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Equities: May Not Take Much To Inspire a Technical Rebound

by Dave Hightower on May 16, 2012

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Global equity markets were sharply lower during the overnight and early morning hours, as fears of a European debt contagion mount. The breakdown in talks to form a new coalition government in Greece has pushed the country into a new round of elections. Probably the more severe threat is a liquidity crunch as people withdraw funds out of Greek banks. Some estimates suggest that Greek banks saw outflows of around $900 billion on Monday alone. Outside market weakness and a definitive risk-off vibe weighed on the Japanese Nikkei, which slipped to its lowest level since January 23rd. The Chinese Shanghai Composite slumped to a new four week low, coming under added pressure from stagnate Chinese loan growth in May. However, some pockets of the market saw the soft data as a force that could motivate their Central Bank to ease monetary policy, and that might have limited losses. The major European indices were down nearly 1.0% this morning, as they tried to rebound from their morning lows. While the early morning tone was negative, a better than expected read on UK employment data helped lift the major indices from their session low. Perhaps the negative sentiment in the market could get a lift from this mornings active US economic calendar. The trade appears to be factoring in a considerable monthly improvement in US housing data in April, as well as an increase in industrial output. Markets will get the latest FOMC meeting minutes later in the session, and will likely key in on any comments regarding the US labor market or potential for more quantitative easing.

S&P 500: A weak early morning trade in the June S&P 500 pushed the index down to its lowest level since February 2nd. Overnight weakness in Asia, ongoing uncertainty with Greece and definitive risk-off vibes in outside markets leaves the bulls with a number of headwinds to overcome. Further weakness in the index came in the wake of JC Penny’s earnings Tuesday afternoon that fell short of estimates, especially since they discontinued their dividend and posted weaker than expected sales figures. The index will get more retail-related earnings from Target and Staples prior to the Wall Street open. Both earnings reports are expected to come in above their year ago quarter performance. The index will also get the latest earnings this morning from Deere & Co, which is expected to show a gain of 19.0% compared to the same quarter a last year. While the June S&P 500 managed to bounce nearly 10-points from its early morning low, the short term trend continues to point down. It probably takes a move back above 1347.00 to overcome the bearish tilt.

DOW: The June E-mini Dow trended lower throughout the overnight and early morning hours and fell to its lowest level since January 31st. After marking its overnight low, the index has been able to pare some of its losses. The weak outside market tone and new FBI probe into the $2 billion hedge-related loss at JP Morgan continues to tamp down sentiment. However, extremely oversold technical conditions and fresh merger news of General Electric buying two foreign mining firms could become a source of support later in the session. The breakdown and subsequent downside follow-through action in the June E-mini Dow below 12,650 confirms a negative technical pattern that targets an eventual slide toward 12,000. In the shorter term, the next area of support comes in at 12,460. A move back above resistance at 12,759 would break the near term downtrend pattern.

NASDAQ: The June NASDAQ is on a six-day losing streak and has broken down below the March low of 2569.50 during the initial morning action. However, the index has been able to log a 20-point rebound from its early morning low and has climbed back into positive territory, and that is a minor positive. Perhaps some of the support for the NASDAQ comes ahead of this week’s IPO from Facebook, which raised the size of their offering and is now expected to bring in nearly $16 billion. The short term trend in the June NASDAQ is negative until prices climb back above 2616.25. The next area of support for the index comes in at the mid-February swing low at 2539.50.

TODAY’S MARKET IDEAS: With the June S&P 500 and E-mini Dow sitting at their lowest level since early February and sporting extremely oversold technical conditions, there is the prospect of new bargain hunting coming into the market. Especially the buy-the-dip crowd. Slowing global growth and the fate of Greece hang in the balance, and present equity markets with major negatives. However, it might not take much in the way of this morning’s earnings and economic data to inspire a technical rebound. While the trend in the indices point down, we can’t rule out the possibility of a near-term technical rebound. Downside support in the June S&P 500 comes in at 1313.50 and 12,460 for the June E-mini Dow.

