Overview and Observation:
Watching the markets last week was like "watching paint dry." In anticipation of a "Thanksgiving mad shopping rush," the markets for the month end provided little in the way of "excitement." Not nearly as exciting as watching the "maniac shoppers" at the various malls trying to capitalize on the reduced prices for high end products. The "hoards" descended on the malls in great numbers and began to demonstrate their lack of restraint and consideration. One woman tazered another. Someone got stabbed defending his purchase outside a store. A number of fights took place over various items as they were placed on shelves. The "impression" foreigners must have gotten from the various melees was one of "primitive" behavior by Americans. Not sure how many of those shoppers are investors but with the light volumes on the various exchanges, one can assume many of them were. I will try to make sense of the data available to give my readers a possible advantage for their trading…
The March 30-year Treasury bond (CBOT:ZBH14) closed at 130 14/32nds, down 10/32nds or $312.50 per contract on Friday as recent talk from various Federal Reserve members indicated a "taper" of their bond purchase program may be in order sooner rather than later. We do not believe that with the plethora of "borderline" economic data and the ongoing U.S. labor condition that the Fed will act to cause rate increases. With the emphasis this past week on the retail sector, not much related to the overall economy was evident in the media. We continue to view Treasuries as in a trading range and would maintain strangle spreads.
The Dow Jones industrials closed Friday 16,086.41, down 10.92 points but for the month gained 3.5%. The S&P 500 closed at 1,805.81, down 1.42 points but for the month gained 2.8%. The tech heavy Nasdaq held above $4,000 closing at 4,059.89, up 15.14 points and for the week gained 1.7% and for the month tacked on 3.6%. As with the Treasury market, not much was said about equities other than the speculation as to how the retail sector would do on Thanksgiving and then again on "Black Friday" when shoppers went "wild." We will have to await the results of the holiday spending before assessing the value to companies. We continue to suggest the implementation of hedging strategies for holders of large equity positions. The "black hole" we see developing further could result in an even sharper correction than the 8-10% decline we have been awaiting. There is no need to "ride the wave" when the selling hits when a risk/mitigation strategy could provide a level of capital preservation.
The March U.S. Dollar Index (NYBOT:DXH14) closed at 80.885 down 3.7 points and aside from the Euro, the Canadian Dollar and the Japanese yen, lost ground against most of its trading partners. The Japanese yen closed at 0.9789 ,down 30 points while the Euro lost 15 points to close at $1.3559. The Canbadian dollar lost 16 points to .9395. Gainers included the Swiss Franc 16 points to $1.1040, the British Pound 82 points to $1.6346, and the Australian dollar 30 points to .9042. The lack of news and the shortened holiday week provided the backdrop for trading activity this past week. Look for higher volume and trading activity this coming week depending on economic data and any "words of wisdom" emanating from the U.S. Federal Reserve or the Eurozone financial community. Bear in mind the relativity between the U.S. and the Eurozone countries will continue to direct market direction. We continue to favor the dollar.
January crude oil closed at $92.72 per barrel, up 42c mostly on shortcovering in the holiday shortened week. The weak dollar as well as a lack of fresh fundamentals mainly responsible for the trading Friday. For the month of November, crude oil lost 3.7% tied to gains in production against declines in overall demand. We remain bearish for crude barring any geopolitical events which could cause changes in the basic supply/demand structure.
March copper closed at $3.2080 per pound, up 1.75c tied to the weak dollar but copper depends on a number of elements such as producer problems from South America and demand by major users such as China. Rather than chart copper prices, monitor the basic fundamentals mentioned above.
February gold closed at $1,251 per ounce, up $13.20 on shortcovering after the worst monthly performance since the June "collapse." Having sold my one ounce coins at $1,747 I am amused by the TV commercials promoting the "need" to hold gold notwithstanding their "promotion" from the highs. I remind my readers that in 1980 when gold first touched $785 per ounce, it took those "investors" 25 years just to break even. A rather poor rate of return. Could it happen again after having touched $1,900, maybe, but in the meantime there are other investments that have performed better for investors, even the stock market. We prefer the sidelines unless you need to buy a Rolex for your "loved one" for Christmas. March silver gained 34c per ounce to close at $20.02 per ounce. Of the two precious metals that one "must own" I prefer silver. January platinum closed at $1,369.80, up $16.10 per ounce while its "sister metal" palladium closed at $719.65 per ounce, up $3.00 basis the March contract. The "white metals" rely on the "fortunes" of the auto industry as they are used for catalytic converters. We prefer other opportunities for our clients.
Grains and Oilseeds:
March corn closed at $4.25 ¼ per bushel on Friday, down 1 1/4c quiet holiday trading. We will have to wait for fresh fundamentals before further comment. March wheat closed at $6.68 ¾ per bushel, up 5 1/4c tied to the weak dollar and increasing demand by Egypt, the world’s largest purchaser of wheat, and Japan. We could additional buying this coming week as additional demand develops. March soybeans closed at $13.18 ¾ per bushel, up 12 1/2c on light holiday volume, shortcovering and the weak dollar. Soybeans have lost over 5% this year on increased global production expectations. We prefer the sidelines in Soybeans after having been bullish for some time.
Coffee, Cocoa and Sugar:
March coffee (NYBOT:KCH14) closed at $1.1110 per pound, up 3c on shortcovering and new buying and reports that the Coffee Association is asking the government of Vietnam to buy 20% of the harvest in order to support world prices after the sharp decline in prices. Brazil has a large amount of coffee to sell and with no fresh reports from Latin America we do not see any reason to expect the rally to continue. Stay out for now. March cocoa (NYBOT:CCH14) closed at $2,784 per tonne, up $18 tied to the weak U.S. and the ongoing West African harvest. Tight supplies could prompt further buying but we remain on the sidelines in cocoa. March sugar closed at 17.2c per pound, down 2 ticks and remains on our "no interest" list. Funds the main sellers of late. Stay out for now.
March cotton (NYBOT:CTH14) closed at 78.65c per pound, up 11 points tied to concerns of crop quality tied to snows in Texas could impact yields. Expectation of Chinese government offers of its supplies could offset those concerns but we look for continued price gains and would buy cotton at current levels using stop protection.