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Old 06-04-2012, 07:29 PM
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Providio's Daily Futures Market Commentary for April 5, 2012

Currencies: **** 05Apr Haven’t we seen this before? European debt woes roil the FX, Equities, and sovereign debt markets as capital flows to safety. The USD benefits as the Euro suffers.
Countries without serious debt problems are performing much better as the flight to safety chiefly shows up as negative action in those major economies hat have debt woes; namely Europe and the UK.

Aussie: 05Apr Despite today’s positive action, the bias remains clearly and firmly negative. Today’s action classifies as an inside day, which speaks of consolidation. On a longer-term view, there are some signs of a gently bottoming in the negative Momentum. Stay tuned.
Action should be noticeably light as The Easter and Passover Holidays commence.
Seasonal Snapshot: The 5-year pattern is in a sustained rising seasonal trend until April 17th. It then trends generally higher until April 30th but with more day-to-day choppiness. The 15-year pattern is in a rising trend until May 4th with a 2 day downtrend from April 12-14th. The 30–Year pattern is in the same sustained rising trend bias until April 12th.

British: 05Apr The Sterling’s failure to sustain a breakout above 1.60 against the USD, keeps the market’s longer–term negative bias intact. This is currently validated in the Sterling’s inability to continue higher to test the late October highs and selling off below the still falling 200 DMA.
Tactically, Our Trend, Momentum, ROC, and RSI indicators have all turned negative. Today’s action is testing (and so far, violating) the 21 DMA.
The BOE is keeping monetary policy unchanged. While currently the asset purchase program remains set at GBP325M but is under review.
We still maintain a meaningful move above 1.60 would likely indicate a breakout as it is showing as a significant support and resistance level going back to late February’s peak. Additionally, during craziness of late October-early November, much of the action traded around this level.
Seasonal Snapshot: All three patterns are biased to rising action until April 30.

Canadian 05Apr With a several month longer-term consolidation in place, the Aussie’s analysis is really geared more for the shorter-term for now.
Our Trend has turned negative in direct conflict with the 21 DMA. Momentum, ROC, and RSI remain in negative territory. The ROC is moving higher, though, indicating a decelerating negative Momentum. Today’s higher low keeps the last 10 session’s modestly rising lows in place and the highs have been modestly falling since the early March peak. More consolidating action. Look for support at par (1.00) and resistance at just below 1.0080.
Our Volatility measure remains within our Average range.
Seasonal Snapshot: All three patterns are in a positive bias that lasts well into May. The 15yr takes a breather 05-14Apr, then rejoins its 5&30yr patterns again.

Dollar Index: 05Apr With European sovereign debt woes again the news of the day, the DX has been the beneficiary of negative Euro action.
A test this morning of the minor support area near 79.75. This level traces back to November and February action.
Trend, Momentum, ROC, and RSI all indicate a higher bias. RSI is close to Overbot. 80.50 is the next resistance but the more important 81.00 looms as the real test. That is the right shoulder of what could be construed to be a bearish Head and Shoulders pattern.
Volatility remains near the Low level. Good Volume validates today’s positive action.
Watch for any evidence the Dollar is not the safe haven under crisis market conditions. This would change existing assumptions dramatically.
Seasonal Snapshot: All 3 patterns exhibiting choppy conditions until about April 7th when all 3 start more sustained falling action seasonal patterns until April 30th.

Euro-FX: 05Apr Another round of European debt woes, this time focusing on Spain, has the Euro again on the run. Clearly, 1.30 is the support level. Trend, Momentum, ROC and RSI are all strongly focused on negative action. To give some context on how rapidly the Euro has fallen apart, as recently as last Wednesday, the Euro was Overbot. Today it is firmly Oversold. It was never able to materially breakout above the 21 DMA, which is now falling.
Back to the 1.30 support, we reiterate the fact there is effectively a double bottom around that psychological support.
With the Low and falling Volatility, either protection or new positions with options purchases are relatively cheap.
The 200-day Moving Average remains well above just below 136.10, but remains falling.
Seasonal Snapshot: All three patterns are trending higher until the end of April.

