Providio’s Daily Futures Market Commentary for Feb 8, 2012

08Feb Attention remains focused on news flow from Europe as the world awaits some kind of indication about how Greece, and the rest of Europe will run between the raindrops in their sovereign debt crisis.
While the specifics throughout the region may be a bit different, the overall dynamic is very similar: the first to run the gamut (in this case, Greece), will set the stage for the rest to come: Portugal, Spain, Belgium, (France?) etc. On that note, it is interesting to note that there are rumblings out of Ireland that its Greek counterparts are getting preferential treatment which only serves to magnify the situation and tempt the powers-that-be to find a way to impose the cliché that is becoming too popular: “kick the can down the road”.

Volatility remains at stubbornly low levels across a variety of the markets we track, but is most evident in just about anything “financial” in nature. When we take a closer look, we see some of this paired with the overextensions we have been writing about for quite some time. This history reminds us that these overextensions typically have not lasted too long. A sustained reversal in their Rates of Change have often served to reverse the Momentum. This time around, it is taking a bit longer than “normal”, but is definitely something to watch. The well below average Volatility may open the door to option purchase opportunities if trying to protect profits, or institute a directional strategy.

Currencies :
08Feb Volatility remains at stubbornly low levels in most of the majors we track as the world awaits some kind of indication about how Greece, and the rest of Europe will run between the rain drops in their sovereign debt crisis.
While the specifics throughout the region may be different, the overall dynamic is very similar: the first to run the gamut, in this case, Greece, will set the stage for the rest to come: Portugal, Spain, Belgium, etc. On that note, there are rumblings out of Ireland that its Greek counterparts are getting preferential treatment.

Aussie: 08Feb The powerful rally remains intact, but watch if our falling Rate of Change can undercut the positive Momentum that has been in place since mid December. The Aussie remains quite Overbought, based on our measures, but breaks have proven only termporary.
Seasonal Snapshot: An upward bias commences 09Feb and lasts until March.

British: 08Feb After making a new high over yesterday, Sterling fell back ahead of tomorrow’s BOE meeting, expected to yield no change in rates, but a potential expansion of asset purchases. Our falling Rate of Change is undercutting the positive Momentum that has been in place since mid January. Then currency is still bumping up against Overbought conditions, but is starting to tilt down.
The falling 200-day moving average at 159.50 may offer near term resistance.
Seasonal Snapshot: Choppy consolidation in all three patterns with a modest upward bias into Mar.

Canadian 08Feb Another test of the still falling 200-day Moving Average just above par has held again, as of this writing. Our indicators show this market is still vulnerable with secondary indicators and the RSI all falling. Remains Overbot
Seasonal Snapshot: The 15 and 30-year patterns are modestly negative until Feb. 16. The 5-year is positive until Feb 16.

Dollar Index: 08Feb Although a quiet, Doji Candle session overall, our Rate of Change continues its rise since the end of Jan. The 200-day Moving Average is still below, but is rising.
Seasonal Snapshot: The 15yr breaks away from consolidation and rallies again until the end of Feb.

Euro-FX: 08Feb An increasing number of moving parts in the Greek dynamic have the currency struggling at recent highs after breaking out of our falling channel a couple weeks ago.
After two postponements, Greek Prime Minister, Lucas Papademos, is meeting with the country’s political leaders about how to institute enough austerity in order to secure a EU130B rescue plan before they default on their March 20 bond payment. We remind readers that this has been on the table since July of last year. There is against the current backdrop of impending protests, haircuts for bondholders, Troika (ECB, Euro Council & IMF) meetings… there is a lot happening.

Somewhat secondarily, the ECB’s rate decision due tomorrow has almost completely dropped off the headlines. They are expected to keep rates unchanged at 1%.
With no Overbot situation acting as headwinds, the Euro may be poised for healthy run. This is especially true with recent Fed comments in re short-term rates. The 200-day Moving Average remains well above and falling.
Seasonal Snapshot: A decidedly weak tone until the end of Feb.

