Metals: Most commentary this week, particularly with the metals and financial markets will be two-fold as I try to explain the ramifications of market action as we approach Armageddon Day... the administrations scare tactic word, not mine. That said, I believe that they will eventually come to a short term deal which means our wonderful congress can go back to their normal job, you know, being on vacation or campaigning for their next election, and not worry about it again for 5 or 6 months. This should relieve the immediate pressure and most of this week's analysis is based on that premise and shall from hereon be referred to as "the deal"
Gold: I felt that August gold could approach $1625 if $1600 was beaten and it pushed to $1624.30 overnight Monday as stock index futures were being punished after no deal was reached over the weekend. Once the deal is done, I would expect a rapid, harsh break to at least $1550 and more likely support near $1520. While there may be a bit more up this week, perhaps to $1650, as we go back and forth with will the debt ceiling be raised or not, once there is an actual deal, even if short term, I expect an immediate break. This may occur in as little as 2 or 3 trading sessions so be patient if thinking of buying, unless of course you expect nothing to be done by Congress. If that is the case hello $1750 - $1800.
Silver: September silver charged back from last week's low at $38.21 and broached $41 early Monday morning. If a deal is done you should be able to buy much cheaper. In fact, the $38.50 support should be little more than a speed bump as futures could flush to at least $36.50. However, as with Europe, putting a band aid on a severed artery only stops the bleeding for a little while. Until DRASTIC measures are done to reverse our countries current economic course, we will be seeing this again real soon. When we do, hello $41 - $42 and maybe $45 depending on momentum. But that is a little ways off.
Copper: After failing near 450, September futures saw a quick break to 436. If the deal is done, we will see 450 again and possibly 452. If not, 385 is a good possibility and would likely occur within 2 or 3 trading sessions. So wait for another test of 450 because all the deal will do is give you a better price to sell short. It really will do nothing to help our critically ill economy.
Currencies and Financials: The US Dollar and the Euro are the whipping posts here while the Swiss and the Yen appear to be the shining stars. Apparently as Europe, the USA and most of Asia suffers economically, Switzerland and Japan will be immune to all of that and can do business as usual as everyone else struggles.
British Pound: The September Pound received a mini boost from the almighty Swiss Franc and the 98 pound weakling US Dollar. The buck fell 300 points while the Swiss rallied 500 points during the past two weeks and this was enough to push the Pound just a bit over the 16250 resistance to 16325. Once the deal is done the Pound looks to flush quickly to at least 160000 and quite possibly to the July 12 lows at 15768.
Swiss Franc: The Swiss seems to be more valuable than gold of late. September futures rose to just below 12500 overnight Monday, topping at 12472. If the deal is done, this market could flush to at least 12000 and very possibly 11700 within days. The August 120 puts which expire on August 5 can be had for about $150 and I will also be sending out a special report about shorting the Swiss, the Euro currency and the Eurodollars as well as put option alternatives for each. All bets are off as to upper potential if Congress doesn't agree to some sort of short term deal.
Japanese Yen: The Yen has managed to hold up fairly well given the poor economic conditions there as well as their extraordinarily low interest rates. But, it isn't the Euro and it isn't the US Dollar and those have been the currency whipping boys of late. The September Yen reached recent highs at 12843 this morning and is taking aim as this week develops at the spike high of 12950 from mid March after the tsunami hit. The breakout point was near 12500 so once a deal is done that is the minimum I would expect with a very good chance at further weakness to 12350 because as I say, there is no reason for the Yen by itself to be pushing this high.
Euro Currency: The Euro currency is taking the brunt of all the economic problems throughout Europe. While the aforementioned Swiss traded to 2300 points bovver lifetime highs, the Euro is trading at 1700 points below its lifetime highs near 16000 from 2007 and again in 2008. Europe's problems are nowhere near ending and I do expect that as other countries in Europe await their handout, the Euro will continue to fall. Once the deal in the US is complete, I look for an immediate flush to 13800 from the current 14400. Going forward as Europe problems deepen, 13000 is not out of the question by year end.
Canadian Dollar: The Canadian Dollar has tracked gold almost tick for tick. When metals corrected last week after it appeared deficit deal was imminent, the September CD fell nearly 200 points from 10550 to 10360 but as gold was moving back above $1600, it has climbed back to 10600. The Canadian economy is doing better than us by a long shot as commodities prices remain relatively high, and if looking to buy wait until after the deal because if the gold slumps back toward $1520, the CD is likely to follow along to the tune of a 10350 price. Use that level if contemplating as buy.
US Dollar: The September Dollar has settled into a range of 7480 down below and likely 7720 on top. The bias is slightly higher as most European currencies remain weak. However this market is quite slow and with a 300 point range for the past 3-4 months, the other currencies will provide more bang for the buck, no pun intended. That said, I do like the long side if we swing down to 7380 one more time. Last week's words still apply and we have reached 7370 this morning. We may see 7350 this week before the vaunted August 2 date but once an agreement is reached I would expect a speedy ascent to 7640 and possibly 7720 within days.