Yen: 05Apr Despite the day’s positive close, the action was negatively biased with all the day’s positive early action evaporating to settle essentially at the open and near the lows.
Daily Trend, Momentum, and ROC remain positive, but the RSI is now falling back to near the midpoint 50 level.
Since retesting and failing to make new lows on 3/21, the Yen has remained largely in a modestly rising Channel approximately 220 points wide. This is a possible developing bearish flag pattern. If that does prove out, the pattern projects a low below 110.00 (90.90 FX).
We reiterate several points from last week’s Comment:
Our Volatility measure has fallen from high levels.
We note a number of negative dynamics overhanging the Yen:

The “carry trade” dynamic (selling Yen to buy higher yielding currencies) is re-imposing itself.
BOJ announcement in early Feb of more asset purchases
Speculation about continued BOJ outright selling

The consolidation of steep losses since Feb, followed by a rally to the 21-day moving average,
The recently identified downward seasonal bias ends this weekend. See our note below.
Seasonal Snapshot: All 3 patterns are now poised to bottom and head higher until approximately April 20th.


Energies:
Petroleum: 05Apr What may be a short covering pop higher ahead of a long holiday weekend keeps WTI inside the falling Trend for about a month and continues to lead the Petro sector’s weakness. Our technicals for all of our tracked Petro markets are pointing negative, turning our attention toward Overbought/Oversold measures: Crude 34; RBOB 49; Heating Oil 41. Bottom line: we aren’t there yet. Crude supplies are above the upper limit of its average range for this time of year, while RBOB and Heating Oil within the upper limit:
http://ir.eia.gov/wpsr/wpsrsummary.pdf
Volatility is rising off low/very-low levels. Explore option purchase strategies.
The pitch of the February rally in WTI Crude doesn’t offer much in the way of a stopping point on the way back down, now that the 61.8% retracement (101.80) has been breached.
This targets the psychological $100 level as a likely support level. A broader view shows a 38.2% retracement of the Oct-Mar rally at 97.80. The flattening 200-day moving average lies below this level at 96.85.
On the upside, the 200-day moving average (105.60) is a likely resistance level as WTI has traded around this level as both support and resistance for the last 6-7 weeks.
Seasonal Snapshot: After a brief pause, all three Petroleum contracts’ patterns are in an upward bias until the end of April.

NatGas: 05Apr The cards still seem to be stacked against NatGas with another large injection into storage (+42 BCF vs. a five-year average of +8) pressuring the entire price curve toward new lows. At some point, we expect the wave of production cuts to be supportive, but there is no evidence of that yet. Technically, the recent fall through the Sep 2009 lows (2.40) widens our charts out to identify multi year lows: Jan 2002: 1.90; Sep 2001 1.87; Feb 1999 1.62.”
We remind readers of our previous “shoulder season” notes:
“The dynamic for NatGas should shift to Spring shoulder behavior fairly soon. As the current storage is at record levels for this time of year, we expect to see storage rapidly fill and Summer supply levels should be comfortably high in June. As drilling starts to wane, care should be taken on any short side trades. A seriously hot Summer would materially increase demand as electricity usage would soar. This could shift this market to a bullish tone rapidly and unexpectedly. We feel position traders are best served by exploring trades that involve spreads of either futures calendar or selling premium.”
Look for supply issues to dominate, as demand didn’t really materialize this year with the extremely warm winter.
We did see a story today that indicated a price collapse might be necessary to fix this market.
http://www.futuresmag.com/2012/04/03/natural-gas-may-need......
Seasonal Snapshot: Divergence between short and long-term patterns: the 5yr pattern consolidates with a negative tone well into April, but the 15&21yr patterns have a strong upside bias.


Equities: 05Apr A modest overnight acceleration to the downside took a sniff at our noted previous support levels (SP 1380; Dow 12930; NASDAQ 2710). Since then, all three of our tracked markets have retaken unchanged levels from yesterday’s settlement. Fewer Challenger lay offs and unemployment claims (with the usual upward revisions) seem to have offered some support.
Recent chart action continues to remind us of the action before March Payrolls, all the way to yesterday’s 16 point decline (as of this writing) mirroring (rather “rhyming with”?) the 22 point decline the Tuesday before the release (this time it was Wednesday). At that time, our technical indicators for all three tracked markets were pointing lower, but each was more Oversold than current measures:
SP: 07Mar 36; currently 45
Dow: 07Mar 33; currently 41
NASDAQ: 07Mar 43; currently 54
Tomorrow will be interesting and perhaps, bizarre. Trade accordingly.
We remind readers of our recent notes:

“Our Momentum indicator for all three of our tracked markets is still negative… the NASDAQ is a relatively new contestant. We remain somewhat fascinated by the temperamental action this indicator has displayed this year… mostly by its failure to pull our Trend indicator meaningfully lower during its sustained negative turn from 10Feb-10Mar. During this time, prices consolidated with an upward bias until a large decline below 21-day moving averages on 06Mar. This was followed by events leading up to a positive Payroll number with upward revisions that boosted prices back above these averages and on their way back to the upside.
We get the sense a similar dynamic may be in the offing. It is somewhat odd that Payrolls, which normally garner so much attention, will come on a day when stock index futures will have about 45 minutes to react, then close for “digestion and reflection” until Sunday evening.
If any weakness is to be sustained, we feel either Momentum will have to go negative for an extended period of time, or the weak Volume rally will see a potentially large profit-taking decline. Most likely set off by some headline-grabbing announcement or event that will “change things.” Otherwise, it may likely be a period of consolidation before another trek higher.”

On more weakness, pay close attention to where the markets found recent (and overnight) support. Below this is the area where they struggled at the end of Feb, which roughly coincides with rising trend line support of this year’s rally (today’s action in the Dow tested the area). Last, the lows of the early March consolidation:
SP: 1380; 1370; 1330
Dow 12930; 12950; 12700
NASDAQ: 2710; 2650; 2575
We offer an interesting note about Volume from WSJ:
http://blogs.wsj.com/marketbeat/2012/04/02/low-trading-vo......
Seasonal Snapshot: The 5yr patterns of all three markets is in a pronounced upward bias until early May. The 15&30yrs follow suit, but are not nearly as steep.


Grains:
05Mar With the Grain markets closed tomorrow, look for positions squaring near the end of the day to dominate as traders prepare for a long weekend. Markets’ recent trends are largely intact today. Monday’s action will be constrained by European absence as their Easter holiday extends though Monday.
We leave general yesterday’s comments in place to ponder over the weekend.
A piece we read this morning indicates the Corn market, despite the pop higher on the planting report last week, is still showing longer bearish tendencies. This situation may be exacerbated by the material increase in planted acreage. If this is the case, this should work to counter some of the bullish general tendencies embedded in the Soybeans complex.
To reiterate, Soybeans are in a bullish phase due to both South American drought and lower plantings in the US. The wild card on the Corn will be Petroleum’s pricing effects on Ethanol demand. The Soybeans wild card is Chinese demand.
Planting in the US Midwest seems to be proceeding ahead of schedule. At some point this will tend act as a negative factor.

The point to ponder here is what will be the overall effect on the Grains markets. Stay tuned.
We remind readers of our recent weather notes:
“As a point of weather market speculation, we wonder whether the very warm winter will lead to an equally warm, dry summer, putting pressure on the Corn crop. This may lead to a buying opportunity if a material sell-off occurs. Stay tuned for further news in this vein.”
In partial answer to this question, we read a column over the weekend referring to this issue. The Chicago Tribune’s meteorologist Tom Skilling answered a question that indicated we might be in for a very hot summer. More to follow.

Corn: 05Apr May’s problems at 665 persist with today’s highs put in near the pit reopen ad a general malaise setting in as the market settled into trading near yesterday’s close. Not a lot to take from today’s action. Look to next Tuesday’s USDA Production report for further fundamental news.
Trend seems to be peaking, Momentum and ROC are both rising, and RSI seems to be peaking. Volatility is falling with today’s light and constrained activity.
Pay attention to USDA crop reports and if Corn hits 75 on the RSI.
Volatility is now High (> 1 STD higher than Average) indicating there may be opportunities to sell premium in options.
May still has a gap below yesterday’s low and Friday’s close.
Seasonal Snapshot: 5-year heads modestly higher until Apr 5, then sideways until Apr 10. Both the 15 and 30-year patterns are entering into broad, modest declining periods until April 28. April 10-12 offers a brief, more negative period.

Soybeans: 05Apr In light, pre-holiday trading, Soybeans seem to be moving in the path of least resistance, higher.
Trend, Momentum, and ROC all point higher. RSI has flat lined for the last 3 sessions. Volatility has fallen in today’s light action. May has matched Tuesday’s high. May through Sept contracts (old crop) are all essentially bumping up against their highs of this week. The new crop (starting with Nov) isn’t testing new highs but hasn’t fallen appreciably either. Look for additional consolidation.
We maintain that until we see a material move higher from here, we go back to the WSJ story we highlighted from Tuesday:

A story we saw today on another newsletter does add a distinct note of caution to the recent action. The story noted the WSJ posted a story about the record highs in grains. It then went on to state that this type of mainstream media story typically showed up at the end of a bull rally. Additionally it stated in its opinion that the market seemed to be stretched.
Despite our worries as expressed, this market’s Technicals still point higher.
Trend, Momentum, ROC, and RSI all remain pointed higher. Look for support at the psychological 1400 level and resistance near today’s highs, say at 1435.
Volatility isn’t great for options purchases, but it isn’t very high, either.
Seasonal Snapshot: Relatively modest patterns now in place. The 5-year is sideways for about a week. The longer 15 and 30 years are negative until Apr 4 then mostly sideways.

