Commodities continue to consolidate as we have mentioned in recent issues. We are now seeing even the leader, crude oil, back off from its highs. While we do not in anyway think the overall bull is dead we do suspect he is tired and looking for a mid summer nap. Freddie and Fannie seem to have weathered the storm that we saw last week and confidence in the overall markets seems to be coming back. Overall we are looking for more firming in the Dollar with continued consolidation across commodities as a whole.
Crude Oil:
Oil did have the “break” we warned about. It does look like it was enough to “shake out” the weak hands. We are now buyers of dips again and are looking for a retest of the old highs and the probability of pushing through 150 remains higher than the probability of pushing back below 100. Between tensions in the Middle East and Africa, and continued increases in overall demand, there are more underlying reasons for the price to rise than fall.
Natural Gas:
This market also had a huge pullback, but is now a buy. Any buys made below 11.00 will be very happy by First Notice day. We are buyers of dips this week with stops below 10.00.
S&P500:
This market did hold and bounce as we forecasted in past issues. We are looking for more upside follow through to come as the summer wears on. This is not a buy and hold bounce. This is a buy and be ready to dump it kind of rally. We suspect it will a fast rally that ends with a bang late in the third quarter. Just do not get married to you position if you are buying this dip.
US Bonds:
Bonds have begun to correct lower as we forecast in last weeks issue and we are still holding our 115 puts. We are looking for downside follow through to carry this market to 112 before finding real support.
Metals:
Gold has been very strong in the faceoff all the financial uncertainty in recent weeks. Seeing lines going around the IndyMac bank was very unsettling for anyone with funds in a US bank. Owning at least some gold during times of failing banks seems like a no brainer. We suspect that gold’s price will trade in a more or less sideways range for the near term but we are looking to buy large dips as longer term we expect Gold to make an all time new high. Silver too is a buy on breaks as we are targeting a move above 20.00 before the year is out. Copper is a buy below 3.65 with stops below 3.40.
Grains:
We suspect support in wheat at the 7.55 level will hold. We are exiting shorts and looking to begin to buy long with stops below 7.50. Corn is also a market we are looking to cover shorts in. We are expecting 5.50 to hold as temporary support this week. It is too early to begin to buy longs, but that day is not too far away. Beans could fall a bit further but here too we are looking to begin to cover our shorts. We would like to see the front month fall to 13.00 before felling confident enough to buy long.
Softs:
OJ continues to be very volatile, but the path of least resistance this time of year is always up. We continue to be light buyers of dips. Cocoa continues to trend lower. We expect it will find support at or near the 2600 level before this sell off is over. Coffee is still consolidating and we are now light buyers with stops on the additions placed below 132.50. Sugar hit our downside target from last week so we are now exiting our shorts and waiting on the sidelines to buy long. We will look to buy long if support above 12.00 proves to hold later this week. We remain long cotton from 70 and stops are still working below 67.50. If we get stopped out we will look to buy long again at lower prices.