Interest Rates: US Treasuries Carve Out Fresh New High Overnight

by Dave Hightower on May 16, 2012

Not surprisingly, US Treasuries have carved out another fresh new high for the move overnight. One almost gets the sense that the current flight to quality condition is poised to reach somewhat epic proportions, as the situation in Europe has taken on the appearance of a Gordian knot. However, the bulls in Treasuries might be temporarily vulnerable to some choppy two sided action this morning in the wake of scheduled US data that might post minimal improvement. Ordinarily the Treasury market wouldn’t be markedly undermined by a minimal rise in US Housing Starts, especially if that news was accompanied by minor weakness in permits, but in the current condition, Treasury prices have periodically priced in a pretty conclusively bullish environment. In other words, minimal growth in either US housing or Industrial Production and capacity Utilization readings might be cause for some very temporary selling of bonds and notes. However, with June bonds, as of this early writing sitting roughly 1/2 point off their overnight highs, one shouldn’t expect too much weakness in prices unless the US scheduled data ends up being much better than expectations. The bull camp is probably emboldened by residual Euro breakup fears, or perhaps simply because a portion of the trade is already anticipating something negative from the longer term Spanish debt auctions later this week. While the scheduled data from the US is likely to prompt a two sided early trade, the focus of the Treasury trade should quickly shift back to the FOMC meeting minutes release later today and there could be a minor setback in Treasuries in the event that no hints of easing are found in the meeting minutes. In conclusion, the flow of US data is important and the stance of the Fed later today will also be very key but as long as the Euro zone is feared to be on the verge of a breakdown, it could be difficult to effectively remove the safe haven bid for US instruments. With a recent TIC report showing ongoing foreign investor interest in US Notes and Bonds, it is clear that US Treasuries and the US currency are set to remain in a very limited group of flight to quality instruments.

Commodity Low Seen Before the End of May!

by Dave Hightower on May 14, 2012

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

As of this writing the markets were fully entrenched in a risk-off mentality that was the result of weak US data, renewed Euro zone turmoil and perhaps a measure of political uncertainty in China. While the recent change in leadership in Greece and France cast doubt on past austerity pacts and the uncertainty has injured global confidence, it isn’t a given that the global recovery attempt will be completely foiled by this bump in the road. However, the Euro zone situation will probably remain the dominating theme for now, and it could take some time before the newly installed leaders realize they will have very little capacity to dictate terms to the rest of the world.

Greece’s ability to dictate terms to the EU is effectively zero, and that could be quickly demonstrated by the Germans, who might be able to exert even more influence over the EU in the wake of the temporary power vacuum in France. However, the change in Greek and French leadership will probably have some impact on current affairs, as politicians everywhere are taking note of the disdain for aggressive austerity. As the ultimate goal of politicians is to stay in office, the recent turn of events might result in a reduction of austerity policies. It could also increase the prospect of additional easing from key central banks.

In the US, where austerity is often touted for members of the Euro zone, it might not take much of a slide back towards recession and/or renewed Euro zone debt concerns to resurrect efforts at yet another US stimulus package, especially with the election looming ahead. It is also possible that significant turmoil from the Euro zone situation could bring the US Fed off the bench sooner than previously expected. The Fed made it clear last year that it considered events in the Euro to be very important to the US economy.

China is perhaps content and even happy with the recent decline in commodity prices, as it is providing an opportunity to restock. We suspect that the PBOC is taking note of the recent reduction in inflation (June crude oil down $16/barrel from the March high), which could give it a freer hand to act. Unlike the US, China can insulate its economy from inflation pressures through an aggressive rebuilding of commodity supplies.

We suspect that copper, platinum, cattle and corn have already seen 90% of their anticipated liquidation off of macroeconomic events and that the ECB and the Fed will step up and soothe sentiment when the June S&P contract reaches down to the 1325 level. The economic horizon is dark right now, but sharply lower energy prices for the early portion of the summer, fresh easing from one or more central banks, another round of refinancing in the US housing sector and increased auto production by Ford and Toyota could quickly improve fortunes. It is also possible that further deterioration in the US economy and adverse polling data might force the US Administration to employ some classic capitalistic measures.

In looking at the enclosed chart of the spec net long positioning of non-financial markets and adjusting those figures for the additional price slide in May, commodities in general are getting much closer to a “liquidated” condition. On the monthly CCI chart, a normal retracement from the 2001 low and the 2011 high points to a potential bottom around 500. We remain bearish in the short term but realize a bottoming potential is coming most likely as a result of US Fed dialogue!

