Hope for the Bulls in Index Futures

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

US Markets

There is joy in the air with global equity indexes surging in overnight price action. Let’s attribute this rise to crude moving higher. The OPEC production schedule agreement, which includes non-OPEC members goes into effect with the New Year.

US dollar has leaps higher overnight. This action dampens the light volume short-cover rally attempt in gold. Still, this is the time of year we watch gold carefully for position trade consideration. Euro and Yen are lower strongly.

Stronger US dollar wrecks Soybean’s attempted move higher. For now $10.00 support area holds.

Natural gas is worth watching because according to reported fundamentals, the supply glut has finally wound down to more normal levels. Warm weather prevents a natural gas spike, but the bulls will continue pressing the case of a production deficit to demand.  Note, I said production deficit versus supply deficit.

Global Markets

Great news for the ECB today as Germany’s inflation for December reported at 1.7%. This is the highest inflation reading since July 2013. Recall inflation in November reported at 0.7%. The rest of Euro zone reports inflation figures during the week. ECB goal for inflation is 2%. European bonds fell on the news.

UK manufacturing PMI shows the best month in over 2 1/2 years with a December reading of 56.1. Again, let me remind you of the doom and gloom “sky is falling” fear rhetoric put out by the British government leading into Brexit. The numbers also show the power of a weak currency to spike orders.

Now let’s extend the discussion.  Weak Euro will likely cause improving PMI numbers in Euro zone into March and beyond. Thus we start NOW monitoring Euro for potential bottoming action with an understanding the market expects Euro shall hit 1.00. I am not calling a bottom…I am saying understand the power of weak currencies boosting economic activity. Position traders you have early notice!

In China, the Caixin-Markit manufacturing PMI rose to 51.9 in the final month of 2016 from 50.9 in November. Any reading 50 and higher marks economic expansion.

USA PMI is released today at 10:00AM ET.

Economic Events

  • PMI Manufacturing Index – 9:45 AM ET
  • ISM Mfg Index – 10:00 AM ET
  • Construction Spending – 10:00 AM ET
  • 3-Month Bill Auction – 11:30 AM ET
  • 6-Month Bill Auction – 11:30 AM ET
  • 4-Week Bill Auction – 1:00 PM ET
  • 52-Week Bill Auction – 1:00 PM ET
  • Gallup US ECI – 2:00 PM ET

Market Summary

A new year, and new hope for the bulls in equity index futures. So far, the overnight session has all global equity index futures we follow higher.

I typically think the first day back is a “feeling out” type day for the market so don’t get locked into a bias the only way is up. Obviously a nice PMI reading for the USA should help support markets and cause bonds to move lower.  The market has to figure out if the “risk-on” overnight attitude will hold. All eyes on USA traders.

Bonds are moving lower overnight after rising in the very low volume holiday markets. PMI reading will affect.

Crude is close to $55.00. We expect $60.00 target as the next psychological line in the sand. A close over $62.00 is ominous for a continued run to $68.00 – 70.00. Crude inventory report this week is on Thursday, due to Monday holiday.

Gold and Silver react to US dollar, both lower. Copper reacts to the largest user of the commodity: China. Copper now incrementally higher thanks to Chinese PMI.

Grains are mixed with Soybeans lower versus Corn and Wheat higher incrementally. These markets remain tied to weather in South America. Corn helped by USA export numbers. Be very careful in grains if thinking of position trading. Position traders…your time will come.

We don’t really cover meats that much, but Live Cattle has potential blow-off top forming today.

Softs are quiet except for Sugar, which rose last week in light volume.

US dollar strength dominates currencies. Canadian dollar supported by crude.

Think About This!

Eventually we will hear hand-wringing talk about higher US dollar hurting earnings USA exports and multi-national corporations. Professionals are eagerly awaiting a pull-back from whence to re-establish longs. We have our bench mark, yet professionals are looking for an even lower level: 50 day simple moving average.

The environment for stock trading has to be nimble and quick at current levels. The best positioning is on any pull-back. Obviously stocks could linger somewhat side-way matching equity index futures. This is why we need to see a “healthy” pull back in USA equity index futures.

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