This week we are seeing a global exhale. By that I mean traders are realizing that the sky is not falling yet and for now the FOMC is going to try and save the day. Can they really pull this off? We doubt it will work as history shows that it is not likely at best, but of course they have to try. We are happy to see the Dollar stabilize and expect it will continue to do so if for no other reason than the Dollar being extremely technically oversold. This week we see the Dollar continuing to find and hold a bottom while commodities continue to correct. This is the beginning of a wave 4 correction on the CRB index for those of you who are into Elliot wave theory which means it could go much deeper than we have yet seen but in the end this dip will be a great buying opportunity. We expect the CRB to correct for the next quarter or two before finding a bottom. A clear sign of the bottom will be when major media reports that commodities are dead, just like there recent reporting that commodities are hot signaled a top.
Energy:
Last week we suggested the near term high is in for the energy complex. We stand by that and continue to sell into any rally here. We do see crude moving back to test support near $85 by the middle of April. Distillates will follow crude lower with Heating oil continuing to lead the way.
Natural Gas:
Natural gas should also trend lower into mid April. We are looking for the front month to move back below 8.50 by then.
S&P 500:
We continue to advise traders to buy dips in this market but now that we are back above 1350 we must advise caution. We are looking for resistance between 1375-1400 to stall this rally if not cap it. We continue to see little on the horizon, either good or bad, that could move us out of our range. If we do break out over 1400 we will fade it rather than chase it.
Bonds:
Bonds have failed to run on the back of the FOMC meeting as they surprised bond bulls by “only” cutting by .75 and then doing the unthinkable…actually admitting that inflation is a concern. WOW that must have hurt. Even though we now know that the FOMC does in fact admit there is such a thing as inflation, we do not know if they are yet ready to fight against it. We suspect they are not and there are more rate cuts to come. If that is the case then bonds will move higher. We are light buyers of the 122 June calls on dips.
Metals:
Gold broke down big time on the back of the FOMC statement that admitted to inflation. The Dollar found a bottom and that sent gold free falling as we cleared out all the “Johnny come lately” traders. Thinning the heard if you will. We did forecast this correction just not the magnitude of it. We are looking at the possibility of this correction going much deeper. Even bull markets have to pause from time to time, and we suspect that the commodities bull is tired if not exhausted. We are now looking for Gold to correct below $900 and frankly a move back to 750 is not a crazy as it may now sound. We will look to buy this dip when the time is right but that time is not now. Silver also fell hard last week and we see the possibility of a move back to test support near $14.00 as likely sometime in Q2. Copper pulled below our target of 360 and we have now covered our shorts at a nice profit. Near term we will stay flat copper until the next signal comes.
Grains:
Grains continue to be wild. We expect these markets to stage a bounce early this week but we look to sell into the bounce for one more fall coming next week after the next Ag. report. Wheat could bounce back to just below 12.00 while beans could bounce to 13.50 and corn could find 5.35. We see wheat as having the greatest downside potential.
Softs:
OJ is still falling and we are going to cover our long spread from last week at a small loss and then stand aside until we see real support come in. Cocoa fell to and through our target of 2400 and we have now covered our shorts and our puts. We will stand aside this market as well waiting for the next signal. Coffee is still trying to find and hold support. If 1.25 can hold this week we will look to go long next week. Sugar seems to have found a bottom that should hold. We see 11.00 holding as support so longs can enter on a pullback with a stop below that support level. Cotton did hit last weeks target below 70 and we are now looking for signs that the support there will hold and if it does we plan to come in and go long in the coming days.