Energy: The Macro Tone is Negative for the Crude Complex.

by Dave Hightower on May 8, 2012

June crude oil prices traded lower throughout the initial morning hours, pressured by Euro zone debt uncertainty, weakness in global equity markets and a rally in the US dollar. New leadership in Greece and inability to form a new government threaten recent austerity reforms in the country and renewed concerns over the European debt crisis. Added to the European debt concern is building evidence that both European and US economic growth appears to be slowing from the pace seen during the first quarter. While global oil demand has come under pressure from slowing economic growth, the supply situation is building. Comments from Saudi Arabia’s oil minister this morning indicated that the country was pumping at its highest rate in recent years and was also building strategic supplies in case of supply disruptions. The supply situation in the US continues to build, with expectations for this week’s inventory data to show its seventh-consecutive weekly increase. Last week’s US inventory data pegged crude supplies at their highest level since September 1990. Expectations for this week’s inventory report are for a build in the range of 2.0 to 2.5 million barrels and for supplies in Cushing Oklahoma to hit a new record ahead of the Seaway pipeline reversal this month. The price action in June crude oil favors the bear camp. Resistance stands at a fibionacci retracement level of $99.57. Support below comes in at the 200 day moving average today at $97.39, then yesterday’s low of $95.34.

GASOLINE: June RBOB prices extended yesterday’s recovery bounce during the overnight session and registered a higher high in the process. Meanwhile, weakness in crude oil on both sides of the Atlantic and a risk-averse tone in outside markets have weighed on June RBOB. The cash gasoline market on the East coast garnered a measure of support Monday from a couple of refinery glitches and firm demand ahead of the Memorial Day holiday. Expectations for this week’s US inventory data are for another weekly build, but only a fractional gain of around 200,000 barrels. It looks like June RBOB is trying to leave yesterday’s low of $2.9102 as an intermediate term bottom, but a weak outside market tone could play a more dominate roll. The short term trend favors the bear camp, with upside retracement targets at $3.0027 and $3.0312.

HEATING OIL: June heating oil prices took a negative turn this morning after an overnight attempt at the upside failed to materialize. The market spent most of the overnight session in the lower half of yesterday’s range, which suggests a lack of upside conviction. Perhaps some of that weakness also came from downside seen in Brent crude oil and its slide back to the $112.00 level. In the meantime, expectations for this week’s distillate inventory data are for a slight build in the range of 250,000 barrels. The price action in June heating oil points down, with support coming in at yesterday’s low of $2.9540, then the January swing low of $2.9425.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has come under pressure from recent stream of soft economic readings in the US and abroad, uncertainty surrounding the European debt situation and continued build in US supplies. The macro tone is a negative for the crude oil market. The price action is also a negative, but the more than $11.00 break in the past week could be short term overextended to the downside.

Metals: Fears of Sagging Global Demand Pressure

by Dave Hightower on May 8, 2012

OUTSIDE MARKET DEVELOPMENTS: Chinese equity markets were weaker off lingering concerns toward their property and development sectors. The Nikkei managed to recover from a 3 month low, but investors and traders there are still worried about the potential negative impacts from the latest developments in the Euro zone. European equity markets were also under initial pressure again today, as trade fears have now turned back toward Greece and away from France. Early action in the US equity markets showed noted weakness again as the fear of global slowing and the potential knock-on impacts from the Euro zone remain on the front burner.

GOLD: With another new low for the move overnight, weak global equity markets and adverse currency market action, it would seem like gold is facing almost the same overall environment as was seen on Monday morning. While the focus yesterday was on the potential for EU political and economic turmoil from the change in French leadership, the focus today appears to have shifted to concerns of political and economic turmoil from the change in leadership in Greece. Given all the turmoil and uncertainty in the Euro zone, flight to quality money is still flowing toward the Greenback and the Yen and that action has contributed to the weakness in gold prices so far this week. It is also likely that last Friday’s US payroll results are also contributing to the bear case in gold as the fear of slowing remains a fixture in the marketplace. A sharp jump in US Consumer credit figures yesterday afternoon has also fostered concerns of further slowing in the US as it would seem like US consumers are relying on credit and not income for a large portion of their spending. In fact, US Consumer Credit vaulted higher and in the process the March tally expanded at the fastest rate in over 10 years! With little in the way of scheduled US economic data today and a weaker equity market track, gold is likely to remain under pressure, as it tracks classic physical commodity market fundamentals. European gold traders continue to lament the lack of lift in gold prices off potentially beneficial changes to Indian import rules, but an improvement in Indian gold demand is probably being largely offset by fears of sagging global investment demand for gold. With an empty US report slate today, gold is likely to see some impact from two Fed speeches scheduled for this morning. Comex Gold Stocks were unchanged at 11.051 million ounces.

