Look For Heating Oil To Tank

Automatic cuts in U.S. federal spending -- half of which are in defense programs -- went into effect late Friday following a congressional impasse. With that, U.S. equity markets are hovering around unchanged levels. The MAR. 13 emini SP 500 is trading at 1516, or just about unchanged from Friday’s close. The MAR. 13 U.S. 10-yr. note futures contract is also trading right at the unchanged level this morning. This is somewhat common barring any other unexpected events for a nonfarm payrolls week. This Friday, the BLS will announce the latest jobs and employment data for the U.S. economy.

Short-Term Trouble
We believe that with the current concern still paramount over the U.S. spending cuts as well as the resurfacing of concerns about the Euro region, focused on Italy, the equity markets will have a tough time sustaining a rally beyond 2013 highs over the very short term (30 days). We believe the market wants to see that the economy can withstand the spending cuts, so might be waiting another several months to see a consistent flurry of economic data before making another potential bull run in the equity markets.

Gold is now seeming to find value below the $1600 level. Gold had a very volatile ending to Feb. 2013, and now we believe gold will enter a short term period of range trading. We still believe the overall tone of this market is bearish to neutral. Silver has still not hit our first downside target of $27.50, and we still think silver is headed there, so from here we believe silver is bearish.

Heating Oil
We focus more on heating oil futures this morning. After a big run up in Jan. and Feb. of 2013, this market has virtually collapsed in the past two weeks, trading down from $3.23 to almost $2.90 this morning. We have a key first support at $2.90, then the next major level we are watching is $2.83. We believe the market will approach this level. Our first technical resistance level is at $2.98, where this market experienced major congestion last winter. $3.05 is our major pivot level over the longer term. If this market can stay below this level, we believe it could head lower than $2.83 into the $2.70′s, especially helped by the potential for the rising U.S. Dollar trend to continue.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE VALUE OF INVESTMENTS MAY GO UP AS WELL AS DOWN.

Jason Rotman is President of Lido Isle Advisors, a Managed Futures & Options investment firm. He has appeared on Bloomberg TV and on Marketwatch.com.