Wheat: 05Apr Wheat is by far the Grain e track that is currently under the most pressure. Trend, Momentum, ROC and RSI are headed lower. Additionally, on our Momentum measure going back to late December, each positive shift has peaked at earlier and lower. This is in a period of a modestly negative bias in what has been largely range trading.
May’s Volatility has peaked just below the High range (< 1 STD).
Pay attention to the harvest in Winter Wheat as it moves ahead of schedule due to warm weather and the plants benefit from rain in both Europe and the US.
This market has been in a gently falling bearish pattern for the last 2 months since peaking on 2/1. On a longer-term view, the bearish dynamic has been in place, albeit with a sizable range, since February 2011.
Volatility is now close to High (> 1 STD higher than Average) indicating there may be opportunities to sell premium in options.
Seasonal Snapshot: All 3 patterns enter a brief upwardly biased period until April 5th. The 5-year then continues in a pattern that ultimately peaks on April 25th. The longer 15 and 30-year patterns change direction on the 5th, entering into a very modest declining period until the same April 25th.


Interest Rates: 05Apr Poor European data and the hangover from what essentially amounts to a failed Spanish bond auction set the tone and contributed to more “risk off” trading, supporting the longer end of the yield curve’s price structure. Bigger picture, Bonds and 10yr are still consolidating their recent steep losses. Today’s strength has not been enough for Bonds to sustain its probe above the 21-day moving average. Both the Bonds and 10yr found some resistance where they struggled at the end of Mar: Bonds 139-00 (also the 200-day moving average); 10yr 130-00. A sustained higher high would be constructive.
Our Trend and Momentum indicators are both now pointing higher. Shorter-term charts reveal stronger Volume on the bounces, though it will take some time to see if this is a turn or just a correction before more negative action.
The Bond’s 21-day moving average has led the cross below the 200-day. The 10yr’s seems to be turning today, as of this writing. A return to more weakness targets the previous lows:
Bonds 135-05
10yr 127-23
2yr 109-27.5
With the Fed seemingly allowing events to play out for now, and merely “jawboning” the markets at this point, reality starts setting in. An ugly reality of too much debt, not enough jobs, and political impasses abounding.
Given that our tracked 2yr depends on the Fed’s Overnight Rates and the Bonds are not a benchmark any longer, the Tens are really, at this point, the ultimate contract that reflects the Fed’s policy stance.
This may be an opportunity for directional positions, but keep stops tight or explore option purchase strategies, as Volatility is starting to expand (the 2yr’s is now “very hi” based upon our measurement).
Seasonal Snapshot: All three patterns in the Bond are a consolidation phase with an upward bias that extends well into April.
The 10yr has a strong, upward bias in all three patterns until early April.
The 2yr’s 5& 21yr patterns have an upward bias until 18Apr while the 15yr pattern is in a wide consolidation phase into May.


Metals: 05Apr Modestly stronger, but “inside” day in the sector after Gold led the charge to the downside. It has displayed weaker tendencies (lower highs and lows) since topping out at the end of Feb than its sector counterparts… all of which (Silver, Platinum, Palladium and Copper) remain stuck inside their two-month consolidation ranges.

Gold: 05Apr Though our Oversold measure (30) still has room to the downside, Gold is recovering the steep losses. Look for resistance at a 38.2% retracement of the decline (1640), then 50% (1649), when we adjust for yesterday’s for the low (1613). Additionally, as we noted last night, the falling 21-day moving average (1669.5) is now well below the rising 200-day (1696.7). Both should offer resistance.
That said, shorter-term charts reveal much stronger Volume on recent weakness and keeps our focus on the rising trend line (1595) that extends back to Oct 2008 that we have been watching for quite a while now… drawing ever closer to the psychological 1600 level. We remind readers that the market found support at this trend line during the last hard sell off (to 1523.9 on 29Dec).
Seasonal Snapshot: All three patterns consolidate with an upward bias well into April.

