This week we will see the stock market grabbing most of the headlines as it cruises through 13,000 on the Dow. We are seeing a trend develop in the soft complex that is worth mentioning. We are seeing all but one of the major soft markets trending down which could be foretelling of an overall slowdown in the pace of growth commodities have enjoyed in recent years. Markets like OJ were leading indicators on the way up and are now likely to be leading indicators on the way down. This in no way implies that the commodity boom is over but rather just a normal correction or slowdown within a larger bull market.
Financials
Stocks: This week we will see the Dow trade over 13,000. That should bring in a fresh round of money chasing this high. We see a blow off top coming in the month of May or early June so be warned. This week will see many headlines about stocks being back again that should bring in a fresh round of new money that will lead to the blow off top mentioned above.
Bonds: Bonds are now consolidating around the 111 handle. We expect more upside this week in bonds as the Dollar bounces. Overall we see a bond market that is having a huge internal war between those that expect the Fed. to cut and those that expect them to raise. We stand in the middle and expect the Fed. to do nothing for all of 2007. This tug of war is keeping bonds from trending in one direction or the other for very long but once that battle is won, look for a major trend in bonds to develop. This week we will likely test resistance at the 112 handle and then drift sideways again.
Energy
Crude oil took off again today and this could very well be the beginning of the push back above $70. We see 67.50 being tested mid week when the API report comes out. If that report shows a significant drawdown in stocks of crude the $70 and beyond could be seen by Months end. Natural gas will likely move up to $8.00 by the end of the week as well in sympathy with crude. The talk of $4.00 at the pump could be and understatement, we see the possibility of $5.00 per gallon at the pump this summer if Hurricane season is even half as bad a s forecasted.
Metals
Gold continues to trend up but for some reason seems reluctant to test the $700 level. The market is almost acting like it is afraid of that level. We should see volatility in this market increase exponentially as we hit the $700 mark. Silver did correct back to just above 13.50 and then bounced right back to $14.00. This shows the underlying strength in these metals and we see 14.50 as the target to shot for this week. Copper is building a classic bull flag and that should lead to a move back above $400 in the not too distant future. I must again say that Palladium is one of the best long term buys of the year. We believe this market could rally above $500 later this year.
Grains
Grains continue to be volatile. Beans are building what looks to be a bear flag on the daily charts. Corn can’t seem to get it together and move one way or the other. Wheat, on the other hand has seen a very nice uptrend, but seems to have hit a wall at $5.00. Grains have been tough to trade in recent weeks and we have stood aside most of this. This week we see the above trends continuing.
Softs
OJ continued to break down last week and traded almost all the way down to 150. Since then we have bounced and should see a dead cat bounce this week that carries us back to the low 170’s. The trend is now down so look at this bounce as another short entry opportunity rather than a buy the dip long opportunity. Cocoa briefly traded above 1950 last week but since then has corrected back below 1900. Last week was likely a temporary top which means this market should drift lower over the weeks ahead. Coffee did break down as we expected and continues to drift lower. The pace of the sell off is very slow and therefore we feel there are better trading opportunities elsewhere. Sugar continues to trend lower but much like coffee the pace is slow and downside is limited. We will wait for the market to turn back up before attempting to trade this market. Cotton much like coffee and sugar is drifting lower, but trading opportunities are limited at best.
Meats
Both live and feeder cattle staged bounces today mostly due to weakness in grains. We see these bounces as temporary as the trend is still down for both of these markets. Lean hogs and pork bellies on the other hand are both trending up and we see these trends continuing this week.
by Derek Frey
Leave a Reply