SILVER: Like gold, the silver market has forged yet another lower low and in the process the July silver contract has reached down to the lowest level since January 10th. With weakness in copper and platinum prices, more declines in equities and adverse currency market action, the outside market forces clearly favor the bear track. With little in the way of scheduled US data due out today, it could be difficult to displace the bearish environment facing physical commodities. It goes without saying that residual Euro zone concerns (apparently from Greece overnight) are set to weigh on commodity prices again today. About the most positive thing one can say about silver, is that prices are now down roughly $1.33 an ounce since the last COT positioning report was measured and that should be reducing the net spec long positioning significantly. With no significant scheduled economic data due out today from the US, the silver bulls might have to “hope” for something supportive from a couple Fed speeches later this morning. Comex Silver Stocks were unchanged at 142.018 million ounces.

PLATINUM: The platinum bulls have to hold onto the fact that platinum avoided a fresh new low for the move this morning. However, a broad based fear of global slowing, adverse currency market action and residual concerns of political and economic turmoil in Europe, would appear to leave the bear camp with a number of bearish themes. With the market also seeing adverse platinum supply and demand projections recently, it could be very difficult to throw off the down trend pattern that has effectively controlled platinum prices since late February. Resistance is seen up at $1,530 and there might be little in the way of support on the charts until the $1,512 level in the July platinum contract. Unless the US Fed provides a surprise easing hint today, (in one or both Fed speeches) or the US equity markets forge a surprise recovery, the path of least resistance in platinum prices looks to remain down.

Currencies: Dollar Should Hold Early Gains; Needs Good Claims to Continue Up

by Dave Hightower on May 3, 2012

DOLLAR: The Dollar is finding moderate strength this morning, and continues to extend this week’s recovery. While the tone of recent US economic data was improved by Tuesday’s ISM number, overseas risk concerns remain the Dollar’s main source of support. A surprisingly weak reading for a private jobs survey from the US yesterday took the Dollar well below yesterday’s early highs, which may a strong indication of how important jobs-related numbers will be for sustaining this dollar recovery. A downtick with today’s Jobless Claims numbers would help to consolidate recent gains but until tomorrow’s Payroll numbers are released, the Dollar will have trouble putting together any sort of large-scale up move. The Dollar will have a near-term upside target of 79.50 this morning, as there is more than enough Euro zone risk concern to keep the Dollar well supported near this week’s highs.

EURO: The June Euro remains on the defensive this morning and is close to posting a fresh low for this current sell off. Today’s Spanish debt auction failed to provide the June Euro with much support, as 3-year yields jumped 1.3% and 5-year yields jumped 1.2% from March’s bond sale. The ECB meeting later on this morning has taken on additional importance, as a positive reception towards post-meeting comments may be required to put the brakes on this current pullback. With this weekend’s elections in France and Greece hanging over the market, the June Euro needs to find some very “good news” in order to find some measure of support. The June Euro is likely to slide down to the 131.10 level later on in the session, and may be on course for a retest of the mid-April lows if sentiment continues to deteriorate.

YEN: The June Yen has found moderate pressure this morning, as there has been a noticeable shift in flight to safety flows out of Europe towards the Dollar during the past few sessions. While Euro zone problems are not likely to go away soon, Japanese officials continue to be vocal about the problems that have resulted from recent strength in the Yen. If today’s US data can avoid any negative surprises, the June Yen is likely to slide further away from Tuesday’s high for the move. The 124.20 level continues to be a downside target for the June Yen, as it would take a severe flare-up of Euro zone risk problems in order to lift prices back towards the recent highs.

SWISS: The June Swiss is moderately lower this morning and continues to be weighed down by this week’s build-up of Euro zone anxiety. While Switzerland was among several European nations that posted sharply weaker PMI numbers during the past few days, officials are likely to keep the June Swiss “overvalued” by remaining committed to their current peg to the Euro. The June Swiss appears headed down towards the 109.10 level this morning as Euro zone problems continue to provide a large amount of direction.

