MARKET BACKDROP:
Hello readers. First, I’d like a moment to briefly acknowledge and honor the memory of those who we lost 17 years ago on September 11th in this written material. I know that’s a very solemn and heavy way to start off, but I felt it necessary, and I thank those readers who took a moment for that just now. I believe this somberness reflected the tone of many markets yesterday. Moving on, financial markets these past couple of days look as though they’ve continued their trade-sensitive, uncertain and confused directions…even more so by the close of 09/11’s day sessions, in my view. Asian markets appeared mixed, once again, as they ended their Tuesday sessions. European markets ended slightly bearish on Tuesday, seemingly due in part to the U.S. & China trade news and in part to speculation on a Brexit deal that may or may not be announced by early November. And in the domestic markets, the major indices appeared to experience some gloominess on Tuesday as many analysts are now more commonly expressing possible headwinds for the stock market despite relatively strong recent economic data releases. The once heightened appeal to participating in the upside derived from the earnings & corporate buyback trends have gone as far as possible in terms of bullish catalysts, according to some sources. Being 10 years after the financial crisis of 2008 has many reflecting on those times and expectant that we’re due for a more “healthy” correction of at least 10% rather soon. U.S. markets, in my view, are just slowing their paces and consciously waiting for those larger, geopolitical and monetary events (the next rate hike, possible deal with Canada, Brexit, China retaliation, trade impacts on agricultural markets, a new category 4 hurricane, etc.) to materialize. Patience is often said to be a virtue, and I feel that patience may be one of the most important assets to own as market participants breathe in all this data. With that said, time is also a very important asset, and we only have so much of it. Considering those two intangible assets, how can we utilize them to understand what’s going on in futures this week to uncover some risks and exploit possible opportunities?
INDICES:
US 10 YEAR – The yield has at roughly 2.959% as of 8:45 am CST on 09/12.
ESU18 – With just a little over a week to expiration, the Sept. contract appears to have been facing some obvious muted resistance at the 2900 level, in my view. Having not seen that level since the first trading day of September, I feel this short contraction in this contract is taking its runs more in stride these days. As far as the underlying, sources say that the effect of earnings growth (especially for tech), the corporate tax cuts and repatriated cash for company stock repurchases have peaked. In addition, speculation about the 10 year yield hitting 3.0% and triggering a broad market sell off has also been disseminated. The effect may also trigger futures to sell off as well, with ES contracts to price down. Could that happen? I suppose anything is possible. Will that happen? I cannot say. In my opinion, I don’t see the 10 year yield alone being the sole reason to trigger significant selling in that manner. Regarding contract levels, 2900 appears as recent local support. With the range as narrow as it’s been, options strategies that look to collect premium while the market seems to sit still, may be more actionable, in my view. Traders interested in my long side view, if buying comes back in, I believe, in the case of no
near term correction, bullish positions could roll comfortably into Dec. contracts. As of 9:00am CST on 09/12, the contract seems to hover 2890.
NQU18- I withhold my comments on Sept. NASDAQ futures at this time. Please refer to my previous insight.
YMU18 – The Sept. Dow Industrials contract looks to be in a consolidated trend, in my view. For sideways action at the levels I see, I would recommend carefully looking for options strategies with favorable risk/reward parameters. If that is not attractive, I would not attempt to trade this contract as I don’t see substantial movements in this market at this time. Perhaps best to sit patiently and wait for a trend to present itself. As far as levels to consider, please refer to my previous set of comments. UPDATE: As of 10:40 am CST on 09/12, the contract has gained about 151 points on news of a new round of trade talks with China proposed.
ENERGIES:
CLV18 – After closing back around 69 on 09/11, the contract has recently been bid up to the $70 level as of 10:50am on 09/12. Reportedly, oil contract buying has sparked on the Iran supply pull, according to sources. Elsewhere in energy futures, gasoline contracts have rallied a bit off of speculation regarding gasoline demand impact from the recent collection of storms threatening the supply in the Carolinas and the Gulf of Mexico. I feel that crude is a bit early to the party, in my view, but if the level holds through into next week, we may have found higher territory for crude. Brent crude is rallying slightly as well, this morning on 09/12. Although early, the question will be whether we hold $70. In my view, if the contract breaks $71.40 and holds through next week, then more expensive oil is priced in and would seem plausible right now. I recognize the potential to be wrong here, but I feel it’s too early for this move. Regardless, for a move like this, I may suggest an income strategy with a call backspread as the range has widened a bit.
NGV18 – As of 11:20am on 09/12, Oct. Nat gas futures are hovering 2.824. Managed money appears net long, while non-commercial retail traders are net short.
METALS:
GCZ18 – Dec gold has appeared to consolidate a bit for the past couple of weeks. Unable to build enough momentum to rally, yet refusing to fall much further, it seems. The 1200 level appears safe to investors. In my view, with the range seeming tight between the 1180s and 1210s, I’d be apt to speak about options strategies to possibly collect premium on both sides of this range, such as a short butterfly. Beyond this, I feel there’s too much currency & trade pressure for the market to move much as this time.
SIZ18 – December silver continues its trek downwards. I see 14.270s as of 11:50 am CST on 09/12. With the reportable positions as net short for managed money and non-commercials, I would expect to see the 1 month low around 13.960 tested soon.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
For questions, comments or deeper conversation regarding these insights or to talk more specific trade ideas, please reach me via email: bsears@walshtrading.com or my direct line: (312) 957-8079.