The Acuvest Letter
Market Commentary Week ending March 12 2010
Overview and Opinion: "complacency, apathy, contentment, indifference" all mean the same and all could result in financial disaster. Markets have ignored the basic signs of a continued recession and while the pundits are heralding an economic recovery, the fact remains there is none. As I have stated in numerous commentaries, without an improvement in the current labor situation, there can be no recovery. I refer to last week’s overview and opinionhttp://www.futuresmag.com/News/2010/3/Pages/Sector-analysis-for-week-of-Mar-8.aspx: While the U.S. administration is heralding the end of the recession and the commencement of an economic recovery, regulators continue to close banks in the U.S. The number of bank failures so far this year is now 26 and we are only in the third month.
Now for some actual information coupled with my usual rhetoric and analysis.
Interest Rates: June treasury bonds closed at 11630, up 11 points tied to a decline in consumer confidence from 73.6 in February to the preliminary 72.5 for early March. Economists and analysts wrongly expected an increase to 73.8. One wonders why they even bother giving indications when in many cases, they are wrong and the market reacts to the correct figures. We continue to suggest treasuries are in a range with no expectation on our part for either an increase or decrease (defacto relative to trading partners) in the U.S. rates. Treat as a trading affair.
Stock Indices: The Dow Jones industrials closed at 10,624.69, up 12.85 and a gain for the fourth consecutive trading session. The Dow gained 0.6% for the week. The S&P 500 closed at 1,149.99, down 0.25 but up 1% for the week. The Nasdaq closed at 2,368, down 0.80 but up 1.8% for the week. The markets continue to confound investors and traders awaiting a correction that seems never to emerge. We are among the "confused" fully expecting not only a correction after four straight gains but a major selloff based on our view that the equity markets have outpaced true economic data and the continued rhetoric from Washington of a "recovery" keeps the money pouring into equities. At some point in the not so distant future, the reality that there is no economic recovery will set it and the market will experience what could be a dramatic and sharp decline. We once again suggest implement hedging strategies which we will work out for individual investors based on the makeup of their portfolios.
Currencies: The June U.S. dollar closed at 8005.5 , down 54 points against gains in the Euro of 86 points to 13757, the Swiss Franc 87 points to 9447, the British Pound 123 points to 15163, the Canadian dollar 73 points to 9827, and the Australian dollar 7 points to 9067. The surprise decline in the consumer confidence index prompted the selling of dollars as the so called "recovery" may be "delayed". We prefer the sidelines in all but the Swiss Franc in which we continue to favor the long side.
Energies: April crude oil closed at $81.24 per barrel, down 87c on the decline in U.S. consumer confidence but remained strong on the forecast for higher global demand. We favor the sidelines.
Copper: May copper closed at $3.38 per pound up 0.3c on reports of continued aftershocks of the recent earthquake. With the possibility of disruptions at other of the mines, we prefer the sidelines but with an eye to the short side once the potential damage and disruptions are clarified.
Precious Metals: April gold closed at $1,101.70 per ounce down $6.50 after touching technical resistance and with the reduction of risk fears of loosening of monetary policy by the Federal Reserve. The weaker dollar should have prompted a price increase since dollar denominated commodities trade adverse to the dollar. We are concerned that the continued advertising for gold purchases may prove to be a repetition of the 1980 climax for gold prices which took investors in the yellow metal 26 years to break even after it had high a high of $875 per ounce. If you already own it, you might consider lightening up on your position. If you are thinking of buying it, study the U.S. interest rate, the potential for changes internationally, and the chart on the U.S. dollar. May silver closed at $17.048 per ounce, down 11.2c following gold. April platinum closed at $1,608.40 per ounce, down $4.30 while June palladium rose $2.15 to $463.15 per ounce. We stick to our long palladium, short platinum spread recommendation.
Grains and Oilseeds: May corn closed at $3.64 ¼ per bushel, down 1 penny tied to bearish fundamentals. Stay on the sidelines. May wheat closed at $4.85 ¼ per bushel, up 6.5¢ on short covering and a correction after recent selling. We prefer the sidelines here as well. May soybeans closed at $9.25 ½ per bushel, down 5c on continued bearish fundamentals. Slower export demand and the ongoing South American harvest as well as adequate global oilseed supplies also added to the negativity. Our recent suggest to buy soybeans on dips should be held off for now pending additional information on the South American harvest. We continue to like soybeans but would not buck the current downward trend. Wait for now. Our clients will be informed of any change in sentiment during the week.
Coffee, Cocoa and Sugar: May coffee closed at $1.3250 per pound, down 1.25c tied to concerns over the upcoming Brazilian harvest. We would stand aside for now. May cocoa closed at $2.920 per tonne, up $66 on short covering and bargain hunting tied to the weak dollar and the relative strength in the British Pound. With no crop related news in the offing, we would stand aside. May sugar closed at 19.67c per pound, up 40 points but only as a correction after the sever selloff from 29 year highs around 30c per pound. This kind of action precludes retail clients from taking positions. However, shortfalls in India and Brazil, two large producers could keep prices from declining further and we would consider buying a few contracts in accounts that can sustain some addition profit taking. We look for prices to get back into the 20s and possibly to the 24-25c per pound area. With sugar production in India expected to reach 16.8 million tons from the earlier forecast of 14 million tons, prices may be held in check at the levels I forecast. Trading should be limited to clients willing and able to absorb setbacks.
Cotton: May cotton closed at 80.47¢ per pound, up 1.7¢ in a correction after recent selling. The weak dollar contributed to the buying. We prefer the sidelines from here.
John L. Caiazzo
Information provided is from sources deemed to be reliable but not guaranteed. Futures and Options trading involve a high degree of risk and may not be suitable for everyone. John Caiazzo is a registered commodities broker with over 40 years experience in investments and opinions are his own and not of the Futures Commission Merchant he introduces his clients to.