Yen: 08Feb Moderate weakness inside of a larger consolidative pattern pulled Momentum negative this morning. Developing Oversold conditions (our current measure registers 41) will grab our attention if it can fall below 35 again, as it has not been able to remain below there for long.
Strength to 1.32 should make readers wary of BOJ interventions. Continuing low side biased Volatility leaves an opportunity for both protection and short oriented positions.
Seasonal Snapshot: All three patterns are negative, but the 15yr is decidedly more so until late Feb.

Energies: 08Feb A lower than expected stocks increase accompanying a slackening demand picture drove a fluctuating day of prices. The developing story of Iranian belligerence and sanctions is maintaining an undercurrent of unease to counter the existing negative bias.
Seasonal Snapshot: All 3 Petroleum contracts are entering a period of more positively biased action until the end of February.

Petroleum: 08Feb With the supply and demand picture still largely negative in bias, the morning’s lower than expected build still contributed a negative dynamic as the report hit the news. Several forays below the 9825 support eventually petered out and the market seems to have stabilized at just under 9900. This is where the March ran into resistance yesterday morning before eventually testing the $100 level.
Heating Oil, outside some pops higher yesterday, has gone sideways since late action on Tuesday night.
RBOB Gasoline is trending higher and trading higher.

NatGas: 08Feb Continued warmer than normal weather has taken the steam out of this market’s recent rally off of news of production cuts. Frankly, Winter is running out of time to make a serious dent in the still bulging storage numbers. Positive Primary indicators are being degraded by the secondaries’ erosion.
Seasonal Snapshot: A modest upward bias is only sustained until 04Feb and then its down again, especially in the 15&30yr patterns until late Feb.

Equities: 08Feb All three of our tracked markets remain in extreme Overbought conditions. Although all three backed off the previous period of overextension, which peaked around 25Jan, it was only a rest period in the uptrend that has been in place since mid December. Our Volatility measure in all three has been well below average since the last week of January. This should make option purchases a more attractive component in trading strategies.
Keep an eye on developments in Europe, they may hold the key to an uncoiling Volatility spring.

S&P and Dow: Choppy consolidation with a mildly weaker tone in the 15&30 yr patterns until they start to work higher at the end of Feb. After some modest strength, the 5yr pattern displays a material downdraft 19Feb-03Mar.
NASDAQ: Consolidation with a weaker tone in all three patterns until an upswing in the 5yr commences in mid-March.

08Feb Continued positioning ahead of Tomorrow’s USDA Crop Production reports.

Corn: 08Feb News of beneficial rains in South American growing areas caused a material sell-off in early pit session trading. Stabilization and short covering ensued as the marketplace attempted to position ahead of tomorrow’s important USDA reports. The upshot is the day’s action ends up basically nowhere on the say and the all-session candlestick ends as a Doji. Not consolidation with the Volume rising significantly. Primary Technicals point higher but the secondaries indicate pressure to the downside may be building. 6.50 is resistance and support at 6.31 held this morning.
The 200-day Moving Average remains falling in a shallow pattern.
Seasonal Snapshot: As the Pattern gets short in duration the bias gets more positive reflecting recent years’ commodity boom conditions. All 3 patterns are in stable patterns until the end of Feb.

Soybeans: 08Feb Soybeans suffered the same fate as Corn in early morning as the rains news hit this South American crops, too. More consolidative than Corn as Volume dropped today. 1244 ¾ is a double top resistance in March. 1220 likely support. Secondaries are turning in the face of both Primaries still positively biased.
The 200-day Moving Average is still falling.
Seasonal Snapshot: All three patterns display an upward bias until the end of Feb.

Wheat: 08Feb Early action in sympathy with corn and Soybeans. After a probe to test the 653 support the market bubbled back to the early AM bottom near 660. Late higher Volume Volatile action belied the positioning ahead of tomorrow’s reports. 670 remains as resistance.
The 200-day Moving Average is still falling.
Seasonal Snapshot: All 3 patterns have a short-term peak on Feb. 9 and then enter a downward bias until Feb 21.

