US Stock Market Overview – Stocks Drop and the VIX Surges as the Fed Stands Ready

US stocks continue to tumble on Friday, with the major averages down more than 3% at the lows of the session. Some of the larger tech stocks like Microsoft and Apple slammed lower but rebounded to close well off their lows. Gold prices tumbled on Friday, pulling down the metal mining stocks. The Fed was on the tape mid-day saying that they stand ready to lower rates if need be. The market is currently pricing in 3-rate cuts in 2020 with one coming in March of 2020.

All sectors in the S&P 500 index were lower on Friday, led down by Utilities, Energy was the best performing sector in a down tape. Inflation came out in line with expectations, but this did not affect the 10-year treasury yields which dropped to another all-time low. There is little word from the White House about how they will coordinate a response to the coronavirus which is also keeping inventors skittish. The VIX volatility index hit multi-year highs climbing up to 50%, the highest level since 2008.

Inflation Rises

The Personal-consumption expenditures rose 0.2% in January from December, according to the Commerce Department. Personal income advanced 0.6% last month, the largest gain in 11 months. Expectations were for a  0.2% increase in spending and a 0.4% gain in personal income. Gains in income and spending came against the backdrop of still-modest inflation pressures. The price index for personal consumption expenditures, rose 0.1% on the month and was up 1.7% from a year earlier. Year-over-year price gains were 1.5% in December and 1.3% in November.

Mortgages Continue to Buoy Housing Sales

The spread of the coronavirus and the fears associate with it sent bond yields tumbling, the average rate on the popular 30-year fixed mortgage fell to 3.23%, an 8-year low. The lower yields are buoying housing sales. The 30-year fixed loosely follows the yield on the 10-year Treasury, which is now at a record low.

Natural Gas Price Prediction – Prices Drop and is Poised to Test All-time Lows

Natural gas prices moved lower on Friday, dropping more than3% for the day and down 11% for the week. A larger than expected build in natural gas inventories, in conjunction with warmer than normal weather, has led prices lower. The weather over the next 8-14 days is expected to be warmer than normal according to the most recent report from the National Oceanic Atmospheric Administration.

Technical Analysis

Natural gas prices tumbled more than 11% this week, keeping pace with the drop in the equity markets. A decline in LNG exports is reducing demand in conjunction with warmer than normal weather. Target support is the 2016 lows at 1.61. A break of this level would be a fresh low on natural gas prices. Resistance is seen near the 10-week moving average at 1.95.

Weekly momentum is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices. The fast stochastic generated a crossover sell signal in oversold territory. The current reading on the fast stochastic is 4.4, well below the oversold trigger level of 20 which could foreshadow a correction.

Th EIA reported that net withdrawal from storage totaled 143 Bcf for the week ending February 21, compared with the five-year average net withdrawal of 122 Bcf and last year’s net withdrawal of 167 Bcf during the same week. Working natural gas stocks totaled 2,200 Bcf, which is 179 Bcf more than the five-year average and 637 Bcf more than last year at this time. The average rate of withdrawal from storage is 9% lower than the five-year average so far in the withdrawal season. If the rate of withdrawal from storage matched the five-year average of 8.3 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,876 Bcf on March 31, which is 179 Bcf higher than the five-year average of 1,697 Bcf for that time of year.

Gold Price Prediction – Prices Tumble as Momentum Turns Negative

Gold prices were hammered on Friday as a crowded trade lost many weak longs. Prices sliced through short term support levels, despite declining US yields but a steady dollar. Generally, gold prices are negatively correlated to the 10-year yield but the correlation has broken down as gold drop in tandem with US yields. US personal consumption expectations rose in January to an 11-month high.

Technical Analysis

 

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Gold prices were hammered on Friday, as trades quickly exited pushed the yellow metal down more than 4%. Volatility on gold prices surged higher but eased into the close. Why concerns over the spread of the coronavirus continue to weigh on riskier assets, gold has been immune and up until Friday used as a safe-haven asset. Prices sliced through support near the 10-day moving average which is now seen as resistance at 1,615. Prices bounced near the 50-day moving average at 1,569. Prices have also slipped through an upward sloping trend line that comes in near 1,571.

Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram also generated a crossover sell signal, crossing through the zero index level. The downward sloping trajectory of the MACD histogram points to accelerating negative momentum.

