Last week we saw a lot of news about the Dollar hitting new lows and commodities hitting new highs. All of this in the face of a Fed. that refuses to even acknowledge the existence of inflation. Well trust me, inflation has been around much longer than even this country and will continue to be real long after we are gone. It is only the FOMC in the “infinite wisdom” that tries to tell us that it is not a problem. Not a problem? In the history of recorded time inflation has been the straw that broke the back of may a great empires. Is our Fed. trying to say that this time will be different? Call us krazy but we do not believe the FOMC, and hope that they do not believe their own statements. If they in fact are drinking the kool aid, then we are in much more trouble than we currently think. “Those who do not learn from history, are doomed to repeat it”
Energy:
After OPEC gave Bush the stiff arm last week, we now see Cheney trying to get his old friends in Saudi Arabia to raise production. We do expect to see a production hike coming later this month. Until that hike comes though we expect to see Oil trade above $100. We are not buying new longs at these levels but we are also not shorting. We are light buyers of ATM puts on rallies. This week we expect to see crude try and put in a near term top just under the $110 level.
NG:
Natural gas remains strong with Crude oil and our shorts from last week in both markets did get stopped out. We are still biased to the short side of NG but until we see a break in the daily trend we will stand aside. We will wait for April to break below 9.50 before taking any action.
Stocks:
We are now testing the lows for the year on the S&P and we do expect those lows to hold. We are looking for Stocks to bounce hard after this test is over so now is the time to go “fishing” with options by buying the April or May 1300 cals on the S&P 500
Bonds:
Bonds continue to get a bid in expectation of another rate cut by the Fed. next week. We expect to see Bonds testing the 120 level before backing off. Last week we mentioned that we though bonds would be range bound for some time to com. We are revising that to say that we are looking for a range bound market near term but medium term we are long bias, meaning we are buying large dips.
Metals:
Gold has seen an incredible rally falling just shy of hitting the mythical $1,000 level. We expect to see that level briefly touched if for no other reason than to grab the headline. Once we see that print we expect to see Gold pullback to the mid 900’s. That pullback when it comes should be bought as it is likely to be one of the last times you can purchase gold for less than $1,000 for some time to come. Silver is also beginning to correct and we are targeting a move back below at least $18.00 before turning back up. Copper is trying to hold itself up but we see this market pulling back below 360 by next week.
Grains:
Wheat has been trying to hold the line above 11.00 for over a week now. We do not see that support level holding and are therefore looking for another leg down in wheat that gets us back to three digits on price instead of four. Corn has been slower to roll over but we are still short as our stops from last week above 575 were never hit. This week we are simply looking for corn to break trend on a closing basis. We broke trend today intraday but failed to close on the low so we will retest that trendline later in the week. Soybeans have been pulling back with wheat and we expect to see 12.00 tested before this correction is over.
Softs:
OJ hit our 135 target last week and we exited. We are now back to support at 1.25 and since it worked so well the first two times, we will buy here again for the third time. Our stops this time are working below 1.21. Cocoa rolled over but failed to form a blow off top so we are not a excited about the short side as we were hoping to be. We are buying the 2700 May puts on a rally which we will cover if the market makes new highs. Our target is a move to 2435. Coffee pulled back to our 1.50 level mentioned last week. We are therefore buying this dip, preferably with call options, and targeting a retest of the recent highs. Sugar has also pullback quite a bit but we are still looking for it to test at least 12 cents before this sell off turns back up. Cotton has also put in a near term top and is now likely to run right back to where it started which is 70.