Eurodollar: Last week I recommended a short of December 2012 Eurodollar futures and we sold at 9916, risking above 9932. Additionally, I added the alternate strategy to purchase the December 2012 Put option for 11 points or $275. The deal could spark an immediate flush back to 9885 where it traded earlier this month. On top 9920 has been very tough resistance so if you don't want to use the futures market, I would highly consider those puts. Interest rates will not stay at these levels much longer and as rates rise, Eurodollars fall.
Ten Year Note: The September notes saw tough resistance at 12500 and actually pushed marginally through that level a couple of times last week as the deal was not a "done" deal by any means. I would put the odds at about 95-98 % that a deal will be done before this weekend and if so, a quick flush to at least 12200 and very possibly 12108 could be seen from the current 12404. If not, 12800 - 13000 would be likely and possibly more.
S&P 500: The S&P has held up surprisingly well considering the recent turmoil and the inherent economic weakness in our economy right now. It certainly is trading as if it also believes the deal will get done this week. The past two weeks have seen September futures rise to 1355, drop to 1290, rise again to 1350 and slide back to 1322. We are hovering near 1335 as of this writing. To only be about 32 points from contracts highs at 1367.50 from May 2 under these circumstances shows this market wants to rise and will probably test those highs with any positive announcement. However this kind of reminds me of the college kid who racks up huge credit card bills while at school. They get a quick windfall and are able to make the minimum payments for a couple of months. However the big debt is still there and they spend all they have once again so the problem is merely put off. Until that credit card is ripped up and they stop spending money they don't have, the problem remains. That said, I believe it will be a short term rise and our huge debt along with Europe's problems will linger. Until jobs, housing, and manufacturing pick up, the debt situation will remain so we must concentrate on
those issues first and foremost. After a feel good rise to 1375, I look for a slow crawl lower back into the 1250-1260 area during the balance of summer.
Dow: The 12750 area may be tested once the deal is done but we still have the problems listed above which will not be corrected with a quick fix. Down below first 12350, then 12150 are supportive for the near term.
Energies: Technical action has been weak for this group since early May. Futures completed a long up trend which had begun in December 2010. There have been 2 rally attempts during the past two months which resulted in a trading range but after each the lows were lower, the highs have been lower and we have turned negative technically. Fundamentals have been highly overblown for some time now and short of a new round of Middle East tension, this pattern looks to continue. Nothing has really changed since last week's words. The only slight alteration is that we are likely to see a day or two of solid strength after the deal is done due to the misguided notion that all of our problems will then be solved.
Heating Oil: September heating oil has consolidated into a tight range between 306 and 316 for the past 2 ½ weeks. There is no reason, fundamentally anyway for this market to be as high as 270, let alone 313 where we sit now. This sort of consolidation usually leads to a swift move one way or the other once it breaks out of the pattern. I think we will get a feel good spike here as well perhaps to 318 and maybe 320 once an agreement is reached but I believe it will be followed by a sharp break lower to at least 290 down to 275 so use the rise as a favor to short at a higher level.
Unleaded (RBOB) Gas: The story is similar as to heating oil with a range of 300-310. We are exiting the driving season, supplies are plentiful and after the quick rise after a deal to perhaps 316, I look for an equally swift drop back towards 288 and possibly 272.
Crude Oil: September crude has been stifled near $100 five times during the past two weeks. A rise past $100 may be enough for it to see $103 while a break under $95 starts a flush to $90. Last week's words remain except that we have now pressed the $100 level 7 times without success. We might see that $103 after the news but as with the rest in this group, the euphoria will quickly fade as reality sets in. I would look for a drop to $95 down to $93 after the push to $103.
Natural Gas: The September gas rally has been stifled by the recent cooling (yep, 92 is much better than 98) throughout the Midwest and throughout the country for that matter. Support has been solid for some time between 415 -420 and I expect that to continue. On top now the 452 level will act as resistance.
Grains: This is a group looking for direction. There was little moisture during most of late June through July and temps went close to, or above 100 for most of the Midwest crop belt last week. This pattern suddenly changed last weekend when temps fell into the low 90s and between Friday night and Sunday morning most regions received about 10 inches of rain. All except wheat remain historically high priced so to see any huge moves higher we need exports to pick up once again since weather looks promising for the nest 7-10 days at least.
Corn: Two weeks ago September corn flushed to 6.03 after a surprisingly high USDA acreage number. The extreme heat and dryness spurred a rise to 7.23. Once the weather broke somewhat we saw a 3 day mini crash from 7.23 to 6.70 where support has come in. If 6.70 is bested a drop to at least 6.45 and maybe 6.30 looks very possible, If the temps pick up again and the moisture fades, we could easily see that 7.25 level tested once again. WATCH THE SKIES !!!!!
Soybeans: September beans flew from 13.30 to 14.05 before the profit takers and hedgers emerged this morning. Fundamentals are most bullish for beans and if we see a slide back towards the breakout point at 13.50, I would like the long side. These comments from last week and the commentary above about corn actually relate to the bean complex as well. Yesterday morning the September beans came close to our objective, making it to 13.51 ¼ before finishing the day near 13.65. If 13.50 is beaten, at least 13.30 down to 13.10 looks to be tested. If weather conditions take a turn for the worse however, first 13.90, then 14.10 are a real possibility.
