The Acuvest Letter
Market Commentary Week ending March 19 2010
Overview and Opinion: The big story for the weekend is going to be the vote on the Obama Healthcare legislation. Since we will not know the results of the vote until after our commentary is published, our comments will be brief. The effect on some financial markets will depend on the vote. We will not offer an opinion since we, along with most of Congress, have not read the legislation. Now for some actual information.
Interest Rates: June treasury bonds closed at 117-29, up six ticks but down from the intra day high of 118-09. Short dated note selling prompted the general decline in treasuries. An increase in short term funding tied to speculation that the Fed may raise interest rates before the end of the year was the main impetus for the selling. Next week the government will sell $44 billion in two year notes on Tuesday followed by $42 billion of five year notes on Wednesday and $32 billion of seven year notes on Thursday. The scheduled offerings should pressure prices as rates tend to move up when the government "raises money" to fund its programs. We continue to suggest that treasuries will remain in a trading range and would avoid positions. Trading should be limited to those watching the news for any indication of interest rate change.
Stock Indices: The Dow Jones industrials closed Friday at 10,741.98, down 37.19 but gained 1.1% for the week. The S&P 500 closed at 1,159.90, down 5.93 points but up 0.9% for the week. The Nasdaq closed at 2,374.41, down 16.87 but up 0.3% for the week. With the low volume of late we see the market as "hesitant" but continue to expect a major correction in equities. We see a "black hole" under the equity market and would emphatically recommend the implementing of hedging strategies. Various situations globally such as the financial difficulties in Greece and the impact on the validity of the Euro should Greece default on its commitments and the impact on other countries within the euro zone could carry to international markets.
Currencies: The June U.S. dollar index closed at 8098, up 54 points against losses in the Euro of 84 points to 13536, the Swiss Franc 21 points to 9445, the British Pound 232 points to 15012, the June Japanese yen 23 points to 11057, the June Canadian dollar 28 points to 9844, and the Australian dollar 57 points 9074. The concerns over global financial stability were prompted by the Grecian problem were augmented by a statement from French President Zarkozy denying a "bailout" for Greece. We suggest the sidelines but would add to long Swiss Franc positions on any further decline. Swiss currency is not part of the Euro and any dollar weakness could prompt buying.
Energies: May crude oil closed at $80.97 per barrel, down $1.57 but up from the session low of $80.14. The dollar strength prompted selling in dollar denominated commodities. April Natural Gas traded against the trend gaining 8.4¢ per million BTU at $4.169. Early trading saw prices touch a six month low before support emerged. We have changed our opinion on Natural Gas and now suggest the long side even against the U.S. government report indicating a smaller decline in gas inventories and declining winter heating demand coming into spring. Our basis for the buy recommendation is the technically oversold condition of natural gas.
Copper: May copper closed at $3.3725 per pound, down 2.3¢ tied to the strong dollar. Inventories declined at the London Metals Exchange by 1,200 metric tonnes on Friday to 522,975. The weekly data from the Shanghai Futures Exchange, however, showed an increase of 13,632 metric tonnes to 169,101. The Comex data released late Thursday declined by 112 short tons to 101,723. We continue to view copper as overbought in the face of what we see as a continued recession and lack of any recovery.
Precious Metals: April gold closed at $1,107.60 per ounce, down $19.90 tied to the dollar strength but more importantly to a breach of technical support levels. The uncertainty of Greece’s debt situation prompted the early gains but the possibility of an `eleventh hour "reprieve" brought in selling. May silver closed at $17.032 per ounce, down 39c following gold. April platinum lost $22.40 per ounce to $1,608.60 with June palladium losing only $10.25 per ounce to close at $468.50. My recommendation of short platinum, long palladium remains intact.
Grains and Oilseeds: May corn closed at $3.74 ½ per bushel, down 1.5¢ tied mostly to the strong dollar but selling was met with support tied to saturation of Midwest soils which could hamper early planting. Weather could remain a factor so we would cover any short positions and get long. May wheat closed at $4.8375 per bushel, down 5.5¢ tied to dollar strength but also large supply concerns. We prefer the sidelines in wheat. May soybeans closed at $9.61-6 per bushel, up 2.25¢ even against the dollar strength but mostly tied to short covering. We continue to prefer the long side of soybeans.
Coffee, Cocoa and Sugar: May coffee closed at $1.3250 per pound, down 3.05¢ on speculative fund selling and dollar strength. The concern over Greece’s debt problems prompted the dollar strength and selling of dollar denominated commodities. We prefer the sidelines in coffee. May coffee closed at $2,834 per tonne, down $59 tied somewhat to the dollar strength but mostly on profit taking after recent gains. With Nigeria’s 2009-10 midcrop cocoa output up slightly from normal midcrop harvest we could see additional selling and would avoid cocoa. May sugar closed at 18.64c per pound, down 39 points and down 34% lower than the February 1st high. That kind of momentum could bring in additional long liquidation so we would stand aside.
Cotton: May cotton closed at 82.18¢ per pound, down 3points and in line with selling in other dollar denominated commodities. Cotton gained 1.75% for the week and profit taking was also a factor. We continue to favor the long side of cotton tied to tight supplies but would use stops.
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.