Monday, April 19, 2010
Today's Market Guidance
Financial Overview:
In addition to the ash cloud, the equity market is also facing a cloud of uncertainty over the Goldman situation and that is apparently compounded by news that some Greek debt spreads had reached back out to record levels again. Apparently seeing the EU Ministers meeting scheduled for this last weekend delayed until Wednesday, has left the Greek situation up in the air and that is simply adding into the anxieties. With some foreign officials making comments on the Goldman situation and US officials indicating they would continue to seek those who might have perpetuated or caused the sub-prime crisis, a period of anxiety is likely to hang over the markets even longer than the Ash Cloud. While we don't detect as much overall anxiety in place this morning, the stock markets were overbought and vulnerable to technical liquidation and therefore the bear camp is set to retain control. We suspect that the market will see some positive news from the earnings front and perhaps some positive readings from the Conference Board leading indicators report, but those events are unlikely to be embraced and those items are certainly unlikely to turn this market back up. For the time being, the markets looks to embrace the bear items and discount the positives.
Dow:
The June Mini Dow has managed a fresh lower low for the move in the early action today and that would seem to leave the technical edge with the bear camp. The Commitments of Traders Futures and Options report as of April 13th for Dow Jones Index $5 showed the Non-Commercial and Non-reportable combined traders held a net long position of 25,837 contracts. However, the June Mini Dow managed a rally of roughly 140 points after the COT positioning was measured and that probably left the market moderately longer into last weeks top. Therefore, the Mini Dow is at least partially vulnerable to ongoing liquidation pressure and our pick for a near term downside targeting of 10,891 and perhaps even 10,875 if the authorities decide to sink the market and the recovery with a witch hunt.
The daily stochastics have crossed over down which is a bearish indication. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The close above the 9-day moving average is a positive short-term indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is 10821. The next area of resistance is around 11088 and 11185, while 1st support hits today at 10906 and below there at 10821.
S&P:
The Commitments of Traders Futures and Options report as of April 13th for S&P 500 Stock Index showed the Non-Commercial and Non-reportable combined traders held a net long position of only 1,810 contracts as of early last week. Therefore the S&P was the least overbought and perhaps the least vulnerable to aggressive and sustained selling pressure directly ahead. However, the S&P won't be able to avoid some downside action directly ahead, as there would appear to be very little in the way of support until the 1173.50 level. In fact, the inability to hold above the 1182.70 level (last Friday's low) probably means that the market is poised to trade in an even lower trading range ahead. Our pick for a liquidated low in the June S&P is seen at 1170.00.
A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The close below the 9-day moving average is a negative short-term indicator for trend. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is 1166.94. The next area of resistance is around 1202.62 and 1218.43, while 1st support hits today at 1176.88 and below there at 1166.94.
Nasdaq:
While the Nasdaq has already filled a gap left on the charts last week, the market looks to remain vulnerable to a combination of fundamental and technically based selling pressures. Apparently favorable tech sector earnings and positive momentum from earnings news last week is going to be forgotten and the market is instead set to look for the negatives. The Commitments of Traders Futures and Options report as of April 13th for Nasdaq Mini showed the Non-Commercial and Non-reportable combined traders held a net long position of 58,020 contracts and that means that the Nasdaq was the most overbought of the actively traded indexes and that could mean that it is poised for more than its share of ongoing long liquidation selling. Near term downside targeting is seen at 1992.50 in the June Nasdaq.