Interest Rates: 08Feb Apparently, the Eurozone failed to come up with a credible bailout plan that is actually agree to AND signed off on. Despite this, the US Interest Rate market, which has stood in as the safety/fear trade, was unable to resume a positive bias. Although longer term trends obviously are pointed higher, the 2 longer dated Treasuries we track are both biased negatively for the near-term. Shorter-term contracts and the Euro-Bunds mirror this action.
Seasonal Snapshot: The 5-year heads lower until mid-Feb.
The 15 and 30 yr patterns head generally sideways until the contract changes in late Feb. However, about Jan 21 or so, there is a relatively sharp, quick downdraft, but that recovers about a week later.
The 2yr has a positive bias until Jan 22, a which point its tendencies vary from modestly to sharply lower.

Gold: 08Feb The April contract was able to forge a higher high than yesterday during the Asian session, but fell back again on the European open and now US sessions. The market is struggling with last week’s high at 1765 and, larger picture, has failed to test the previous, 08Nov high of 1808. This keeps the market in a wide consolidation range, looking for direction with a double bottom in place (29Dec & 26Sep) around 1525-1530. Our falling Rate of Change is threatening to pull Momentum negative. Another failure at those lowsr would be likely quite negative.
Our Volatility measure is perking up a bit, but the last two times this occurred (late Dec and late Jan) another fall to lower levels followed. If this time repeats the pattern, Volatility would sink to very low levels. Explore option purchases.
Seasonal Snapshot: Divergence between the 30yr consolidation and the 5&15yr patterns, which rally well into Feb.

Copper: 08Feb Copper continues to consolidate its strength to new recent highs (394.00) last week. It has held in testing the 380 lows and essentially seems to be using the falling 200-day moving average as a fulcrum after retaking this level 26Jan.
That said, our falling Rate of Change pulled Momentum negative on Monday giving a modestly weaker tone to the market moving forward.
Seasonal Snapshot: Weakness in all three patterns ends on 06Feb, when a month-long rally lasts until 05Mar.


Cocoa: 08Feb Despite recent action being modestly supportive, this market’s technicals remain quite negative. Yesterday’s turning in secondaries gave way in the face of more negative action. Add to that the fact that the RSI is is still in the mid 40s and this market has room to fall. Support in the 2220-2230 area has held.
Seasonal Snapshot: 5 and 15 year patterns are modestly bullish until Feb 17. 30 year pattern is generally sideways until mid-March. All 3 patterns are negative from Feb 17-20.

Coffee: 08Feb A consolidation day with a Doji on falling Volume. Running into resistance at the 21-day Moving Average. Mixed technical picture as Trend is down but our Momentum based indicators are positive. If Coffee fails to get above the 222.50 resistance, this classifies the rally as a failure and new lows becomes increasingly likely.
Seasonal Snapshot: All 3 Patterns trend higher until Feb 23.

Cotton: 08Feb New lows and then some short covering ahead of tomorrow’s big USDA Crop report. Cotton’s recent negative dynamic has been driven my prospects of lower global demand. All technicals point to continuing negative action. With the RSI only in the mid 40s, there is plenty of room to run to the downside.
Seasonal Snapshot: Mixed to modestly lower signals until approximately Feb 13. At that point a powerful Trend higher sets in until approximately March 4. Pay attention to near-term fundamentals.

Sugar: 08Feb Consolidation day with a Doji and lower (though still heavy) Volume. All technicals remain positively biased. Closing in on Overbot.
With the current rising 200-day Moving Average now rising shallowly, it seems likely that the 2500 resistance level will only be the first test.
Be aware of any sell offs that get near 2300.
Seasonal Snapshot: Modestly higher bias until Feb 19 or so. At that point as we shift to later months than March, the market will enter a period of generally negative bias until mid-April

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Disclaimer: 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.