Soy Meal: In late June the September meal completed a crushing down to 330. Within a few weeks it had steadily climbed back to 368. Yesterday's correction was rather paltry as futures only made it to 356. Overnight we see futures at 362.50 as the bean group remains the strongest here. I would use a pull back to 348 to consider a long as demand has been, and looks to remain solid for soy products. On top a rise past 368 starts a move to at least 375 up to 382.
Bean Oil: Sep. oil fell back to 5550 yesterday as it corrected along with all the others here. However it came on strong as the day progressed to finish at 5630. Bean oil is the one here most dependent on its soy brothers for strength so if beans and meal rise a test of 5825 is possible during the next week or two. Down below if 5550 is bested, we could see 5475 - 5425.
Wheat: Last year's crop was paltry worldwide but wheat never really fired up as much as corn and beans. In fact, as I have mentioned often in these writings, wheat has fallen below corn price wise for the first time ever. Part of this is due to the fact that Australia bounced back from last year's floods to have a bumper crop this year and that will add pressure. Demand will have to remain strong to push much past 7.25 on top for September wheat from the current 6.90.
Softs: Sugar and orange juice remain uncharacteristically high while cocoa and coffee seem to be forming a volatile trading range.
Cocoa: The harsh break for September cocoa from 3200 to 2970 in just 3 sessions pushed it into a down mode once again. The weak US Dollar stopped the fall from worsening and I can see a correction back to 3120 where I would consider a short. If that happens the down side objective would be the congestion support at 2880.
Sugar: Considering that India may be an exporter of sugar this year and that we have a very overbought market, we could see a sharp sell off at any time. This is a highly overbought market with the October contract near 90 % on stochastics. If you are a risk taker, consider a short of October sugar near 3150, (3140 now) and risk above 3205. I do expect a pull back to at least that 2825 level and possibly 2720 of momentum builds. I will be looking at some put options today.
Cotton: It is odd that the market with the best fundamentals in the group would be the weakest. That is usually a sign that some large fund has a big short position and each time it tries to rise, they come in selling with both guns blazin' to knock down the potential rally attempt. Last year's severe drought in the Southwestern USA left supplies tight yet December futures remain 50 cents below the highs near 142 in early June. The breakout point at 9000 was established last December so they may try to force cotton down to that level. Given REAL fundamentals, that would be an excellent buying opportunity. Stay tuned.
Orange Juice: Let's see now, cotton has the best fundamentals in this group and drops 50 cents in 5 weeks. OJ has the worst fundamentals in the group and rises from 160 in mid May to this morning's highs above 202. Yeah, and the funds don't control many of these thin markets. We can only buy puts here to feel protected as this market seems to have been manipulated this spring and early summer. I really can't add much to last week's comments except that the September juice topped at 20300 and is still sitting at 19840. This market can flush 30 cents at any time so an inexpensive November put option may prove worthy.
Coffee: So far the September coffee has held the support between 238 and 240. We could see a rise back to 252-255 from the current 245 but as coffee growing regions in South America exit their winter season during the next 1 - 1 ½ months, I would look for 220.
Rice: Sept. rice held near the 1640 level last week. I thought we might fill the chart gap at the breakout point of 1620 but it fell a bit short. We are up against the double top at 1720 with this morning's trade at 1706. I would still be patient to see if we correct back to 1620 first however.
Livestock: This entire group remains woefully high priced historically speaking. And I am sad to report that we are seeing the end of the traditional commodities stereotype, pork bellies. The past few years have seen volume dwindle to a point where it was 5 or 6 contracts a day and it was unsafe for traders to even attempt to trade the contracts for fear that they would not find a partner with which to exit their trade. I haven't felt this nostalgic since they delisted the potato and onion futures many years ago.
Live Cattle: August feeders have traded a range of a double top at 11550 and a multiple bottom just under 11000 since mid June. A flush through 10950 probably starts a drop to at least 10750 and more likely the congestion area near 10500. Last week's words still apply as the August futures tested the 10950 area 3 times during the past week. If that level holds, we could see a quick pop back to resistance at 11350. More likely however we will see this level bested and a drop to the gap below 10800 would be the first target. If that level does not hold, 10600 - 10550 is possible.
Feeder Cattle: August feeders fell from 14500 to 13400 in a mere 4 sessions a little more than a week ago. Since then we have consolidated between 13450 and 13750. A move over 13750 probably starts one last gasp rise to 14000. I wouldn't expect much more though as last Friday's cattle on feed showed placements to the feedlots about 6 % above last year's levels. If 13400 is taken out the gaps at 133 and 130 will be filled, probably within days. That is the scenario I envision.
Lean Hogs: On July 1 August hogs bottomed at 9112. By July 13 we pushed to 9990 and actually touched up to 100.32 this morning. There is much congestion from 10000-10200 and this market is relatively overbought now. If fortunate to see 10200 we should jump aboard the short side. Last week's words still apply and we did see 10155 yesterday. Let's watch the 10200-10250 level for a possible short sale.