Inflation Rises

The Personal-consumption expenditures rose 0.2% in January from December, according to the Commerce Department. Personal income advanced 0.6% last month, the largest gain in 11 months. Expectations were for a  0.2% increase in spending and a 0.4% gain in personal income. Gains in income and spending came against the backdrop of still-modest inflation pressures. The price index for personal consumption expenditures, rose 0.1% on the month and was up 1.7% from a year earlier. Year-over-year price gains were 1.5% in December and 1.3% in November.

US Stock Market Overview – Stocks Tumble As Fears Push VIX to 2-year Highs

US stocks traded under pressure for a 7th consecutive trading session. The S&P 500 index officially hit correction territory. Yields moved lower, volatility continued to rise, as investors struggled to determine where the market will bottom.

While many analysts are talking about whether the Fed will lower rates, the Fed is trying to focus on credit and slower growth. A correction in stock prices is normal, but if prices move quickly into a bear-market territory (the S&P 500 index down 20% from its highs), the Fed will likely be quick to make a move. The data the market is seeing for February is not that bad. The issue is that the stock market is forward-looking and the slowness will probably not occur until April. The market is currently pricing in 3-reductions in Fed fund rates in 2020, with a better tan 50% chance in April.

The VIX volatility index continued to surge on Thursday, rising above 36% at the highs of the session. While the VIX hit a high of 50% in February of 2018, this is likely to be the highest weekly close on the VIX in the past 3-years. Housing data continued to impress as US treasury yields decline. The 10-year Treasury yield hit a low of 1.29 on Thursday, which weighed on mortgage yields making home buying more attractive. Gold prices continue to rise as Treasury yields held south, somewhat buoying metal mining companies.

The Housing Market is Surge

Declining treasury yields are weighing on mortgage rates, providing lower costs to purchase homes. The National Association of Realtors, reported that Pending Home sales surged 5.2% on January, up 5.7% year over year. Pending sales measure signed contracts, not closings.

Natural Gas Price Prediction – Prices Tumble Following Inventory Draw Miss

Natural gas prices tumbled 3.7% on Thursday following a smaller than expected draw in natural gas inventories according to a report from the Department of Energy. Much warmer than expected weather is expected to cover the eastern portion of the United States, and then moderate slightly over the next 8-14 days. The decline in LNG exports in the latest week, due to the lack of manufacturing activity in China continues to weigh on prices.

Technical Analysis

Natural gas prices moved lower on Thursday closing a fresh lows for the move after hitting 1.719 and poised to test the 2016 lows at 1.61. Resistance on natural gas prices is seen near the 10-day moving average at 1.86. Additional resistance is seen near the 50-day moving average at 2.015. Short term momentum remains negative as the fast stochastic heads lower and is poised to test oversold territory. The current reading on the fast stochastic is 23, just above the oversold trigger level of 20. Medium term momentum is above to turn negative as the fast stochastic is poised to generate a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Stockpiles Fall Less Than Expected

Natural gas in storage was 2,200 Bcf as of Friday, February 21, 2020, according to the EIA estimate. This represents a net decrease of 143 Bcf from the previous week. Expectations are for a 158 Bcf draw. Stocks were 637 Bcf higher than last year at this time and 179 Bcf above the five-year average of 2,021 Bcf. At 2,200 Bcf, total working gas is within the five-year historical range.

Gold Price Prediction – Prices Consolidate as US Yields Stabilize

Gold prices are consolidating and despite the selloff in riskier assets, the rush to gold as a safe haven was minor. Gold has been consolidation and continues to range trade waiting for US yields to take another leg lower.  Yields dropped to 1.235% which is the lowest in more than 100-years but rebounded and above the 1.32%, which weighed on gold prices. The flight to bonds should continue following data that will be released at the beginning of March. Housing data continued to impress as the drop in the mortgage rate continued to attract home buyers.

Technical Analysis

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Technical Analysis

Gold prices moved higher early as riskier assets came under pressure. As the day progressed, prices retraced and traded near Wednesday close. The price action still looks like a bull flag pattern. This is a pause that refreshes higher. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,621. Short term momentum has turned negative as the fast stochastic recently generated a crossover sell signal, and continue to accelerate lower as a steady clip. The current reading on the fast stochastic is 61, declining from overbought territory which also reflects decelerating positive momentum. The MACD histogram is printing in the black with a declining trajectory which points to consolidation.

