The failure of the West to address the current aggressive action by Russia pertaining to their incursion into the Ukraine remains of concern becuase the Eurozone relies heavily on the delivery of natural gas through the Ukraine pipelines. Any disruption by Russia in response to threats of sanctions could prove disastrous.
The current standoff could be a determining factor in the coming week’s market action. The markets have become a “trading affair.” There is not much question in my mind that technicians are getting whipsawed in their trading, probably continually adjusting their parameters and their buy or sell stops. An an ever-widening spread develops when markets undergo inordinate price swings, and it becomes financial suicide to adjust stop protection. My basic philosophy has always been to “plan the trade and trade the plan.”
I also discuss a strategy with my clients that includes a risk/reward ratio determined by the recent market performance. Another consideration is the possible proliferation of technicians’ buy or sell stops that could exacerbate a move in a particular direction. What also must be considered is the perception by investors who purchase trading programs that they are alone at the particular buy or sell stop points near support or resistance levels. That kind of false sense of protection provides contrarian traders with a trading bonus as markets will eventually find their true intrinsic price levels based on, yes you are correct, supply/demand fundamentals. That’s why I believe that training and trading with an amateur can only assure you of becoming one.
Now for some facts with my usual interpretation.
Interest Rates: June Treasury bonds closed Friday at 133 15/32nds up 5/32nds but down from its intraday high of 134. Concern over the Ukraine situation provided for the move to the “safe haven” of the U.S. Treasury market. For the week yields on the 10 year Treasury note declined by 14 basis points. The upcoming vote could see Crimea moved to Russian control as most of the people consider themselves Russian. We will have to wait and see and then try to determine what if anything the West will do regarding sanctions. For now we see bonds trading within the range we had earlier suggested with prices near the higher end of that range. We are also waiting for next weeks Federal Reserve meeting, the first for the new Chair, Janet Yellen.
Stock Indices: The Dow Jones Industrial average closed at 16,065.67, down 43.22 points and for the week has lost 2.4%. The S&P 500 closed at 1,841.13, down 5.21 points or 0.3% and for the week lost 2%. The tech heavy Nasdaq closed at 4,245.40, down 15.02 points or 0.4% and for the week lost 2.1%. The uncertainty over the ramifications of the Crimea situation remains a concern since it could produce a disruption in the Eurozone energy supply. We continue to feel the U.S. equity market is due for a major correction and once again strongly urge holders of large equity positions to implement risk hedging strategies.
Currencies: The U.S. dollar index closed at 79.55 on Friday, down 20.5 points and for the week lost 1.8%. The decline in yields on U.S. treasuries detracts from dollar investment On Friday U.S. data indicated a decline in March of consumer sentiment to its lowest level in four months. Wholesale prices in February declines as well for the first time in three months. We could see continued pressure on the U.S. dollar based on our expectation of a continued economic contraction. We had been bullish on the dollar and have now moved to neutral. In other currency action the June Euro gained 48 points to close at $1.3906, the Swiss Franc gained 37 ticks to close at $1.1470, the Japanese yen gained 33 points to 0.09876, the British Pound 21 points to $1.6625, and the Australian dollar 5 ticks to 89.69c. The Canadian Dollar lost 25 points to close at 89.92c. We prefer the sidelines.
Energies: April crude oil closed at $98.89 per barrel, up 69c but for the week lost 4% mostly tied to concern over the Crimean situation which could threaten crude supplies from Russia. While there has been some talk about the U.S. ability to make up any shortfall from Russia should they decide to cut off supplies in the face of threatened sanctions, we doubt the U.S. can fully make up that shortfall. We are on the sidelines for now until some determination is made on the Crimea and Russian actions.
Next page: Metals and grains...
Precious Metals: April gold closed at $1,379 per ounce on Friday, up $6.60 or 0.5% against the weak dollar in which it is denominated. For the week gold gained around 3%. Gold, as is the case with U.S. Treasuries, sometimes acts as a “safe haven” hedge when equities decline. We continue to prefer the sidelines in gold but once again, for those that must have a precious metal in their portfolio, we prefer silver. May silver closed at $21.41 per ounce, up 22c or 1% also against the weak dollar. The current Ukraine situation is dominating the market place globally and we prefer the sidelines until the “smoke clears”. April platinum closed at $1,469.60 per ounce, down $9.80 and for the week lost 0.9%. June palladium lost $5.70 or 0.7% to close at $773.25 per ounce and for the week lost 1.1%. We prefer the sidelines but once again our preference would be palladium over platinum.
Copper: May copper closed at $2.95 per pound, up 3c on shortcovering after the recent heavy long liquidation over concerns of a slowdown in China. Copper lost 4.2% for the week and for the year so far has declined by nearly 13%. We have favored the short side of copper for some time and would take profits here.
Grains and Oilseeds: May corn closed at $4.84 ¾ per bushel, down 1/4c on profittaking after recent strength tied to the Monday USDA bullish report on reduced carryout. We prefer the sidelines in corn after having been supportive. May wheat closed at $6.86 ¾ per bushel, up 12 3/4c on continued concerns over weather damage and acreage switches to soybeans. We prefer the sidelines after the recent strength took prices from the $5.50 level. May soybeans closed at $13.90 per bushel, down 6 1/4c on continued weakness over sowings gains. We still like the long
Coffee, Cocoa and Sugar: May coffee closed at $1.98 per pound, down 7.95c on profittaking after recent strength tied to the Brazilian drought. During the session coffee traded as high as $2.05.05. We are now on the sidelines in coffee. May cocoa closed at $2,987 per tonne, down $19 also on profittaking after recent strength. Stay out for now. May sugar closed at 17.28c per pound, down 54 points on continued profittaking after possible overbought condition from the 15c level. Brazilian weather continues to play a roll in softs and for that reason we remain on the sidelines.