Sorry for the delay in this post. This was originally written on Monday02/04/08.
Comments:
We follow last weeks FOMC meeting with three major rate decisions’ around the world this week. The first one being the RBA later this evening, the others being the BOE and ECB later in the week. We expect the RBA to raise rates the ECB to hold steady and the BOE to cut rates. This will lead to more “decoupling” of many relationships traders have come to rely on. Let this be your warning, The Dollar continues to be at or near a macro turning point and these points are always volatile and difficult to read. This week we continue to be concerned with the extremely high levels on the CRB index and continue to advocate protecting any long side gains as looking forward the best we expect to see out of the CRB index is sideways consolidation and at worst a significant correction.
Energy:
Crude oil continues to trade back and forth around $90. $90 is acting like a magnet pulling the market up when if falls below and also pulling it back down when it tries to rally above. This week we expect to see more of the same. We could retest the $85 level and if we do we will use it as another buying opportunity.
NG:
Natural gas has struggled to hang onto recent rallies. We continue to be buyer of dips below 7.75. We are now targeting a move only to about 8.25 in the near term and overall see more or less directionless trade in the weeks and months ahead.
S&P:
The stock markets continue to stabilize and near term we see that continuing. If we retest the lows we would advise buying that dip. Frankly we do not expect to see the lows tested in the near term. We continue to see a market that is range bound at best and we are now near the middle of that range so we are not putting on new stock trades this week unless something unique develops.
Bonds:
The market still expect the Fed. to continue to cut rates at the meeting in March. At this point we are not yet making that bet either way. At this time we continue to sell short above 120 looking to cover on breaks below118.
Metals:
Gold failed to hold the rally above 900 again and we are now short from 910 – 940 with stops above 955. We are targeting a move to 850 but will trail stops by roughly 16 dollars so we may exit before we hit the target if the market has a sharp reversal. Silver is starting to back off of the highs but as we mentioned last week, long silver and short gold as a spread is doing well since we recommended it last week and should continue to do so in the near term. Copper remains range bound and for now we are standing aside until the next trend develops.
Grains:
Grains continue to push upper boundaries and limits. We do not see this trend continuing for much longer but at the same time, outside of buying puts, we cannot recommend jumping in front of this run away train. I would also not chase after this train if you are not already on board. Corn is the grain with the greatest potential for a big pullback due to all the corn that is expected to be planted this year. If these grain prices continue to climb, the rising cost of oil will be nothing compared to buying a loaf of bread for $10.00. These levels are not sustainable so be ready for a major correction this spring.
Softs:
OJ continues its directionless trade and near term we continue to see more of the same. Cocoa did in fact manage to push through this time. We did exit our longs so we missed the last 150 points but still did very well with the trade. Near term we see cocoa pulling back below 2300 and we will look to be buyers of that dip should it come. Coffee hit our target above 140 and we are now out. We see 145 as a significant resistance level and did not want to risk a sharp pullback as that level is tested. We continue to be buyers of dips. Sugar is beginning to correct. This week we are looking for a move to at least 11.50 on the March contract. Cotton is still consolidating and will likely do so for most of the week. We are still biased to the long side and will therefore be a buyer on dips targeting a move back above 70 by early March.
