As investors weigh the possibility that the Federal Reserve will scale back stimulus plans, the U.S. stock market is making a small pullback this morning. The market is relatively quiet in anticipation of the Fed minutes and the Bernanke testimony tomorrow.
Equities: We believe the market could be very ripe for a pullback, after steadily marching higher through the whole month of May. After hitting 1670, the JUN13 E-mini S&P 500 market is range-trading this morning in the 1660s. Right now, the market is up .75 points to 1665.50. The JUN13 E-mini Nasdaq 100 is up 2.25 points to 3023, and the Nikkei futures are up 125 points to 15465. Even though we believe the equity markets are in the potential early stages of a longer term bull market cycle, we also think this market is indeed ripe for a small pullback, and we may get a reason for that on Wednesday, if the minutes from the FOMC give official indication of a slowing of Fed stimulus.
Bonds: The bonds have been fairly bearish this month, with various fed officials peppering the newswires with comments of slowing QE. The JUN13 U.S. 10-year note is down 1 tick to 131’25. We continue to hold the belief that the U.S. bond markets (10-year and 30-year futures) have potential to move lower in price. As we have been discussing, the key metric to watch each month to help determine when the Fed will or won’t start to slow its own bond purchases is the unemployment percentage.
Currencies: The U.S. dollar continues its bullish run against the Aussie dollar and the Japanese yen this morning. The yen is still holding above our key pivot level of 97.60, and since this is true as of now, we would not be surprised to see a short covering rally. The Aussie dollar is down 17 ticks to 97.81. Our key short term resistance level is 98.26, and our next key support level below is 96.80. We believe the trend for this currency is clearly down, but would not be surprised to see a short term sideways trade to consolidate the market before its next move.
Commodities: After a rapid short covering rally in gold, which took the futures up to $1,400, the market is back down to $1,370 today. Platinum is down big, trading down $28 to $1,457. Our key resistance levels for platinum are $1,500 and $1,520. Even though platinum is gaining media attention as an “alternative precious” metal to use as an investment, we still believe it is susceptible to downward price movement if the U.S. dollar continues to have strength.
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