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Brian's Thursday Recap: Labor market conditions and more gold

Brian Shepard

The Fed statement in our opinion represents a minor change in policy to one that is slightly more hawkish. There seems to be more of a consensus in the minutes that tapering of large scale asset purchases end Q2/beginning Q3. But more importantly, it is conditional on the economy. Policymakers need to be convinced by the data that the economy and the labor markets are further improving and the recovery is self-sustaining. The key sentence in the FOMC minutes was "many participants emphasized that any decision to reduce the pace of purchases should reflect both an improvement in their overall outlook for labor market conditions, as implied by a wide range of available indicators, and their confidence in the sustainability of that improvement."

Collective Intelligence! {jathumbnailoff}

Stanton Analytics (06:43a.m. CT) Crude: The true colors have emerged. the bear is alive and well. It is a sell the rally mode.the resistance is at 94.30 to 94.50. The risk is 94.65. The target is 93.50.

U.S. housing – update from JPM's M Feroli - We forecast that residential investment will add 0.5%-pt to GDP growth this year. New home construction should add another 1%-1.5%-pts to GDP before housing starts are normalized.

Carley Garner update: (10:56CT) We are still holding May 1600 calls in the ES sold yesterday. A little uncomfortable but not panicking yet. The options only have 37 days to expiration, so back and fill trade can run a lot of premium off of them

GOLD - ETFs this week have liquidated 9 tonnes of Gold so far (puts in perspective the potential Cyprus selling). Overnight Gold opened soft but was quickly bought by physical players from China as there was a $10 arb into the Shanghai market. Easy monetary policy still failing to energise the gold mkt. Our trading desk has been trading from the short side with near term target of $1530 and then potentially $1480. Trading desk also point out you can't discount precedent that could be set by Cyprus if it liquidated reserves. GOLD VOL - less signs of panic in the options market with only a small move higher in implied vol the past 24hrs despite the lower prices. 1m opening around 12.4/13.4 up about 0.3% vs yesterday. 1yr around 14.9 is up smalls too - posted by Chance.

This is a scary question for the bears! Will the Pit Bull's expiration observation kick in? "The market generally makes its low the Thursday or Friday before expiry." For a guide to the S&P market tendencies http://mr-topstep.com/images/pdf/MTS-Trading-Rules-101.pdf

Repost: The S&P tends to bottom in the last week of February, then has a tendency to rally into the end of the month and beginning of the new month buying. Then the portfolio managers mark the S&P up into the March roll / quarterly expiration as all the new IRA money is flooding in. These cycles / tendencies have one more tendency left and it is well known. SELL in MAY and WALK Away.

Kathy has had some very good calls! Charts posted by Kathy Garber @tbg4321. Harmonic rotations: Posted at (08:37CL) CL appears to have C pt in, tgt is 93.56 for completion of bullish Bat w/ scaling pt 93.94, premkt chart: http://screencast.com/t/rhv0FKh6djf1 Follow-up posted at (09:19CT) CL bounced off 93.94 lvl, if price breaches 94.47, then it has a new BC leg, meaning change of harmonic pattern from Bat to Gartley premkt chart: http://screencast.com/t/rhv0FKh6djf1 Current chart: http://screencast.com/t/zXwU5yWKCHq Posted at (09:53:57): ES testing inverse H&S 1.272% tgt at 1590, above there next tgt is 1591.75, premkt chart: http://screencast.com/t/mmmy6IiRi Posted at (10:56:53): 6E in emerging Bat, a b/d 1.3122 has initial sup test 1.3104, this rotation is also an emerging ideal ABCD w/ completion tgt around the 1.3176 fib, important levels to brk & hold are 1.3145 or 1.3086 http://screencast.com/t/d25TNowQnn5

During the Globex session 230k ESM and 1.3k SPM traded on Globex, trading range was 1585.60 – 1581.00. Wednesday's regular trading hours (RTH's), pit session trading range was 1584.30 – 1567.20 before settling at 1582.70 up 19.5 handles. The latest AAII data shows the bulls down to 19.3%, lowest since March '09. Bears 54.5%, most since July '10 as the trend, record run continues. Also, the NYSE opening imbalance was mixed, no opening bias to start the day. At (08:29CT) Top Notch trading the nasdaq opening under its settle, a sign of weakness, while the s&p is opening above its settle price. Tough to gauge out of the gate!

The regular trading hours opened slightly higher at 1582.80 – 1583.50, traded an early low of 1581.20 before continuing the trend of stepping higher. At (09:48CT) Sam E posted: I have so much stuff at 1592 its mind boggling and at (09:55CT) redliontrader pointed out the OEX Put/Call flipped from 18:1 to 1:1 *incredible. The SPM, big S&P tagged the morning high of 1592.50 at 10:28. At (10:25) William Blount offered: OK to short now: http://t.co/eNjHLsl25B and @tbg4321, aka Kathy Garber posted (10:26CT) ES, 1591.75 tgt hit, above there has confluence tgt 1597 (inv H&S 1.618% tgt & another 1.618% extension tgt). The SPM quietly faded back to 1587.80 area by 10:57 before bouncing into the lunch hour. Sam E (10:49CT) fibs don't lie, at least not in east Tennessee. Nice eyes by the group! At 12:00 the SPM was trading in the 1591.70 area, holding 1592.00 at 12:38 before pulling back to hold the previous low, 1587.80 area. Some sideways trade followed before briefly breaching that support area and grinding sideways to higher. Tony LaPorta shared, after yesterday's big move, today was corrective type trade with a positive bias. I expect the same tomorrow but with a negative bias. Elway put it a bit more succinctly - profit taking Friday, [JPM] and [WFC] will shank, retail sales will suck and everyone will be taking profits to buy lear jet fuel by 11a.m. ET. 1588 area was trading when the closing imbalance showed a small $190M to the buy side. 1588 area traded on the cash close, Merrill Lynch sold 800. Settlement was 1587.70, up 5 handles on the day.

Brian Shepard is a 20-year exchange member of the CME Group.

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