Hello All,
The markets are on stand-by awaiting the congressional testimony from Bernanke on Wednesday. Last weeks rate hike was Bernanke's implication that we need to revitalize the interbank lending system, beginning to wean banks off of borrowing directly from the Fed. The fear of not knowing whether the bank you were lending to would have its doors open tomorrow ceased interbank lending nearly overnight, and now the extreme liquidity that has propped up our markets is set to slowly evaporate. This is ultimately the first test to see whether our capital markets have truly recovered, and should be viewed as a good thing. The 'surprise' last week was met with massive selling, which is a natural reaction to doubting the timing of this feat. Yet we must note that we have risen right back to levels prior to the surprise rate hike. Psychologically I would imagine traders would not want to hold positions into the report, so we should see a slight dip tomorrow in most markets, and the markets very well may stay supressed through Thursday prior to bouncing.
1) Sell Mar. Emini S&P at the market (1108.25), with a 1114.50 stop. Exit 1098.00. This would be a counter trend play, and at the very least should give scalpers a direction to trade. I wouldn't expect more than 24% correction of the recent rally, which would be at the 1095 region. If the market is really weak, there is an extended retracement to 1084.
2) Sell April Crude Oil on a stop at 79.60, with a 80.36 protective stop. Exit 78.55. The April contract is now trading where the March contract expired today. The intermonth spread tightened at expiration with its weight to the downside. Fundamentals are not supportive of higher prices, but the charts indicate higher prices towards 82 or 84.50 as a double top before the fundamentals kick in. Last weeks bearish inventory report should clear the weary out of the market ahead of Wed. inventory report, which should allow for a decent dip. We will most likely look into reversing and buying depending on how she falls to our target. There is an additional downside target of 77.50, but I wouldn't count on it in these lackluster conditions.
3) Buy Mar. Euro at 1.3612, with a 1.3570 stop. Exit 1.3705. The dollar index should be under heavy pressure to test the 80 region going into Wednesday's testimony and should provide continued support for the Euro. The market is currently testing the 200 hour moving average and a break above to the 1.3650 region would call for additional buying along with stop orders being triggered right above Fridays high. A 24% extension of the recent rally would bring us to 1.3705, which coincides with a 76% retracement of the range for the last 2 weeks. Key support is at 1.3578, with resistance at 1.3658 and 1.3705.
Best,
Arman Vahdatinia
Futures & Options Strategist
1-877-338-EXPO [3976] ext. 25
www.ExpoFutures.com
*There is a risk of loss trading futures. Past performance is not indicative of future results.
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