POUND: The June Pound may have put the brakes on this week’s pullback but remains well below the recent highs for the move. Recent comments from Bank of England officials have sent a mixed message towards the near-term prospects for fresh UK quantitative easing, so today’s weak reading for the UK service PMI number is likely to weigh on prices this morning. The Pound is close to a 22-month high versus the Euro, however, which will help to lift prices back to the recent highs if there is a substantial improvement with macro-economic sentiment later this week. The June Pound looks to be headed down to the 161.50 level this morning, especially if Euro zone problems continue to rattle global markets.

CANADIAN DOLLAR: The June Canadian continues to build onto yesterday’s late-session recovery, in spite of having little carryover support from energy and metals prices this morning. With few Canadian economic numbers during the rest of this week, the June Canadian should benefit from a positive reception to US data over the next few sessions. The June Canadian is headed towards the 101.65 level later today, but may not retest Monday’s highs for the move until tomorrow’s US Payroll numbers are out of the way.

TODAY’S MARKET IDEAS: The Dollar should hold onto moderate strength this morning but will need a positive read on the weekly Jobless Claims numbers in order to build onto these early gains. The June Canadian is likely to extend this morning’s rally if macro-economic sentiment continues to improve.

Commodity Outlook – 2012.04.30

by Dave Hightower on April 30, 2012

At times the markets attempted to rekindle anxiety toward the Euro zone debt situation, but the trade wasn’t predisposed to fully embrace that threat. The US Fed and the PBOC haven’t exactly been falling all over themselves with promises of additional easing. From China’s perspective, they are probably content to see a wide range of physical commodity prices fall back. It’s clear that they are taking advantage of recent weakness in the grain markets to rebuild their buffer stocks. On the other hand, residual uncertainty off the US political condition and the prospect of a shift in leadership in France has added to the “hunker down” mentality that was ushered into the market shortly after the March US unemployment report disappointed economists and investors. While recent US corporate earnings have come in generally positive, the US equity market hasn’t been in a position to benefit as much in recent quarters, perhaps because the outlook for the economy is mired in a blanket of uncertainty. The recent weakness in stocks and the corrective action in a host of physical commodity markets appear to be tightly correlated to the softening macroeconomic vibe. Therefore, better growth or definitive action from key central banks might be needed before a bottom in physical markets can be expected.

Continuous Commodity Index - Monthly - Cash

The chart of the combined non-commercial and nonreportable position in non-financial markets indicates that the net spec long position has been moderately rebuilt since the late 2011 washout. Therefore it is possible that even more long liquidation will be needed to balance the markets and even suggest that prices are cheap again! While the $10 slide in nearby crude oil prices from the March high probably relieves some pressure on the economy, the 30-cent per gallon decline in gasoline prices is likely an even bigger boost. However, unless energy prices fall further or are prompted to go lower by a politically-motivated SPR release, one probably can’t expect the US economic pace to be markedly improved without additional monetary easing. As can be seen in a monthly Continuous Commodity Index chart, commodity prices in general have fallen back near the December 2011 lows, a period when the world was expecting a breakdown of the Euro zone and thought that the US economy was going to be pulled back into a recession because of it. As of this writing, it did not appear as if the situation was nearly as ominous as it was in December, and while the US economy was showing signs of softening, it could easily be improved by just a couple of dovish words from the Fed. It is also possible that supportive action from the PBOC would be enough to shift global economic sentiment back onto a positive plane. Still, it appears that the equity market’s job over the short term might be to track lower until there is more assistance from the Fed.

Interest Rates: Initial Downside Tilt but No Action From Fed Favors the Bulls

by Dave Hightower on April 25, 2012

Not surprisingly, Treasuries have started out weaker on the charts this morning, as US equities are making noted gains and the Apple earnings news last night seems to have taken the markets attention away from Euro debt fears and from the actual pace and direction of the US economy. The coming 24 hours is a really difficult period for the Fed, as acknowledgment of the need for additional assistance for the US economy right now could spark widespread economic concerns again and it could also give off the impression that Fed policy is clearly on-hold, and that in turn could greatly disappoint stocks and a number of physical commodity markets. In the face of the recent resurgence of Euro fears, the Fed might be feeling some additional pressure to err to the side of helping economic sentiment today and it is also possible that the Fed is feeling intense political pressure from the Administration to act because of the upcoming elections.