The Housing Market is Surge

Declining Treasury yields are weighing on mortgage rates, providing lower costs to purchase homes. The National Association of Realtors reported that Pending Home sales surged 5.2% in January, up 5.7% year over year. Pending sales measure signed contracts, not closings.

Organic Corn Prices Break Below the $8 Level; Poised to Test 2016 Lows

Organic corn prices mid-west picked up at the farm have dropped below $8 per bushel level. Prices for spot loads are trading near $7.75, as farmers are clearing out their bins ahead of the planting season. There appears to be a concerted effort in the mid-west to purge spot organic corn, and consumers are lower their bids.

Merchandisers have quoted prices in the South-Central PA region at $10.65 per bushel for Q4, and with approximately a $2.5 freight and loading charge to reach the mid-west, Q4 prices should be trading near $8.15 for the Q4. Organic corn prices are poised to test support near the 2016 lows at $7.40.

There is a combination of issues that are dragging on prices. First, most consumers are covered for the balance of Q1 and Q2 fo 2020. There is plenty of corn around, in bins, looking for a home. Additionally, a decent quantity of the organic corn this year has a test weigh below 54. While some merchandisers will accept organic feed corn #2 at a 52-test weight with a discount (of approximately 5 cents per pound), others are rejecting the corn which is creating additional headwinds for prices.

There also appears to be strong demand for organic corn with test weights that would place it at #1, which is 56 and above. The Jacobsen has heard that there is a robust premium for #1 organic corn which could be up to $1 per bushel. This would be used to mix with lower test weight corn to achieve 54 test weight.

There is also an accelerating number of farmers concerned that there could be too much precipitation again in 2020. Their concern stems from a recent report from the National Weather Service who is warning there is a high risk of flooding again this spring in the mid-west especially in areas that are still saturated. Additionally, farmers are concerned that levee fixes will not take place expeditiously, which will buoy insurance premiums for affected areas.

 

US Stock Market Overview – Stocks Close Mixed; Nasdaq Outperforms; The Russell Drops Sharply

US stocks were mixed on Wednesday after initially rising, but the Dow and S&P moved into the red and remain underwater for the latter half of the trading session. The Nasdaq broke a 4-day losing streak driven by the FANG stocks which outperform. The Russell 200 was the worst-performing average declining by 1.2%. Oil prices were under significant pressure falling 3%, as concerns over the coronavirus continued to weigh on energy. All sectors in the S&P 500 index were lower driven down by Energy, Healthcare was the worst-performing sector. US home sales surged higher rising nearly 8%, driven by rising mortgage applications. The VIX volatility index slipped slightly but still remain buoyed above 27%.

US Home Sales Rise

The commerce department reported that US single-family homes raced to a 12-year high in January. New home sales jumped 7.9% to an annual rate of 764,000 units last month, the highest level since July 2007. December’s sales pace was revised up to 708,000 units from the previously reported 694,000 units. Expectations had been for new home sales, which account for about 12.3% of housing market sales, which would advance 3.5% to a pace of 710,000 units in January. New home sales jumped 30.3% in the Midwest to their highest level since October 2007.

The gain in home sales was driven by rising mortgage application volume which rose 1.5% last week from the previous week, according to the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 3.73% from 3.77%, with points decreasing to 0.27 from 0.28. Applications to refinance a home loan fell 1% for the week but were still 152% higher than a year ago.

Energy Inventories Rose

US crude oil inventories increased by 500 thousand barrels from the previous week. At 443.3 million barrels, crude oil inventories are about 3% below the five year average for this time of year. Gasoline inventories decreased by 2.7 million barrels last week and are about 2% above the five year average for this time of year. Distillate fuel inventories decreased by 2.1 million barrels last week and are about 5% below the five year average for this time of year.

Natural Gas Price Prediction – Prices Slide Ahead of Inventory Report

Natural gas prices continued to consolidate on Wednesday ahead of Thursday inventory report from the Department of Energy. Expectations are for a reduction in stockpiles by 132 Bcf according to survey provider Estimize. The weather is expected to be warmer than normal over the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration. LNG exports have declined according to the latest data from the EIA. The spread of the coronavirus has reduced demand from China which has spilled over into US exports.

 

Technical Analysis

 

Natural gas slides 1.3% on Wednesday and are poised to test the February lows at 1.74. Resistance on natural gas is seen near the 10-day moving average at 1.87. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal. The MACD histogram is printing in the black with a sliding trajectory which points to consolidation.  The relative strength index moved lower and reflects accelerating negative momentum. The current reading of the RSI is 41, which is in the middle of the neutral range and reflects consolidation.

