SP 500 Sees Profit Taking, Crude Oil Heads Lower

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As data showed Chinese manufacturing unexpectedly shrank, and as the market is digesting Bernanke’s somewhat surprise statement that the Fed may taper bond purchases over the next few meetings, the stock market has experienced a small but significant bout of profit taking starting with a late afternoon sell off yesterday.

Equities: The JUN13 emini Sp 500 has, since Bernanke’s testimony and especially the FOMC minutes release, experienced a bout of profit taking. This selling starting yesterday afternoon as the market could not hold above 1670, and continued overnight, hitting a low of 1632.75.  We believe the market has found its high for the medium term at 1685.75. We have key resistance at 1659, and would not be surprised to see the market trade lower over the next few weeks to 1625. The Nikkei is down one thousand points today to 14664.

Bonds: The Bond market is still showing significant weakness, even in the face of stock market selling. This is likely due to the market trying to position for the Fed slowing their stimulus efforts. We still believe the US 30 yr bond futures could head to our first target of 141, ri ght now they are trading at 142 27. The next key number for this market is in early June: the monthly non farm payrolls report along with the unemployment %.

Currencies: The Japanese Yen has staged a large short covering rally this morning and last night. The Yen is up 151 ticks to 98.40.  Our key pivot level to determine short term bullishness or bearishness is 97.60, and the market is now solidly above this level. We believe this market could trade higher, getting above 99. The Euro/Yen spread trade decreased by over 1%, as the Yen rallied much more than the Euro did.

Commodities: Crude oil, copper and palladium are some of the biggest losers today on the commodities board. Gold and silver are fairly quiet. Crude oil has had some consistent selling over the past few sessions, and is down again today (JUL13 contract) to $93.12. We have our key pivot/decision level at $96. If crude can hold below $96, we believe crude will be in a bearish technical picture and possibly test the next key support level at $88.