The most likely outcome from the Fed today might be another refrain of “rates will remain low for an extended period of time” and many traders think that an on-hold stance, which is devoid of near term assistance hints, will ultimately favor the bull camp in Treasuries. Therefore traders might not expect much of a reaction to the early US Durable Goods report, as many traders might reserve their opinion on the market until after the Fed stance is known.

Initial expectations for Durable Goods call for marginal gains, but it might be difficult for a single positive US data point to countervail the recent pattern of weakness seen from the US data front over the last two weeks. However, with a weaker early track in Treasuries off higher equities and favorable Apple news, even a slightly positive Durable Goods result could apply some minor pressure to prices.

Another item that might impact Treasury prices is a potential revision of March US building permits figures, which initially applied some pressure to Treasury prices. The bull camp has probably seen their exposure to a bearish Fed statement today reduced, as June bonds to this morning’s lows, were trading as much as 1 1/2 points below this week’s highs. June Notes this morning were roughly 1/2 point below their recent highs into the Fed window.

Stocks: Bulls Have the Edge; Favorable Earnings Would Further Set the Tone

by Dave Hightower on April 17, 2012

Global equity markets began with a shaky start, with follow through weakness in Asian markets but a dose of favorable European data this morning has helped turn the tide back to a positive tilt. China’s Shanghai Composite slipped to a new three day low overnight, with a finish just off the session low, weighed down by the fifth monthly decline in foreign direct investment. The Japanese Nikkei continued its recent decline but support at 9,450.00 kept overnight losses fractional. Equity market sentiment took a significant turn higher after a successful Spanish debt auction and better than expected German sentiment. Spain sold around 3.18 billion euros worth of short term debt, while borrowing costs were higher, it was seen as a boost to confidence that the country was able to tap into capital markets. April German ZEW sentiment readings showed an unexpected gain to the highest level since June 2010, which bolstered the case that their economy is recovering from the recent pullback. These two developments helped restore sentiment in the market and lifted the major European indices, as well as US futures to their best levels of the session. There were also upbeat comments from St. Louis Fed president James Bullard late Monday, where he forecasted US growth in 2012 to run near 3.0%. US markets face an active economic report flow this morning, with March housing starts expected to show improvement compared to the previous month, while March building permits are expected to hold near last month’s pace. March industrial production is expected to show improvement, with forecasts for capacity utilization to climb to the best levels since July 2008.

S&P 500: The June S&P 500 slipped to a fresh four-session low during the overnight session and has since rebounded more than 13-points from those early lows. The short term oversold condition of the market coupled with a successful Spanish debt auction and upbeat German sentiment readings offer the bull camp the early edge. European bank shares appear to be the beneficiary of the positive turn, with early gains of nearly 3.0%. A positive showing in this morning’s earnings from Goldman Sachs, which is expected to show a considerable jump from the year ago quarter to $3.55 per share, would offer further momentum to financial sector gains. 17 S&P 500 companies are expected to report earnings today, and that is liable to turn the focus away Europe and toward US earnings and growth prospects. The early reversal action to the upside in the June S&P 500 favors the bulls and a challenge of 1388.00. While the trend on the daily charts continues to point to the downside, there is a considerable upside room for a corrective bounce, perhaps back to the 1400.00 level.

DOW: The June E-mini Dow has taken a higher track this morning and looks poised to challenge yesterday’s high of 12,925. The index showed relative strength compared to the other major US indices throughout yesterday’s session, initially supported by gains in IBM and Caterpillar, and then by a favorable reaction to March Retail Sales data from Wal-Mart and Procter & Gamble. A number of Dow Jones components report earnings today, with Coca-Cola and Johnson & Johnson prior to the Wall Street open, then Intel and IBM after the close. Intel is expected to report a decline in earnings of around 15.0% compared to the year ago quarter. Meanwhile, expectations are for IBM to show earnings growth of 10.0% and that in turn could raise software demand forecasts. The price action in the June E-mini Dow has taken a positive turn and looks ready to challenge last week’s high of 12,971. Confirmation back above this level in today’s trade would trigger a short term technical pattern targeting a push toward 13,060.