US LNG Exports Slide as Demand Declines

US LNG exports decrease week over week. Fourteen LNG vessels with a combined LNG-carrying capacity of 49 Bcf departed the United States between February 13 and February 19, according to shipping data compiled the EIA.

Gold Price Prediction – Prices Rise Forming Bull Flag Pattern

Gold prices rebounded on Wednesday as riskier assets and yields continued to whipsaw. The US 10-year yield hit a fresh all-time low at 1.294 before rebounding and closing at 1.33%. The markets remain skittish which buoyed the yellow metal as a new case of coronavirus was discovered in the US. President Trump is expected to hold a press conference this evening to describe to the American people how the US government will handle the coronavirus. US single-family home sales surged to a fresh 12-year high as mortgage rates continued to decline following treasury yields lower. Gold implied volatility, represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged declined 7% after rallying 5% on Tuesday climbing 9% Monday.

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Technical Analysis

 

Gold prices moved higher and are forming a bull flag continuation pattern. This is a pause that refreshes higher. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,615. Short term momentum has turned negative as the fast stochastic recently generated a crossover sell signal. The current reading on the fast stochastic is 67, declining from overbought territory which reflects decelerating positive momentum. The MACD histogram is printing in the black with a declining trajectory which points to lower prices.

Home Sales Surge

The commerce department reported that US single-family homes raced to a 12-year high in January. New home sales jumped 7.9% to an annual rate of 764,000 units last month, the highest level since July 2007. December’s sales pace was revised up to 708,000 units from the previously reported 694,000 units. Expectations had been for new home sales, which account for about 12.3% of housing market sales, would advance 3.5% to a pace of 710,000 units in January.

US Stock Market Overview – Stocks Tumble and the VIX Surges on Coronavirus Fears

US stocks tumbled for a second consecutive trading session, with the Dow Industrials falling more than 3%. Stocks started the session in the black, but prices quickly turned lower as concerns over the spread of the coronavirus weighed on a riskier asset. The 10-year Treasury yield continued to tumble lower falling to a 100-year low. The interest rate curve as the short end of the treasury curve is now inverted pointing to a potential recession. All sectors in the S&P 500 index were lower, led down by Energy which dropped nearly 5% and materials which were down 4.5%. Consumer confidence rose less than expected, while housing prices continued to rise. The decline in treasury yields will pull down mortgage rates, potentially setting up a surge in home sales. Bob Iger will step down as Disney CEO and assume the role of executive chairman.

The VIX Continues to Surge

The VIX volatility index surged another 11% on Tuesday as riskier assets tumbled. The VIX hit a 12-month high hitting 30%.

Consumer Confidence Rise Less than Expected

US Consumer confidence rose less than expected in February according to The Conference Board. The consumer confidence index came in at 130.7, up from 130.4 in January. Expectations has been for confidence to rise to 132.6. The Conference Board’s present situation index, which accounts for consumers’ assessment of the current business and labor environment, dropped to 165.1 from 173.9 in January.

Home Prices Rise

Home prices rose 3.8% annually according to the S&P CoreLogic Case-Shiller National Home Price Index. That is up from the 3.5% gain in November. The 10-city composite increased 2.4% annually, up from 2% in the previous month. The 20-city composite rose 2.9%, up from 2.5% in the previous month.

Twelve of the 20 cities saw bigger price increases in the year ending December compared with November’s annual read. Every city in the 20-city composite saw a gain in home values. Chicago and New York saw the smallest annual gains at just 1% for each.

Disney Will Get a New CEO

Bob Iger announced that he will step down as Disney CEO and assume the role of executive chairman. Bob Chapek, who most recently served as chairman of Disney parks, experiences and products, will assume the role of CEO, effective immediately, Disney announced.

Natural Gas Price Prediction – Prices Consolidate Despite Warm Weather Forecast

Natural gas prices consolidated on Tuesday after tumbling Monday as concerns of the spread of the coronavirus continued to weigh on the energy complex. The lack of growth in China and the rest of Asia could reduce demand for LNG, which is a source of demand for the natural gas industry. The weather is expected to be warmer than normal over the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration.

