Good Morning Traders!

 

Friday’s jobs report sent equity index futures higher in knee-jerk reaction. NQ made another all-time high. ES has reclaimed lost ground from the February drop. All is good, manna drops from the sky!

So much of this market action is simple understanding of momentum along with acknowledgement of the big picture…(which I have discussed time and time again)…the lack of substitutes for massive money flows created during the years of quantitative easing.

What was the main purpose of QE?  The FED desired to reflate the stock market primarily to make pension funds, insurance institutions with annuities, and individual investors holding 401K retirement accounts whole again. The FED saw two 50% drops in stock markets occurring within a 10-year period and said…”enough!” With QE, all who stayed in the market were made whole. Faith restored.

Along the way, the lack of inflation coinciding with abundance of South American grain production, a crude oil price war, and slowing of the Chinese economy insured physical commodities would suffer money flows. The only game in town was stock markets or bonds.

With bonds now in decline, money moves into stocks. With a lack of appreciable inflation, physical commodities, as a group, have yet to breach new highs on the CRB Index. When money refuses flow into physical commodities, you are being told professionals…

  • Do not see a sustained global recovery on the horizon calling for increased demand in commodities.
  • Do not see inflation causing the price of everything to rise.

Therefore, the only proven and consistent comfort level among traders remains equity index futures and stocks. End of story…a very basic and simple understanding. All the prognostications in the world have been wrong for those calling a stock market correction until last February. Action in the markets since have underscored the idea money is not ready to move into cash and unwilling to leap into commodities.

Bonds are intriguing. The lower bonds fall, the higher their interest rate, which will cause competition eventually for stocks. At present, inflation remains below the FED’s 2% target…which serves as a support for bonds.

Crude is the outlier capable for lifting the commodity sector. Here the dynamics are game-changing. The USA is pumping crude at a rate challenging Saudi Arabia and Russia as supplier to the world. Shale producers are hedging forward production in the futures market, which serves as an anchor on price…much to the consternation of Wall Street speculators who love buying crude this time of year as a trade equivalent to taking candy from a baby.

Too many unknowns for traders keep the focus on stocks. That’s it. Stocks have worked for the past 9-years…why give up the trade now? This is the attitude.

We learn to turn off the financial news with negative invective. We pity folks like Harry Dent and other high profile gurus who for years and years continue calling for a tremendous crash. We pity those who buy gold sold on the idea the financial end is nigh. We simply watch our charts as the newspaper. Nothing more…nothing less. The newspaper and financial reporting become more of a source of entertainment. Nothing wrong with analysis in the news as long as you ground your trading decisions on trading chart action.

Notice the market on Friday demonstrated it could care less about Gary Cohn leaving the White House and could care less about the USA implementing tariffs. There was a technical reason stock markets rose on Friday, which was covered in the Thursday Nightly Market Update (more here). The financial press tells us Friday the market rose because relief Canada and Mexico would be spared steel and aluminum tariffs.

There’s nothing wrong with holding gold as part of a portfolio, but in the 21st century, governments cannot and will not EVER allow competition to paper money. This has been demonstrated for decades…cyber-currency crack-down is the latest example of governments taking action against a paper money threat.

Let’s switch gears…

Congratulations to Chinese leader Xi, who masterfully played the political game ending term limits. Not a good day for democracy, but then again, everyone shrugs their shoulder and says, “well, that’s just China.”  In truth, a global strong man emerges much like a dictator. Traders could care less. From the trader perspective focus is on Chinese GDP growth and continuing as the largest buyer of physical commodities. A trader cannot have strong political convictions…but must remain rational always thinking of the impact to a countries currency, GDP, and rates of foreign direct investment. The latter…the least important, just notable. 

North Korea – If the North Korean leader plays his cards right, which is a stretch, he could secure his place in history as the guy who embraced the West and Japan…paid to do so through tremendous direct investment in the country. We are talking potential of major transformation and very market positive. Anything can happen. Just one of the macro points you keep in the back of your mind.