Bonds:
All things considered, the Treasury market really didn't get as big of a lift as the bulls might have liked this morning off the combination of Greek Debt concerns and the Goldman travails. However, the path of least resistance is likely to remain up today in US Treasuries, as residual weakness in equities and a lack of key scheduled economic data might allow the prevailing tilt from last week to remain in place early this week. Even the Volcanic ash situation might be capable of contributing to the upside in Treasuries as European airlines are supposedly losing up to $200 million per day off the crisis and the travel freeze is likely to slow the economic recovery attempt in the Euro zone. Apparently the EU Ministers meeting scheduled for this last weekend was delayed until possibly this Wednesday and that in effect might keep a bit of flight quality buying interest in play off the Greek situation longer than might have been expected. The Commitments of Traders Futures and Options report as of April 13th for U.S. Treasury that Non-Commercial and Non-reportable combined traders held a net short position of 143,599 contracts, but given the rally seen since the report was marked off, we have to think that part of the net short position has already been reversed. The Treasury 10 Year Notes showed Non-Commercial traders were net short 269,879 contracts (which was a new record level) and that means that portions of the Note market were getting extremely oversold recently. However, with the Non-Commercial and Non-reportable combined positioning in Notes registering a net short position of 360,002 contracts and the market up from the level where that short positioning was documented, it is clear that some short covering action has already taken place. In the short term, we can't rule out a return to the 117-20 level in June Notes and possibly a return to 117-14 level in June Bonds. In retrospect, the Note market is outperforming the Bonds, which appear to begrudgingly be following the Notes higher. In the current environment, we aren't sure if the Conference Board leaders report today is going to be given that much credence, especially because the report is likely to show only minimal improvement. The markets will also be confronted with some key US financial sector earnings before the opening today and we also doubt those figures will have the potential to markedly alter the bearish economic/bullish Treasury market mentality that remains in place from last week. Just to keep the Goldman situation in the markets mind, both US and UK officials made stern comments on the need to punish any perpetrators of the sub prime mortgage crisis and that seems to give that story a longer shelf life. The path of least resistance isn't aggressively higher, but weak equities and ongoing uncertainty leave the bull camp in control for at least another trading session.
The major trend could be turning up with the close back above the 60-day moving average. The upside crossover (9 above 18) of the moving averages suggests a developing short-term uptrend. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside objective is 117-180. The next area of resistance is around 117-090 and 117-180, while 1st support hits today at 116-140 and below there at 115-270.
US Dollar:
The Dollar has been able to extend Friday's rally, but with a small number of US economic numbers early in the week, the action in the Dollar might remain under control on events beyond the economic number front. In spite of what has been a negative impact on US equity markets, the Dollar itself probably received a net benefit from the Goldman Sachs lawsuit, with a flight-to-quality mentality also leading to a flight out of riskier assets and toward the Dollar. If there are more lawsuits in the US, it could start to produce a Dollar negative reaction, but it would also be hard to believe that Friday's legal activity wouldn't attract the attention of authorities in Europe and Asia. If this morning's Leading Indicators falls short of expectations, the Dollar could see some additional buying as the Dollar looks to remain well supported against the European currencies through the rest of today's trading. In fact, wide Greek debt spreads, weak global equity markets and lingering Ash cloud negatives would seem to leave the Dollar with a number of positive themes this morning. The Commitments of Traders Futures and Options report as of April 13th for US Dollar showed Non-Commercial traders were net long 27,647 contracts, a decrease of 2,601 contracts. The Commercial traders were net short 30,398 contracts, a decrease of 2,908 contracts. Non-reportable traders were net long 2,751 contracts, a decrease of 307 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 30,398 contracts, which represents a decrease of 2,908 contracts in the net long position held by these traders.
Euro:
While the Greeks are close to reaching a decision on whether to tap into an EU/IMF aid package, there also have been indications that other nations in that region could be next in line for help. The EU is expected to discuss that situation on either Tuesday or Wednesday and that is a delay of sorts and that in turn would seem to undermine the Euro because that extends the uncertainty. All things considered, the headlines appear to be capable of applying ongoing pressure to the Euro. Near term downside targeting in the Euro is seen at 1.3342 and perhaps even back to the March lows of 1.3266. The June Euro may be able to hold its ground, if the headlines from Greece quiet down or the market is distracted from that situation, but as long as the issue remains unsolved, that will likely continue to pressure the Euro towards the 1.34 level. The Commitments of Traders Futures and Options report as of April 13th for Euro showed Non-Commercial traders were net short 51,392 contracts, a decrease of 12,625 contracts. The Commercial traders were net long 64,261 contracts, a decrease of 9,552 contracts. Non-reportable traders were net short 12,869 contracts, which is an increase of 3,073 contracts and is a new record net short level. Non-Commercial and Non-reportable combined traders held a net short position of 64,261 contracts, which represents a decrease of 9,552 contracts in the net short position held by these traders.
Yen:
Oddly enough, the June Yen seem to be receiving more benefit from a flight to quality condition than it is seeing selling pressure from a deflationary economy in Japan, as renewed talk of a Yuan revaluation continues to drive prices to the upside. While support from risk-aversion may also be a factor, it is difficult to see that much in assets heading back to Japan consistently this early in their fiscal year. Given both the ruling Party in Japan as well as the Bank of Japan are leaning towards a weaker Yen ahead, this current rally could easily be derailed by any hint of a Japanese interest rate cut. While the June Yen may see additional near-term benefit from the weakness in Europe and the potential for a renewed global financial crisis, caution should be used if you approach this market from the long side, as prices could fall away very quickly after a spike up rally runs it course.