Technical Analysis

 

Natural gas rebounded slightly climbing 0.8% after dropping nearly 4% on Monday. Prices are poised to retest the February lows at 1.74, as short-term momentum turns negative. Resistance on natural gas is seen near the 10-day moving average at 1.87. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal. The MACD histogram is printing in the black with a sliding trajectory which points to consolidation.  The relative strength index moved lower and reflects accelerating negative momentum. The current reading of the RSI is 42, which is in the middle of the neutral range and reflects consolidation.

Demand Rises

Demand increased in the latest week driven by demand for space heating. Total US consumption of natural gas rose by 3% compared with the previous report week, according to data from the EIA. In the residential and commercial sectors, consumption increased by 7%. Natural gas consumed for power generation declined by 1% week over week. Industrial sector consumption increased by 1% week over week.

Gold Price Prediction – Prices Ease Despite Drop in Riskier Assets

Gold prices eased on Tuesday coming off 7-year highs, despite a huge selloff in riskier assets. Gold implied volatility, represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged another 5% on Tuesday after climbing 9% Monday. This is the highest close on the gold implied volatility index is more than 12-months at 18.50%. The highest close of the GVZ implied volatility index over the past 10-years is 37%. This tells market participants that fear is increasing and the demand for gold options continues to rise. Fears of the spread of the coronavirus throughout Asia and now Europe and the US have to lead to a sharp selloff in riskier assets that have led investors into bonds which have surged. The drop in the 10-year yield to fresh 100-year lows is negatively correlated to gold prices and likely to drive them higher.

 

 

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Technical Analysis

Gold prices eased but closed off the lows of the session. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,608. Short term momentum has turned as the fast stochastic generated a crossover sell signal. This occurred in overbought territory which reflects accelerating negative momentum. The current reading on the fast stochastic is 80.5, above the overbought trigger level of 80 which could foreshadow a correction. The RSI (relative strength index) also eased slightly, but still remains above the overbought trigger level printing a reading of 73, above the overbought trigger level of 70 which could foreshadow a correction. The MACD histogram is printing in the black with a declining trajectory which points to lower prices.

How Low Can US Bond Yields Go?

The US 10-year yield until Monday was hovering near the 1.5% level but has broken down to 100-year lows. Concerns over the spread of the coronavirus into the US, which could weigh on economic growth, has generated tailwinds for bond prices. Recall, the price of bond moves in the opposite direction of its yield. Additionally, the front end of the interest rate curve in the US is now inverted. This means that 3-month US treasury bill yields are higher than the 2-year and 10-year yield. This generally foreshadows a recession. With all of this in mind, the question for investors is how low can treasury yields go?

The Fed said it plans on taking a wait and see approach to interest rates. The market is now pricing in approximately two 25-basis point rate reduction by the Fed during the next 12-months. Additionally, it also appears that options traders are lining up to purchase US bond ETF. The strike of pain for the TLT was $150 per share and as it crossed through this level, the seller of those calls needed to cover. The next target price on the ETF is $153, which would push the US Treasurytreas yields even lower.

Technicals

The weekly chart of the US 10-year yield shows new historic lows for the 10-year bond. Resistance is seen near the 10-week moving average at 1.65. Support is likely near the 1.25% level.  Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-week moving average) crosses below the MACD signal line (the 9-week moving average of the MACD line). The MACD histogram also generated a crossover sell signal, piercing through the zero-index level. The trajectory of the MACD histogram is downward sloping which points to lower yields.

While the weekly RSI is yet to fall into oversold territory, it is printing a reading of 31, just above the oversold trigger level of 30. The fast stochastic generated a sell signal in oversold territory, and the current reading of 7, is well below the oversold trigger level of 20 which could foreshadow a correction.

Bottom Line

Sentiment remains negative and it’s hard to determine what will change this sentiment. The spread of the coronavirus has changed the view of global economic growth which is now weighing on bond yields. Look for the 10-year to drop another 6-7-basis points down to 1.25 before consolidating and then refreshing lower.

US Stock Market Overview – Stocks Tumble on Coronavirus Fears, the VIX sSrges along with Gold Prices

US stocks tumbled on Friday with all three major indices dropping sharply. The decline in the Dow Industrial average was the second-largest drop in history. Concerns over the spread of the coronavirus and a decline in global growth weighed on riskier assets. The rapid spread of the virus through South Korea and Italy led to the market selloff. The selloff in the S&P 500 index put stocks in the red for 2020. All sectors in the S&P 500 index were lower on Monday, led down by Energy Shares and Cyclicals. Utilities that are defensive in nature were the best performing sector in the S&P 500 index.

