Weekly Futures Market Summary Oct 25th

BONDS:

Treasury bond prices forged a double bottom trade last Friday following early pressure from two out of three favorable PMI readings for October. However, a downside reversal in equities and a significant setback from the highs in the gold market gave bargain-hunting buyers incentive. On the other hand, the Fed’s Chairman indicated the bank is on track to begin reducing purchases of assets while he thinks inflation will abate early next year.

The threat of inflation is stoked further by comments from the European Central Bank last week, indicating price pressures have become too significant to ignore. Directly ahead, surging crude oil and gold price action is likely discouraging bargain-hunting buying of Bonds and Notes and in turn has also thickened resistance in December Bonds and in December Notes. With the spec and fund short positioning in Bonds moderating last week that could provide fresh selling interest on rallies above 159-00.

CURRENCIES:

Just because the dollar index has built a formidable consolidation low zone around the 93.50 level does not mean the currency index has bottomed! In fact, very definitive uniform uptrend action in the Swiss Pound and Canadian suggest the dollar could be vulnerable this week. Certainly, tapering dialogue from the US Federal Reserve chairman and higher interest rate forecast for the latter part of 2022 by another Fed member provides the dollar with a measure of fundamental support.

We think the Yen has become technically oversold and fundamentally overdone in the near term. However, the bull camp lacks fundamental arguments for anything but a temporary short covering bounce. With a failure to hold a higher high early this week and a significant range down failure, the Swiss appears to be poised to test 1.0860. We would note that the dollar is not showing definitive strength and therefore we suspect the Swiss will be able to remain within proximity to 1.09.

With the December Pound retesting Friday’s mini failure lows at 1.3735 at the start of this week and a series of lower highs unfolding on the charts, we see a retest of 1.3725. We see the Canadian dollar consolidation as evidence of an ongoing bullish posture. However, the trade has pulled forward its expectations for a Canadian rate hike and that combined with 35 days of uptrend action leaves the bull camp with an edge. However, a key pivot point/failure price is 80.70.

STOCKS:

While the S&P and Dow futures forged new all-time highs early in last Friday’s trading session, the markets fell back and chopped around both sides of unchanged through midsession. We suspect the markets were undermined because of tapering talk from the US Federal Reserve chairman and from higher treasury yields in the morning trade. However, the treasury market rebounded aggressively from its lows and should have resulted in equities returning to all-time high ground quickly.

While the S&P has not forged a new high early today, prices remain near last Friday’s all-time high and a close at current levels would be a new all-time high close. The S&P does look to miss out on buyout news lift as PayPal this morning has confirmed it is not interested in buying Pinterest. The net spec and fund long in the E-mini-S&P remains small relative to history with the index not heavily bought out until the net spec and fund long reaches 250,000 contracts! E-Mini S&P positioning in the Commitments of Traders for the week ending October 19th showed Non-Commercial & Non-Reportable traders reduced their net long position by 53,011 contracts to a net long 81,504 contracts.

As in the S&P, the Dow Jones futures sit at levels that would post all-time highs if sustained into the close. However, key earnings from GM and Ford are not scheduled until midweek but investors and analysts think that Ford will fare better than GM. The October 19th Commitments of Traders report showed Dow Jones $5 Non-Commercial & Non-Reportable traders were net long 8,188 contracts after increasing their already long position by 5,028 contracts. The NASDAQ charts remain the most bearish of the actively traded futures contracts, with a series of lower highs and lower lows forged in the face of new highs in the S&P and Dow futures!

Seeing Tesla halt the manufacturer of its latest car, news that PayPal is not looking to purchase Pinterest and seeing fresh hacking news in the headlines the NASDAQ looks to remain out-of-favor. Fortunately for the bull camp the most recent positioning report showed the NASDAQ to be “net spec and fund short”. The October 19th Commitments of Traders report showed Nasdaq Mini Non-Commercial & Non-Reportable traders added 7,607 contracts to their already short position and are now net short 11,123.

GOLD, SILVER & PLATINUM:

While the gold market has not made a higher high compared to Friday’s action, prices are holding in positive territory early this week and are printing trades above the psychologically important $1,800. Obviously, a setback in US Treasury yields combined with a temporary swoon in the Dollar provided gold and silver with outside market support to end last week. In fact, the Dollar forged a lower low and that could underpin gold and silver prices.

We leave the edge with the bear camp in the palladium market as last week’s initial washout failed to spark bargain-hunting buying. However, a pattern of inflows to both palladium and platinum ETFs recently should be noted as that factor has not been a focal point of the trade lately. As of the end of last week, palladium ETF holdings were 6.8% higher on the year with overall holdings of 535,419 ounces. On the other hand, macroeconomic conditions are disappointing for the bull camp with scheduled data typically offsetting and the US daily infection count still problematic around 77,000.

However, it is possible that palladium and platinum derived support from the US initial claims reading last week as that measure posted the lowest unemployment claims week of the pandemic! As indicated in palladium commentary, platinum ETFs have continued to build in a market with little in the way of classic fundamental news flow. Unfortunately for the bull camp, the year-to-date change in platinum ETF holdings is a decline of 1.6% leaving palladium with greater investment demand.

COPPER:

With a major failure at the end of last week and little in the way of chart support until $4.40, December copper looks to be controlled by the bear camp. However, both Shanghai and LME copper warehouse stocks continue to decline (Shanghai stocks at the lowest since 2009) and the threat of a short squeeze on the London exchange should not be discounted. However, the LME has launched an investigation into on-warrant positions and perhaps the short squeeze scenario will be avoided. In the meantime, volatility in the copper market is likely to expand significantly.

ENERGY COMPLEX:

With a firm contract high close at the end of last week and a fresh higher high for the more early this week, the bull camp extends its control. While we are not sure that La Nina talk is providing significant lift to energies, those headlines have fostered renewed “cold winter” weather expectations. Bullish sentiment remains high to start the trading week with forecasts of $90 Brent crude oil pricing this week in the headlines. However, a more salient bullish argument came from news that Saudi Arabia and OPEC plus would be very cautious with raising production beyond the already agreed to amounts despite surging prices. In retrospect, the energy markets last week saw signs of ongoing tightening of US inventories and generally positive jobs related data from the US which in turn helps rekindle demand optimism.

While the gasoline market remains stalled below last week’s high, it has also entrenched support above $2.40 for five trading sessions, and therefore it is possible that the market has reached an interim inflection point. Underpinning the gasoline market going forward is last week’s surprise decline in gas stocks and the significant jump in the year-over-year US gasoline stocks deficit. Into the new trading week, the US EIA gasoline deficit to year ago levels is back above 9 million barrels which in turn suggest the bull camp is traversing the slack seasonal demand period in solid fashion.

While near-term US weather is bearish, the fear of cold in the northern hemisphere winter and Asia has been given fresh credence by a prediction by China that La Nina might put cold weather into China and Japan and other mid-Eastern Pacific Ocean areas. It is also possible that natural gas will draft support from surging Brent and WTI pricing, as that raises the breakeven point for the substitution of natural gas in power production. From a technical perspective, the most recent COT report showed the specs maintaining their short stance in the market and that should help the market respect the $5.55 level going forward and given the La Nina talk, a run to $6.00 may occur. The Commitments of Traders report for the week ending October 19th showed Natural Gas Managed Money traders were net long 4,336 contracts after decreasing their long position by 22,990 contracts. Non-Commercial & Non-Reportable traders were net short 85,390 contracts after decreasing their short position by 4,442 contracts. This week’s Baker Hughes US gas rig drilling count increased by one, but that count remains below the 100 level.