Gold:
The gold market is seemingly facing a negative tilt for most physical commodity markets this morning and given residual weakness in equities and bearish action from the currency markets overnight, the bear camp seems to have a number of arguments in their court in the early action today. Some players have even suggested that lingering slowing concerns off the air travel shut down in Europe is adding into the negative tilt in the marketplace today. Apparently risk appetites are also being pared in the face of recent developments and that is thought to pressuring some physical commodity longs. The Commitments of Traders Futures and Options report as of April 13th for Gold showed Non-Commercial traders were net long 247,279 contracts, an increase of 23,427 contracts. The Commercial traders were net short 292,244 contracts, an increase of 24,396 contracts. The Non-reportable traders were net long 44,965 contracts, an increase of 969 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 292,244 contracts. This represents an increase of 24,396 contracts in the net long position held by these traders. Comex Gold Stocks were 10.092 million ounces down 2,028 ounces at the end of last week.
Silver:
The silver market in the early action today appears to be acting like a classic physical commodity facing a large wave of economic uncertainty. While the market was expected to face lingering concerns off the legal troubles on Wall Street, the market might not have expected that situation to be showing signs of extending to the international realm today but comments from UK officials overnight seem to have fostered those type of concerns. While the Volcanic ash situation continues to contribute to fears of European slowing, the silver trade is also taking note of rather wide spreads on Greek debt into the US early Monday trade action. While this market hasn't paid much attention to classic supply side supply stories lately, the threat of lost supply out of Peru from last week was moderated overnight with the news of a potential end of a labor situation in that country. With equities trading weaker, the Euro weak and the overall outlook for growth suspect in the current environment, the bear camp in silver is probably feeling confident. However, the bull camp in silver is hopeful that favorable US corporate earnings and a potentially positive Conference Board leaders report later this morning can effectively alter sentiment. Comex Silver Stocks were 115.599 million ounces up 12,733 ounces at the end of last week. The Commitments of Traders Futures and Options report as of April 13th for Silver showed Non-Commercial traders were net long 40,798 contracts, an increase of 2,415 contracts. The Commercial traders were net short 58,235 contracts, an increase of 4,141 contracts. The Non-reportable traders were net long 17,437 contracts, an increase of 1,726 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 58,235 contracts. This represents an increase of 4,141 contracts in the net long position held by these traders.
Crude Oil:
Energy prices continue to feel the effects of last Friday's activity, as the current wave of risk aversion has caused widespread liquidation of many physical commodity positions. With crude oil already well into overbought technical conditions last week, this action has now taken the market well below a series of key support levels on the charts and that increases the prospect of even more technically related selling ahead. Memories are fresh in the market that these sort of financial scandals often become the first step in protracted economic slowdowns, so it is understandable that we would see such a severe move lower, as the funds start evacuating any risky markets. The European air travel ban impacts not only fuel usage in that area, but it has also dampened business activity as well, therefore we see the possibility of weakened economies on both sides of the Atlantic and that leaves only Asia as the one area in which demand should continue to be strong. However even that view was called into question last night by ideas that credit conditions in China are likely to be tightened even further. With the Commitments of Traders Futures and Options report as of April 13th for Crude Oil showing the Non-Commercial and Non-reportable combined traders held a net long position of 242,210 contracts early last week, and the June crude oil market managing an additional rally of $2 per barrel beyond that report that could also leave the market even more vulnerable to a wholesale liquidation ahead. If the US equity market continues to ratchet downward and the US Dollar continues to rally that could set the stage for a return to the middle of last months consolidation trading range bound by $80.00 to $82.50. We see little resolve to stop a slide in June crude oil down to $81.92.
Natural Gas:
June natural gas has thus far avoided the huge sell off in the energy markets, primarily due to sentiment in this market being so negative to begin with. While prices have put in a base over the past few weeks, a strong move may be hard to come by as the market might be mired in a seasonal lull between the heating season and the air conditioning season. We also suspect that natural gas is seeing some support from liquidation of long crude and short natural gas spread plays. Furthermore, with the Commitments of Traders Futures and Options report as of April 13th for Natural Gas showing Non-Commercial and Non-reportable combined traders held a net short position of 74,084 contracts, that could mean the market is already moderately short to begin with. However, with the Greek debt crisis, Fears of Chinese tightening, fears of a return to a financial crisis status in the US financial markets and unfavorable currency market action, the bear camp in natural gas clearly retains an edge.
