The foreign data over the past two days has been a bit of a mixed bag with China's imports down sharply while their exports were down as well, but less than expected. This equated to the sharply higher trade balance. Japan continued to show a negative GDP but the -1.2% was dramatically better than the -1.8% that was expected. European data was surprisingly strong with Germany leading the way with radical beats in their import and export data.
When we put it all in the blender, we end up with a cocktail that is mostly risk on, particularly when looking at equities and bond yields. The S&P 500 is soaring higher, at one point up 40 handles. The 30-year bond price is down over a handle and a half as it appears that the next big data point will be the FOMC decision on rates due out next week. We are not seeing much priced in currently in the fed funds market or the short term yielding notes, though that could start to change dramatically as we hear some continued "fed speak" leading up to the potentially monumental meeting.
The most interesting development is the rending of the crude and other commodities from the risk on/risk off switch. Currently, WTI crude is down over a dollar while the aforementioned rally is afoot. China's strong miss in the import data last night probably has the most to do with the move to the down side. It feels like the bears may make another run at the lows (though I think it will be unsuccessful) before we see sharply higher prices. It would seem very doubtful that the market could test the 37.75 area in light of the rest of the market sectors strength and the strong data out of everywhere not named China.
What we may see is a pronounced push lower offering a strong buying opportunity somewhere between 43.25 and 42.50. There appears to be strong support in that range should the data remain mostly positive. Supply data will be delayed until tomorrow mid morning due to the U.S. holiday so we will have to wait another day to see if last week’s surprise build becomes the start of a trend or remains a relative anomaly.
Natural gas continues to remain in a very tight range but starting to show some signs of life to the up side with the stretch higher to the mid 2.70's before falling back again. The ever tightening pennant formation being created on the chart is begging for a breakout. It would seem, again, more likely based on the uber-low price that it is currently trading at, that the market is just waiting for some bullish news to take a ride higher on, yet the process has been slow for certain.
Selling option puts in this environment seems like a reasonable risk to earn some capital while waiting for the breakout, particularly if your selling a strike that you would be willing to be long the futures at if it were to over reach lower. Options sellers have made out well in this low volatility contract but it is still important, with a breakout somewhere ahead, to have a directional bias as well.