NASDAQ: The June NASDAQ fell to a new four-week low during the initial morning hours but has since climbed back into positive territory. The technology sector came under pressure yesterday from a 4.0% drop in Apple, which was down for its fifth straight trading session. Apple is down nearly $65.00, or 10.0% from its April 10th record high, as concerns mount over iPad demand, talk of some mobile carriers cutting subsidies and slowing Mac sales in the US. The index will get a round of tech-related earnings reports later this afternoon from Yahoo, Intel and IBM. Early morning weakness in the June NASDAQ satisfied corrective retracement targets from the March advance of 2654.00, and the upside reversal action gives the bulls an early advantage. Upside targeting this morning stands at 2699.00.

TODAY’S MARKET IDEAS: The bulls get the early nod this morning, helped by a favorable Spanish debt auction, better than expected German sentiment readings and hopes that today’s corporate earnings flow will beat lowered expectations. A favorable result of today’s earnings would go along way in setting the tone for the season and is likely to steel the market focus. While the daily trends for the June S&P 500 and E-mini Dow favor the downside, the early morning recovery from oversold levels leaves the potential for a corrective bounce targeting 1388.00 and 12,970 respectively.

Longer-Term Look: Natural Gas

by Dave Hightower on April 16, 2012

Usually our trade suggestions are focused on the near term, but the historical slide in natural gas prices have created a situation where we see the need to make a longer-term, investment-type recommendation. There are trading opportunities that need to be acted on quickly, and then there are investment plays that offer significant long-term potential. But often the long-term investments may be in markets that are not yet ready to shift into a sustained trend. Buying far out-of-the-money, long-dated options could be one way of approaching these situations, but we think using combinations of options and futures and/or various option spread strategies can increase our staying power and reduce risk. Another benefit is that we might be able to let the market finance a portion of our trade and put us a leveraged position if our opinion proves accurate. We will kick off our new “Investments” section with the long side of natural gas. In subsequent newsletters we will update this position and possibly add additional strategies from time to time.

Nearby natural gas prices continue to suffer from a record US production pace, record high inventory levels for this time of the year and lack of a near term demand catalyst. However, cheap and plentiful natural gas presents an attractive alternative to $100 per barrel crude oil and $4 per gallon gasoline. While the near term fundamentals are likely to keep pressure on natural gas prices, a pullback in US production and new demand sources from the automotive and utility sectors favor a bullish bias over the intermediate term.

The natural gas market is currently transitioning from the winter inventory drawdown period into the summer stock-building phase. The extraordinarily warm winter has left US storage levels at record highs for this time of the year. This comes as the EIA is forecasting 2012 natural gas production to reach another record, boosted by a surge in shale gas output. At this rate, supplies are expected to exceed US storage capacity in late summer. Record storage and production, along with limited storage capacity, have the potential to trigger a further slide in prices as operators try to make room for new natural gas.

Meanwhile, historically low prices could slow the gains in US production. The latest EIA recently forecasted the rate of annual production growth in 2012 to slow to 4.5%, down from 7.9% in 2011. The drop in prices has already sparked a 31% reduction in the Baker Hughes rig count from the October 2011 high. This decline has been slow to materialize into a drop in production, but low natural gas prices have already forced a number of companies to halt production at higher-cost wells. There are a couple of demand catalysts that have been gaining attention recently: natural gas-fueled vehicles and natural gas-generated electricity. Besides the lower prices, the benefits of switching to natural gas in fleet transportation are that it requires less maintenance, increases engine life and provides fewer greenhouse gas emissions. The amount of coal used for US electricity generation is expected to fall 10% in 2012, while natural gas use expected to increase by more than 17%.

The warmer winter in the US has reduced the number of heating degree days for 2012 to 11% below the 30-year norm. And while that caused a 4% reduction in US natural gas use by the commercial and residential sectors, that is expected to be more than offset by the boost in consumption for electric power generation. The warmer weather trend in the US could provide an added boost to air-conditioning demand this summer. As it stands, natural gas demand attributable to air conditioning is forecasted to run about 10.5% above the 2011 peak in the third quarter.

Natural gas prices are down 85% from their 2008 peak and are expected to grind lower as the production/storage issue is resolved. The downdraft in prices has already done a good job in discounting a warm winter period and record production pace. Support for natural gas on the monthly charts stands at $1.850, then $1.760. To capitalize on the potential for a further drop in prices and then a late-summer rebound, we recommend a strategy of selling futures and buying out-of-the money calls.

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