Global Shipping – Shipbroker Clarkson has called the start of a “recovery” across its long-depressed market for hiring out ships to transport commodities across the world, as it also reported a healthy set of annual results (ft.com).

Yen traders are wondering how the currency will respond to a political corruption scandal touching Prime Minister Abe involving a land sale years ago to a well-connected business man allowed to purchase government land at below market rate price.

ACAPULCO (Reuters) – Mexico’s central bank does not expect significant shocks to inflation in the short term, the bank’s governor said on Friday, unlike 2017 when fuel price hikes and U.S. politics helped drive consumer price rises to a 16-1/2 year high. New central bank governor Alejandro Diaz de Leon justified a hawkish stance on interest rates, however, by saying he could not rule out such shocks. Why am I reporting this? Because I have shared with you our proxy for the Mexican Peso is the “too big to fail” bank “BSMX,” which trades ADR’s on the NYSE. We are in this stock for over a year enjoying over 8% dividend. As the Peso moves…so too shall BSMX, unless an internal corporate problem emerges, which is the risk of any stock.

Not much other news for traders that I can see as we start our day.

I hold a webinar with Topstep Trader on Wednesday, March 14, at 4:30PM ET. This is a detailed discussion on how this program actually works with question and answer. I think this discussion is worth your time. Normal people are being funded then enjoying a profit split of 80% trader…20% Topstep Trader. Register Today! Click here.   Learn more about Topstep Trader here.

Economic Events – Econoday.com

4-Week Bill Announcement
11:00 AM ET

6-Month Bill Auction
11:30 AM ET

3-Yr Note Auction
11:30 AM ET

3-Month Bill Auction
1:00 PM ET

10-Yr Note Auction
1:00 PM ET

Treasury Budget
2:00 PM ET

Markets

We are now trading June equity index futures.

Asian and European traders took the bait pushing equity index futures higher overnight after Friday’s magnificent rally in the USA.  It is normal for a price retracement after such a large move last Friday. Time of course will tell. Just don’t lock your mind into thinking the only way is up. Already, equity index futures are lower off earlier highs!

VIX comfortably complacent. The reading shows professionals expect side-way to upward price bias, but no one is concerned for a drop…at all.

Crude is lower. Friday crude rose on the first Baker Hughes report showing decline in USA rig count in a long time. Knee-jerk provided by trading algorithms reading the headlines. Of course equity index futures were further boosted by rising crude.

For those trading CL crude keeping an eye on 62, you are being very well served as you see price cannot hold the line and shorts add to the party once 62 is rejected. It will take a move over 62 with follow through providing us bullish bias.

Natural gas is side-ways. Difficult.

US dollar flat. Euro incrementally lower. Nothing special. Yen incrementally higher. The three amigos are a little confused.

Nightly Market Update subscribers had a Soybean trade called on Thursday night. Congrats to all who took this trade complete with protective stop consideration. All trades demonstrate trend and momentum concepts taught in the Boot Camp. More information here.

Softs are mixed with Sugar testing contract lows and Coffee finding no love. Cocoa in weather market.

Wheat is falling…fundamentals take charge again.

Gold moving incrementally. Worth watching today with Euro.

Silver follows gold.

Bond locked in side-way incremental price action.

Let the first 15 minutes shake out on equity index futures, then monitor along with crude.

Think About This!

We have no major economic reports today. However, traders will watch the 10-year note auction today and the 30-year bond auction tomorrow. Traders want to know the appetite for government debt when interest rates are likely moving higher this year, with a projected 3 FED increases.

Bloomberg reports today: ING Groep NV sees Brent crude, currently trading at $65.00 a barrel, falling to $57 in the second half of this year as shale producers take advantage of higher prices and improve cost controls. (If you want to know why crude is expected to fall in the second half of the year, you should check out seasonality studies here.).

Have a great trading day and a wonderful week!

Martin

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