The US 10-year treasury yield dropped below support levels falling to 1.46%, the lowest in more than 100-years. This put downward pressure on the mortgage market which could help boost home sales. Gold prices surged helping to buoy metals and gold miners. Crude oil prices tumbled more than 3% weighing on energy shares. Apple shares tumbled more than 4% helping to drag down the major indices. Bernie Sanders strong showing in the Democratic primary over the weekend put additional downward pressure on the healthcare sector. Bernie Sanders has made it clear that if he is elected President he will put healthcare companies out of business.

The VIX Surges but Settles Off its Highs

The VIX volatility index surged higher, closing up nearly 37% on Monday, but closed off the highs of the day. The VIX measures the “at the money strike price” implied volatility on the S&P 500 index. The VIX hit a high of 26% on Monday which was the highs level in more than 14-months but closed off its highs near 23%.

Buffet Sees a Slowdown

The oracle of Omaha was interviewed during the North American morning by CNBC. Warren Buffett said that while the U.S. economy still looks healthy, it isn’t as robust as it was 6-months ago thanks to headwinds like the Trump administration’s trade war and coronavirus. Buffet said that business is down but it’s down from a very good level.

Natural Gas Price Prediction – Prices Drop as Exports are Expected to Decline

Natural gas prices tumbled on Monday as concerns of the spread of the coronavirus continued to weigh on the energy complex. The lack of growth in China and the rest of Asia could reduce demand for LNG, which is a source of demand for the natural gas industry. The weather is expected to be warmer than normal over the next 8-14 days according to the National Oceanic Atmospheric Administration. Managed money reduced short position in futures and options and added to long position according to the most recent commitment of trader’s report.

Technical Analysis

Natural gas prices dropped nearly 4% on Monday, reversing the gains seen last week. Prices are poised to retest the February lows at 1.74, as short-term momentum turns negative. Resistance on natural gas is seen near the 10-day moving average at 1.87. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal. The MACD histogram is printing in the black with a sliding trajectory which points to consolidation.  The relative strength index moved lower and reflects accelerating negative momentum. The current reading of the RSI is 41, which is in the middle of the neutral range and reflects consolidation.

Hedge Funds Reduce Short Positions

According to the latest commitment of trader’s report released for the date ending February 18, 2020, managed money reduced short position in futures and options by 15.5K contracts while increasing long position in futures and options by 21K contracts. Despite the reduction in short open interest, hedge funds that are short natural gas outnumber hedge funds that are long futures and options by 2.6-times, down from nearly 3-times last week.

Gold Price Prediction – Prices Surge Along with Gold Volatility to Fresh 7-year Highs

Gold prices surge hitting fresh 7-year highs, climbing close to the $1,700 level as the spread of the coronavirus continued to buoy the yellow metal. Prices stormed higher rising by nearly 2% but closed off the higher of the day. Gold implied volatility, represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged more than 9% on Monday after climbing 33% last week. This is the highest close on the gold implied volatility index is more than 6-months. The highest weekly close for the GVZ over the past 12-months is 18.5%, and the highest close of the GVZ implied volatility index over the past 10-years is 37%. This tells market participants that fear is increasing and the demand for gold options continues to rise.

 

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Technical Analysis

 

Gold prices surged but settled well of the highs of the session as profit-taking took hold. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,601.

Short term momentum has turned negative despite the acceleration in the price action as the fast stochastic generated a crossover sell signal. This occurred in overbought territory which reflects accelerating negative momentum. The current reading on the fast stochastic is 89, well above the overbought trigger level of 80 which could foreshadow a correction.

The RSI continued to move higher which is a positive sign for gold prices, as momentum is moving higher in tandem with price action which reflects accelerating positive momentum. The current reading on the fast stochastic is 79, well above the overbought trigger level of 70 which also could foreshadow a correction. Medium-term momentum is also positive as the MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices. The MACD recently generated a crossover buy signal.

Organic Soybean Prices Could Surge on African Swine Flu Import Ban

The goal is to protect the U.S. pork industry from the introduction of the virus. The question for those in the trade is how this will affect organic soybean prices. Additionally, if this ban comes to pass, how long before the Pork Industry realizes that organic corn could also carry ASF, which could impact organic corn prices.

