February was another strong month for world markets. US indices continued their Trump honeymoon rallying to more all-time highs led by the Dow leaving 20,000 in its dust. Stocks started to tire toward the end of the month, however, so March could be choppier. Meanwhile, in currency markets, capital moved back into defensive havens like gold and JPY while EUR retreated and GBP struggled.
My results for February were mixed. Italy’s FTSEMIB declined as expected, falling below the downside forecast and finishing close to it. Robusa Coffee did decline as expected but only fell about half as much as forecast. GBPUSD had a volatile month spending most of it underwater. While I remain confident it can get to $1.3000 in the coming months, clearly my timetable was too aggressive. Cable may remain an active trader in both directions through March.
March has the potential to be a very active one for North American markets. Two big events in the US are likely to set the tone for trading.
The speech by President Trump to Congress on February 28th is expected to, among other things, outline his spending priorities for the coming year. Markets have staged a massive rally on anticipation of higher defense and infrastructure spending, tax reform and health care changes including the repeal of Obamacare. Through March we should find out which priorities are going to be addressed first and which could be put off to the summer, autumn or even next year.
Depending on what happens traders could be encouraged or they could reach the limits of their patience. The speech and follow-on announcements through the month could have a big impact on trading in US indices and key sectors including construction, industrials, health care and defense.
The March 15th Fed meeting interest rate decision, statement and member projections could have a big impact on trading in USD. Trading in the US Dollar with the index above 100.00 indicates the street is expecting the Fed to raise interest rates at least four times in 2017. To do this and maintain its plan to move gradually, it would need to raise rates in March. If it does not, this would signal 2-3 rate hikes are more likely this year. The current Fed party line is three 2017 increases, any change to that could also have a big impact on trading. I think the Fed will hold rates steady and leave the door open to three hikes later although I also think they will only raise rates twice this year (June and December)
March 15th is also the day that the previous US debt ceiling deal comes to an end. This could bring back political wrangling in the US over spending and potentially lead to another government shutdown. This could increase political volatility in the US and potentially impact trading.
March could also be a big month for trading in the UK and Europe. The UK government is expected to trigger Article 50 sometime in March and by then we should get a better idea of initial negotiating stances and processes, including whether there could be another Scottish independence referendum or not. On the continent, the Netherlands is holding an election with Euroskeptics leading in the polls while the campaign in France heats up.
Three interesting markets for March 2017
1) Index Hang Seng Average Current Price 23,905 1 month forecast 23,000
A number of major indices are looking technically exhausted but March is also historically a strong month for stocks. The Hang Seng, however, is historically a poor performer in March and this could get exacerbated if stocks slump. The index has been overbought technically and recently fell back under 24,000. This breakdown signalled the start of a downswing that could retest 23,000 the next big round number down which coincides with its 50-day moving average.
2) Commodity Platinum Current Price $1,037 1 month forecast $1,090
Precious metals have been picking up lately in general and March has historically been a positive month for Silver and Platinum. Silver has been particularly strong lately and I think platinum has room for a catch-up rally. Platinum recently broke out of a sideways range clearing $1,030. Its next resistance zone appears in the $1,080 to $1,100 area which includes a round number, Fibonacci level and measured move.
3) Currency USDJPY Current Price 112.23 1 month forecast $1.1000
Since completing a double top at the beginning of 2017, USD has been weakening relative to the Yen. I think this may continue in March on a combination of growing political risk sending capital toward defensive havens and the Fed deciding not to raise rates sending USD lower. A descending triangle is forming above 111.30, a breakdown could open the door to a test of the 110.00 round number. Upside resistance appears near 114.05.
Commodity Market Outlook for March 2017
Historically March is a mixed month for commodities where markets usually do really well or really poorly. Of the twenty markets I look at, 12 historically gain on average and 8 historically post declines on average. Coming out of February, energy and metals have been climbing while grains and softs have been declining.
Historically the top performing commodities in March have been in the energy group, gasoline, crude oil and (surprisingly) natural gas. The historical worst performers in March include wheat and sugar.
Last month, corn performed very well trading above the 3.72 objective by mid-month but then slid back toward the end of the month. Sugar spent most of the month trending sideways. It did break down late in the month which enabled it to get about halfway toward its downside objectives.
Best Commodity Gasoline Current price $1.54 one-month forecast $1.68
Gasoline has historically been the top performing commodity in March by far with an average 13.2% return as traders start to look ahead to summer driving season. Gasoline had been in a seasonal slump through January and February but has started to turn back upward, holding its 200-day average and regaining $1.50. The RSI indicator regaining 50 also indicates momentum turning upward. Initial resistance appears near $1.60 then $1.68 near its May and December 2016 peaks and the top a big sideways trading channel.
Worst Commodity Robusta Coffee Current Price 2,072 one-month forecast 1,934
Upward momentum had been slowing for a while in Robusta Coffee, but in February it turned decisively downward breaking a year-long uptrend and falling under 2,100. Initial support could appear near 2,040 or 2,000 but this new downtrend could potentially test its 200-day average near 1,934 over time. March historically has been a down month for Robusta Coffee as well.