Corn:
Traders see weather and speculator psychology as key forces this week. Ash from the volcano in Iceland is still a potential longer term weather threat, but for now the potential impact seems small when compared with the size of other eruptions that caused cooler than normal summers. Traders are also concerned with the weakness in financial markets and whether the selling in the stock market will spread to other commodity markets. On top of difficulties at one key US commodity trading bank, China's efforts to cool down their real estate market have helped drive Chinese stock prices sharply lower. Traders are bracing for the weekly crop progress reports this afternoon, which are expected to show a very fast start to the corn crop planting season. Conditions look dry for another 3-4 days before the rains start up again in the plains and Midwest, and this would appear to be nearly ideal for planting. Traders expect to see plantings at 15-30% complete, compared with the 10-year average of around 10% complete by this date and just 5% last year at this time. China is releasing more corn from its reserve stocks this week. Cash basis levels are well above the 5-year average at most locations, and the strong basis is beginning to impact the spreads as May corn is beginning to gain on July corn. The Commitments of Traders reports as of April 13th showed a still hefty net short position held by fund traders. It also showed a strong buying trend by index funds. Non-commercial traders were net short 62,386 contracts, a decline of just 2,412 contracts for the week. The CIT supplemental report showed commodity index traders held a net long position of 458,859 contracts, up 6,765 contracts for the week.
Trend-following fund traders hold a near-record net short position in corn, but this may be offset by a huge index fund net long position. The trend-followers' actions will probably have more direct impact this week, as financial uncertainties might cloud the short term direction of the market. However, we do not think this is a banking crises or even a commodity crisis. Weather has been nearly ideal to get the crop planted on time, but these factors have failed to pressure the market much. Basis levels are improving as higher quality corn supply appears to be tightening. July corn support comes in at 364 3/4 and 362 1/2, with 382 1/4 as near-term upside target.
Outside market forces are likely to die down and the market may begin to build a slight weather premium for the growing season ahead. Consider buying old and new crop corn on breaks. December corn support comes in at 385 and 382 1/2 with 402 1/4 as near-term upside target.
Cattle:
The market seems to be in a position to resume the uptrend, but outside market forces have turned negative, and this may keep the trade choppy over the short term. Non-commercial traders (funds) have built a record high net long position in the meat markets, and speculators may be a little uneasy holding long positions during a period of volatile financial markets. The short term cash fundamental news seems mostly positive, and we would think the market can see higher trade ahead. June cattle traded both sides of unchanged on Friday, as the negative macroeconomic sentiment due to the collapsing stock market brought about speculative long liquidation selling. Heavy rains in the forecast in the plains could cause some muddy conditions and limit weight gain performance over the short term. The decline in weights has helped keep production down in recent weeks, and the discount of the June futures to the cash market is a factor that could hold weights down as well. The estimated cattle slaughter came in at 114,000 head Friday and 19,000 head for Saturday. This brought the total for last week to 632,000 head, up from 616,000 the previous week at this time and up from 608,000 a year ago. While slaughter was up 3.9% for the week, beef production was up just 2.5% due to declining weights. Boxed beef cutout values were up 14 cents at mid-session Friday and closed 6 cents lower at $166.90. This was up from $165.27 the week before. The Commitments of Traders reports as of April 13th showed the market in an overbought condition, with non-commercial traders net long a new record high 132,076 contracts. This was up 5,976 contracts for the week. The buying trend of the fund trader is seen as a short term positive force, but the market remains historically overbought. The 'combined' spec and fund net long position also posted a new record. Cash cattle traded at $98.00 late last week, down $2.00 from earlier in the week but considerably higher than June futures.
