The Nemenoff Report - Fed Raises Discount Rate 25 Basis Points

on February 19 2010 10:07 AM

Financials: Mar. Bonds are currently 5 higher at 116'11. Yesterday we were stopped out of remaining long positions when the market traded through the 116'29 level. Yesterday afternoon's rise in the discount rate proved to be somewhat of a non-event for the Bonds. I still feel it will be some time before the Fed raises the more important Fed. Funds Rate. That being said, I was a bit surprised buy the move, despite the indications that the Fed would make a move. At the moment I prefer to remain on the sidelines. Near term support is now 115'28 and near term resistance 117'08.

Grains: Yesterday Beans were 3 cents lower, Corn 2 lower and Wheat 9 lower. Over night Beans were 6 lower, Corn fractionally lower and Wheat 3 lower. The initial reaction last night was a sell off in the Grains that saw Beans as much as 16 cents lower, Corn 4 lower and Wheat 8 lower as the Dollar soared, reaching new 8 month highs. Support is now last night's lows of 941'0 for May Beans and 365'0 for May Corn. Except for the short May Beans 880'0/1000'0 strangle I prefer to remain on the sidelines until the market works through today's Mar. option expiration. The 880/1000 May strangle settled around 32'0 cents yesterday.

Cattle: Yesterday Apr. Cattle closed 90 higher at 93.05. I feel that the market is at the upper end of resistance and feel comfortable with a short position at this time with a protective buy stop in the 94.80 area.

Silver: Mar. Silver is currently 5 cents higher at 16.11. Yesterday we were stopped out of any remaining short futures position when the market traded above the 16.12 level. We remain long out of the money call spreads on the July contract.

S&P's: Mar. S&P's are currently 4.00 lower at 1102.00. The market reaction to the raise in the discount rate was decidedly to the downside with the market making an overnight low of 1092.50, about 13.00 lower. We remain short with a protective buy stop at 1108.00. I continue to recommend being long out of the money puts on the June contract as portfolio insurance.

Currencies: As of this writing the Mar. Euro is 107 lower at 1.3509, the Swiss 60 lower at .9222, the Yen 51 lower at 1.0900 and the Pound 210 lower at 1.5414. We were stopped out of a long position in the Euro when the market traded through the 1.3530 level. The currencies have now reached all my downside objectives listed last December, especially the Pound with overnight lows in the 1.5300 level. I recommend the sidelines at this time. I suspect that the market will have a dead cat bounce. I also suspect that the lows for the year are not reached yet. The Mar. Dollar Index is currently 68 higher at 81.15.

Regards,

Marc

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