The investment climate “ brightened” this week as expectations for a positive earnings season made the rounds among traders and investors. U.S. stocks put in the best weekly performance in almost a year as investor fears of a stalled global recovery eased. Our concerns are rooted in the continuing U.S. unemployment picture where another 450,000 stood in the unemployment line for the first time and the decline of 14,000 from the prior week only indicates there are fewer people available to lay off without closing doors. Before turning positive, we would need to see a sharp improvement in hirings in excess of layoffs, a rather simple formula but necessary to change our overall view Now for some actual information.
Interest Rates: September Treasury bonds closed at 12609, down 16 ticks as the equity markets drew funds from the relative safety of Treasuries, where they were “parked” during times of equity market weakness. Auctions this coming week also a factor in the long liquidation as well as indications that fears of a slowdown in the global recovery have subsided. We continue to feel the global recession remains intact and would prepare defensive action for debt and equity investments.
Stock Indices: The Dow Jones industrials closed at 10,198.03, up 59.04 and gained 5.3% for the week. The S&P 500 closed at 1077.96, up 7.71 and up 5.4% for the week. The Nasdaq closed at 2196.45, up 21.05 and up 5% for the week. We now have seen the “correction” I suggested would occur prior to implementing a hedging strategy. The low volume in front of expected earnings reports is troubling to us and is not indicative of a true rally. We remain convinced that the “bear market” we predicted some time ago remains intact and suggest, once again, the implementation of hedging strategies for holders of large portfolios. I consider this past weeks action a “mirage”. Contact me for specific portfolio hedging strategies.
Currencies: The September U.S. dollar index closed at 8418.5, up 14.9 points against losses in the September Euro of 34 points to 12646, the Swiss Franc 64 points to 9476, the British Pound 91 points to 15061, and the Japanese yen 20 points to 11301. The September Canadian dollar gained 113 points to close at 9681 and the Australian dollar gained 15 points to close at 8693. Expectations of a positive U.S. earnings season prompted the shortcovering of dollars. We doubt that with the continuing labor situation that corporations can report positive earnings with fewer employees. Productivity equates to the remaining employees doing “double duty” to make up for the layoffs. The Eurozone problems have not been resolved. Look for renewed Euro weakness. Stay with the Swiss Franc longs.
Energies: August crude oil closed at $76.09 per barrel, up 65c and gained 5.5% for the week, following the sharp gains in equities and the growth in wholesale inventories. Gasoline closed at $2.07 per gallon, up 2c and gained 4.5% for the week. August natural gas closed at $4.402 per MBTU up 3/10s of a cent but lost 6.8% for the week. We continue to feel crude will get back to the $80 per barrel level and we view the decline in natural gas a buying opportunity but minimally as to positions and only for well capitalized accounts.
Copper: September copper closed at $3.0535 per pound, up 3.8c following the gains in equities and the expectation for positive earnings reports in the coming days and weeks. We view the rally as a correction in an overall bear market. Continued economic concerns in the U.S. and for China and the ongoing debt concerns in the Eurozone could move copper back under $3.00.
Precious Metals: August gold closed at $1209.80, up $13.70 on shortcovering and bargain hunting after recent weakness. Concern over the Euro zone debt crisis waned and prompted selling in precious metals. Friday action was a correction after that weakness. September silver closed at $18.073, up 20.10c for the same reasons. October platinum closed at $1,533.20 per ounce, up $16.80 while September palladium gained $12.55 to close at $456.95 per ounce. The Long palladium, short platinum spread is still working as platinum’s gain on Friday was only 1.1% while Palladium gained 2.8%. We favor the sidelines.
Grains and Oilseeds: December corn closed at $3.95 ¼ per bushel, down one cent in conjunction with the selling in the wheat pit. The selling in wheat is tied to corn in as much as both are used for animal feed. We prefer the sidelines. September wheat closed at $5.38 per bushel, down 10 1/2c in a correction after recent strength was considered overdone. We prefer the sidelines with concern over global production against bearish USDA crop data making suggestion difficult either way. November soybeans closed at $9.53 ¼ per bushel, up 7 1/4c higher on speculative fund buying, crop and supply concerns. We continue to prefer the long side of beans.
Coffee, Cocoa and Sugar: September coffee closed at $1.6385 per pound, up 1.75c but off session highs of $1.6720 as traders took profits in front of the weekend. Tight supplies of top quality arabica beans and possible cold weather concerns in Brazil prompted the shortcovering and new fund buying. We could see further gains but any purchases should be accompanied by stops. September cocoa closed at $2,996 per tonne, up $27 on a correction after a weak Thursday session. General commodity buying a feature to the buying in cocoa. We prefer the sidelines. October sugar closed at 16.61c per pound, down 48 points tied to a technically overbought condition. We prefer the sidelines.
Cotton: December cotton closed at 74.99c per pound, up 1.00c on the USDA surprise lifting of its projected 2010 U.S. cotton output. Traders had sold previously on the USDA estimate for planted cotton acreage on June 30 and cotton sold off. Fridays action after the surprise USDA announcement prompted shortcovering and we could see the buying carry into the new week. Any buying should be followed with 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 to which he introduces his clients.