The U.S. pork industry wants Secretary Perdue to restrict the import of organic soy products for animal-feed under the Animal Health Protection Act from all ASF-positive countries. The Secretary has broad authority under the Animal Health Protection Act to prevent the introduction of foreign animal diseases.

There are several countries that currently are experiencing an ongoing battle with ASF. Of the countries that import organic soybeans to the US in 2019, Ukraine, Russian and Moldova, along with China are currently battling ASF according to the World Animal Health Information Database.

The volumes of imports from impacted countries make up approximately 25% of the total organic soybeans that were imported into the United States in 2019. Separately, Romania tops the list of countries that are impacted by ASF that exported organic soybean meal into the United States in 2019. Approximately 9% of the organic soybean meal that was imported into the US in 2019 came from Romania.

So how will this impact the price of the organic soybean complex? With tight supplies already driving organic soybean prices above $20 per bushel in the mid-west and $780 for organic soybean meal per short ton in South Central PA, the result should be bullish.

Approximately 65K metric tons of organic soybeans and nearly 18K tons of organic soybean meal would possibly be restricted. Organic soybean/meal imports made up slightly more than 70% of the organic soybean/meal used for feed during 2019, and merchandisers are already having a difficult time finding any available organic soybeans in the US. While the restriction would have an immediate impact on sentiment likely pushing organic soybean/meal prices higher.

*Countries in bold are experiencing ASF

US Stock Market Overview – Stocks Slide on Coronavirus Fears

US stocks traded under pressure on Friday as the dollar finally reversed which could provide a respite for large-cap multinational companies. The strength of the greenback is putting downward pressure on EM and Asian shares, which eventually could spill over on US stocks. The S&P 500 index could be vulnerable to profit-taking. Multinational corporations will suffer earnings losses as the dollar moves higher which means that the earnings forecasts in the US might be overstating the value of US stocks.

Multinational corporations that have earnings in other currencies, will only be able to capitalize on the value of the earnings if they are hedged. If not, when they convert the foreign currency back to US dollars, they will get less than they would last quarter. Gold prices surged higher buoying mining companies.

Sectors in the S&P 500 index were mixed, with technology leading the broader markets lower.  Real-estate bucked the trend.

Existing Home Sales Fall in January

US existing home sales fell in January. The National Association of Realtors said on Friday existing home sales declined 1.3% to an annual rate of 5.46 million units last month. December’s sales pace was revised down to 5.53 million units from the previously reported 5.54 million units. Expectations were for existing home sales falling 1.8% to a rate of 5.43 million units in January. Existing home sales, which make up about 90% of U.S. home sales, surged 9.6% on a year-on-year basis in January.

Jobless Claims Bounce as Expected

Initial claims increased 4,000 to 210,000 for the week ended February 15, according to the Labor Department. The expectation had forecast claims to increase to 210,000 in the latest week. The four-week moving average of initial claims, fell 3,250 to 209,000 last week.

Regional Manufacturing Rises More than Expected

The Philadelphia Fed gauge of business activity surged in February to its highest level in three years. The regional Fed bank’s index jumped to 36.7 in February from 17 in the prior month. Expectations had been for the index to come in lower at a 10 reading.

Natural Gas Price Prediction – Prices Slip but Close up Nearly 4% for the Week

Natural gas prices whipsawed for a second consecutive trading session initially testing lower levels and then rebounding to close the session -0.6%. For the week, prices rallied nearly 4% but well of the highs of the week. This follows Thursday’s outside day reversal pattern is a negative sign. The weather is expected to be cooler than normal in the east and southeast for the next 6-10 day and then moderate to normal to above normal during the next 8-14 days. Supply that was available in the US was driven by imports from Canada

 

Technical Analysis

 

Natural gas prices whipsawed but rebounded from session lows after hitting support near the 10-day moving average at 1.87. Resistance is seen near the February highs at 2.03. Short term momentum is negative as the fast stochastic generated a crossover sell signal in overbought territory. The current reading on the fast stochastic is 57, coming from an overbought reading which reflects accelerating negative momentum.

Supply Increased Due to Imports

Supply rose as net imports from Canada rise. According to data from the EIA, the average total supply of natural gas rose by 1% compared with the previous report week. Dry natural gas production remained constant week over week. The average net imports from Canada increased by 7% from last week with higher imports into New England because of winter temperatures.