Comments:
This week, we have the FOMC meeting to contend with but on the commodities front we feel that there are other even more important things to mention. The traditional measure of the how the Commodities markets are doing as a whole has been the CRB index. This index has undergone a number of changes in recent years but the bottom line is no matter how you measure it, commodities as a whole are at all time highs. And I mean all time not just life of contract highs, but real all time highs in the history of recorded time in many cases. Gold above $925, Oil above $90, Beans finally went to the teens, Corn near $5.00 etc etc. Will this trend continue is of course the question every trader is asking? Our general feeling is that over the long run yes this trend will continue for many years to come, but in the short term we expect to see some broad corrections in many of these markets. The short term being the next 3-6 months, and the longer term being the next 3-6 years. So if you have ridden this bull up so far we suggest you at begin to think about taking or at the very least, locking in many of those gains.
Energy:
Last week we mentioned that we expected crude to find and hold support above the $85 level. We have seen that level hold and are now back to trading back and forth around the $90 level. We continue to expect to see $85 hold as support in the near term, we remain buyers of dips below $90 targeting a move back to at least the mid- 90’s and ultimately a retest of the old highs.
NG:
Natural gas pulled back almost to 7.50 and remains a buy on pullbacks this week. We are targeting a move to 8.75 before this current rally stalls.
S&P:
Last week we mentioned that the Government had to act. I must now clarify that we too ad no knowledge of the so called rogue trader when we made those calls. That being said the week played out much as we expected. We have since then seen the markets stabilize and are now focused on Wednesday’s FOMC meeting. The Fed. must now continue to give traders what they want or this house of cards will truly come crumbling down. So we do expect them to cut rates this week. Is this the right thing for our economy over the longer term? Most likely not, but for now it needs to happen. Bottom line for the stock market is, we expect it to at best remain range bound and at worst begin to fall again. 1425 on the S&P would be upside resistance and 1250 would be downside support.
Bonds:
Bonds have seen some significant volatility on the back of the Sot. Gen. scandal. Near term every thing hangs on this weeks FOMC meeting. We see bonds falling even if the FOMC cuts. We do not see this market pushing above 123 even if the FOMC cuts by .50 basis points. So bottom line here is sell rallies.
Metals:
Gold has found its way to an all time high above 925 today. While we have been and remain long term bulls here, we have seen some significant demand destruction each time prices trade above $900. So near term we are sellers over $910 targeting a move back to $850 my mid to late February. Silver on the other hand still lags gold by more than 50%. So long silver and short gold should be a great long term spread. Copper is a leading indicator for economic activity and it is struggling to break decisively above or below 300. Near term on copper we see a retest of the recent lows but longer term we see this market resuming its bullish trend. Long term buys below 300 should fare well.
Grains:
Grains have been wild to say the least in the past few weeks. Wheat is likely to run into resistance again if it pushes $10.00. We are buying May ATM puts on these limit up days. Corn has seen a strong run up to $5.00 but the action in the last couple of weeks is indicative of a market top, rather than one that will keep running. We are also buyers of puts on rallies in Corn. Beans to the teens finally happened a few weeks ago and that high is likely to hold for the near term. We see beans correcting below 11.00 by the beginning of Q2 with Meal leading the complex lower.
Softs:
OJ continues its directionless trade and near term we continue to see more of the same. Cocoa has hit 2200 again and as I mentioned last week it has failed so far to maintain that level. Will this time be different? We doubt it near term and are exiting our remaining longs. Coffee did pull back last week as we expected it would and we have now exited our shorts and are again looking to go long a close to 130 as we can. We are running stops below 128 targeting a move back to 140. Sugar has now filled the island gaps on the daily charts but we remain put buyers on these rallies. We are looking for Sugar to correct below 11 in the next two weeks. Cotton did pullback last week as we expected, we see this correction continuing in the near term with support lying just below 64.
