The extraordinary amount of negative economic data is absolutely overwhelming the futures markets, specifically the S&P futures. Attention seems to be momentarily diverted to the rapid advance in commodities, including all time highs in Soybeans, Wheat, Corn, Gold, Silver, and Crude Oil. The financials seem to be momentarily put on the backburner, but that does not mean there are not opportunities to profit in an economy teetering on the brink of a recession, although the upcoming weeks will be especially tough to trade.
Slow economic growth forecasts, rising jobless claims, rising commodity/energy prices, and a dollar that is at all-time lows are contributing to rallies in commodities and but are weighing on financials like the 35 days of measurable snow we’ve had in Chicago this year. With all of the negative data we’re seeing, it’s amazing financials are holding up so well.
One of the themes we have reiterated this month is cognizance of the downside risks when trading. That is, keeping in mind that the prevalence of unhealthy data should be taken into account when trying to trade rallies. Simply put, there is a largely negative dynamic in the current market and traders should keep this in the back of their minds.
Even if you’re a technical trader with little to no consideration of fundamentals, it’s hard not to downplay the effect of breaking news, monumental shifts in corresponding markets, and the fallout of policy changes.
Fed Chairman Ben Bernanke is certainly not helping the cause or lifting spirits. During his two day Congressional testimony this week, he seemed almost indifferent to the plight of the dollar, which is trading at all-time lows versus almost every major currency. Traders have priced in a 100% chance of a 50 basis point interest rate cut at the March 18th Fed Meeting. Bernanke’s testimony only confirmed that sentiment, and his immediate focus for relief centered on alleviating the downside risks to growth, as opposed to the looming issue of inflation.
In my opinion, the enormous risks of inflation hiding behind door number two are being almost ignored by the Federal Reserve. Cutting rates at the March 18th meeting, which seems to be an almost certainty, may ease immediate economic concerns, and no doubt will positively effect consumer borrowers, those with mortgages, credit card debt, etc. But are we being short sighted to a potentially much larger problem of inflation?
How long will our economy, which is potentially on the brink of recession, be able to sustain itself with Crude Oil at $103 a barrel, gas expected to break $4 a gallon this summer, and food prices skyrocketing as grains rally to all time highs be able to sustain? But I digress, either I have Seasonal Affective Disorder, or I’m getting a little too engrossed in policy.
The E-Mini S&P market seems to be in traversing chop mode, with light rallies beginning on Monday, creeping closer to breaking the important 1400 psychological level. The weekly high was 1390, but at the time of this article, the E-Mini S&P (ESH) was trading at 1353.25.
According to reports last week, those rising food, energy and commodities costs led consumer prices in 2007 to rise 4.1%, which was the most in 17 years. Wholesale costs also were on the rise, and we’re in the middle of the largest 12-month increase in costs since 1981.
However, we did see a slight increase in consumer spending in January according to the personal spending report on Friday, which may lift the markets heading into the weekend. At this point, anything helps.
My key levels to watch in the upcoming week in the March E-Mini S&P Contract, which is now trading at 1353.25:
1364.00 – trading below this level should keep us negative and is the first line of resistance back towards positive territory. Stabilization should occur above these levels, if we are to see any.
1331.50 – according to my charts, this is the first line of support. This is a big range, but I would be hesitant to make moves within the support and resistance walls. Sometimes being on the sidelines is the best option.
If you’re not a 100% technical trader with focus on charts alone, be aware of breaking economic news, commodity prices, and shifts in underlying fundamentals. The slightest positive information in the financial sector could give us a much-needed boost in prices. For specific trade recommendations or to discuss strategy, please contact me directly.
Josh Russo
Peak-Trading Group
Alternative Investments
2/29/08
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is significant risk involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these risks and evaluate their suitability based on their financial conditions. This information is provided freely and is not in the capacity of a trading advisor.