Copper: 05Apr The best advice we can offer is to nibble at the edges of the month-and-a-half consolidation range, bound by 374-392 with tight risk controls. We have been harping on our unstable Momentum indicator, which has gone negative (again). The one thing we can say is that it has been skewed to the downside ever since going negative in early Feb. This is the fourth time it failed to sustain a positive turn over that time period.
If the consolidation is a symmetrical triangle, and a continuation pattern, a break out above on stronger Volume projects above 460, but a test of the August 2011 high (420) will come first.
Seasonal Snapshot: A month-long rally in all three patterns gave way on 05Mar to a consolidation phase with a modest upward bias until mid April.


Softs:
Cocoa: 05Apr A developing “inside day” has the market sustaining its break out below our noted large symmetrical triangle bound by 2160-2420. Although Volume seems to be a bit weaker on today’s modest strength, it has been generally stronger on this dip. If the triangle is a continuation pattern, the formation projects a move down to 1460, similar to the action after last fall’s prolonged consolidation. A test of the Dec low at 2005, and psychological support is first in line.
Our confused technical indicators are all currently tipping negative on the fall towards rising trend line support (2160). At our current measure of 19, the market is getting Oversold, but is no match for the 1 we saw in early Dec.
ICE exchange stocks at 5yr highs should keep a negative tone to the market.
Seasonal Snapshot: The longer-term 15&30yr patterns are in a falling mode until 10Apr while the 5yr consolidates with a modestly weak bias.

Coffee: 05Apr The May contract continues to hug the falling 21-day moving average (183.45), but in wild fashion. Our Volatility measure is above average. Another developing “hanging man” candlestick today would sandwich yesterday’s wide doji formation and signals potential topping action. This would keep with the decline, consolidate, decline, etc dynamic that has been in place since topping out near $3 last Sep. Our falling Rate of Change has some work to do before it can drag Momentum, and therefore Trend, negative.
We can add a large, spec short interest to roaster “bargain hunting”, dry Brazilian weather and a supply deficit as likely supportive factors, although yesterday’s remarkable rally off the lows may have shaken out the weaker hands.
We remind readers that the market has been using the average as resistance since breaking below in mid Jan. A sustained break out above the average, and the previous consolidation range, capped at 188.50, targets the previous consolidation range (197.80-207.25 from 16Feb-02Mar).
If this fails to materialize, a test of the previous lows, 29Mar: 175.90 & 22Mar: 174.45 should be in store. Weakness below these levels prompts us to widen charts out a bit. We note the 50% Fibonacci retracement of the Dec 2001-May 2011 rally at 173.70. Additionally, the market topped out at 169.80 in Feb 2008 before commencing its run to $3.00.
Roasters should investigate low (but rising) Volatility to investigate option strategies to protect upside risks. Please refer to the link on our web site for more information:
http://techtalk.providiotrading.com/newsletter/?req=viewd......
Seasonal Snapshot: All three patterns consolidate until they resume their down trend 05-16April.

Cotton: 05Apr An overnight probe above the falling 21-day moving average (90.00) has failed as of this writing. An equivalent “swing” back below the average targets the mid March lows at 87.75. Our falling Rate of Change has our Momentum indicator on the cusp of going negative.
Negative outside forces are likely causing some long liquidation, but watch for more information on last Friday’s USDA projection of shrinking planting areas.
Look for resistance at 94.50 where the market has failed to break out above three times since Feb. If it does, watch the falling 200-day moving average (96.25).
Seasonal Snapshot: Strong downward bias in all three patterns lasts well into the May contract’s expiration.

Sugar: 05Apr No “bullish engulfing” candlestick pattern yesterday still keeps the market on the defensive and struggling on a probe to the 21-day moving average (24.75). A “swing” below targets rising trend line support (23.50) that goes back to mid Dec in the continuous contract. A sustained break out below, targets the ascending series of lows: 23.26 (12Mar); 22.85 (01&02Feb); 22.43 (late Dec); 22.25 (15Dec). Below these levels, it’s anchors aweigh down to 20.40 (May 2011).
Our technical picture has tipped negative and is not Oversold. Additionally, a large spec long open interest and ample supplies keeps the market vulnerable to more weakness.

Seasonal Snapshot: The 5&15yr patterns commenced a quite negative bias on 27Feb and lasts until mid-April. The 21yr pattern consolidates with a negative bias.

Disclaimer: A commodity and currency report brought to you by Providio Trading Consultants, Inc. There is risk in trading futures and options. One's financial suitability should be considered carefully before placing any trades.
Past performance is not indicative of future results.
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