In addition to the ash cloud, the equity market is also facing a cloud of uncertainty over the Goldman situation and that is apparently compounded by news that some Greek debt spreads had reached back out to record levels again. Apparently seeing the EU Ministers meeting scheduled for this last weekend delayed until Wednesday, has left the Greek situation up in the air and that is simply adding into the anxieties. With some foreign officials making comments on the Goldman situation and US officials indicating they would continue to seek those who might have perpetuated or caused the sub-prime crisis, a period of anxiety is likely to hang over the markets even longer than the Ash Cloud. While we don't detect as much overall anxiety in place this morning, the stock markets were overbought and vulnerable to technical liquidation and therefore the bear camp is set to retain control. We suspect that the market will see some positive news from the earnings front and perhaps some positive readings from the Conference Board leading indicators report, but those events are unlikely to be embraced and those items are certainly unlikely to turn this market back up. For the time being, the markets looks to embrace the bear items and discount the positives.
Dow:
The June Mini Dow has managed a fresh lower low for the move in the early action today and that would seem to leave the technical edge with the bear camp. The Commitments of Traders Futures and Options report as of April 13th for Dow Jones Index $5 showed the Non-Commercial and Non-reportable combined traders held a net long position of 25,837 contracts. However, the June Mini Dow managed a rally of roughly 140 points after the COT positioning was measured and that probably left the market moderately longer into last weeks top. Therefore, the Mini Dow is at least partially vulnerable to ongoing liquidation pressure and our pick for a near term downside targeting of 10,891 and perhaps even 10,875 if the authorities decide to sink the market and the recovery with a witch hunt.
The daily stochastics have crossed over down which is a bearish indication. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The close above the 9-day moving average is a positive short-term indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is 10821. The next area of resistance is around 11088 and 11185, while 1st support hits today at 10906 and below there at 10821.
S&P:
The Commitments of Traders Futures and Options report as of April 13th for S&P 500 Stock Index showed the Non-Commercial and Non-reportable combined traders held a net long position of only 1,810 contracts as of early last week. Therefore the S&P was the least overbought and perhaps the least vulnerable to aggressive and sustained selling pressure directly ahead. However, the S&P won't be able to avoid some downside action directly ahead, as there would appear to be very little in the way of support until the 1173.50 level. In fact, the inability to hold above the 1182.70 level (last Friday's low) probably means that the market is poised to trade in an even lower trading range ahead. Our pick for a liquidated low in the June S&P is seen at 1170.00.
A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The close below the 9-day moving average is a negative short-term indicator for trend. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is 1166.94. The next area of resistance is around 1202.62 and 1218.43, while 1st support hits today at 1176.88 and below there at 1166.94.
Nasdaq:
While the Nasdaq has already filled a gap left on the charts last week, the market looks to remain vulnerable to a combination of fundamental and technically based selling pressures. Apparently favorable tech sector earnings and positive momentum from earnings news last week is going to be forgotten and the market is instead set to look for the negatives. The Commitments of Traders Futures and Options report as of April 13th for Nasdaq Mini showed the Non-Commercial and Non-reportable combined traders held a net long position of 58,020 contracts and that means that the Nasdaq was the most overbought of the actively traded indexes and that could mean that it is poised for more than its share of ongoing long liquidation selling. Near term downside targeting is seen at 1992.50 in the June Nasdaq.
Bonds:
All things considered, the Treasury market really didn't get as big of a lift as the bulls might have liked this morning off the combination of Greek Debt concerns and the Goldman travails. However, the path of least resistance is likely to remain up today in US Treasuries, as residual weakness in equities and a lack of key scheduled economic data might allow the prevailing tilt from last week to remain in place early this week. Even the Volcanic ash situation might be capable of contributing to the upside in Treasuries as European airlines are supposedly losing up to $200 million per day off the crisis and the travel freeze is likely to slow the economic recovery attempt in the Euro zone. Apparently the EU Ministers meeting scheduled for this last weekend was delayed until possibly this Wednesday and that in effect might keep a bit of flight quality buying interest in play off the Greek situation longer than might have been expected. The Commitments of Traders Futures and Options report as of April 13th for U.S. Treasury that Non-Commercial and Non-reportable combined traders held a net short position of 143,599 contracts, but given the rally seen since the report was marked off, we have to think that part of the net short position has already been reversed. The Treasury 10 Year Notes showed Non-Commercial traders were net short 269,879 contracts (which was a new record level) and that means that portions of the Note market were getting extremely oversold recently. However, with the Non-Commercial and Non-reportable combined positioning in Notes registering a net short position of 360,002 contracts and the market up from the level where that short positioning was documented, it is clear that some short covering action has already taken place. In the short term, we can't rule out a return to the 117-20 level in June Notes and possibly a return to 117-14 level in June Bonds. In retrospect, the Note market is outperforming the Bonds, which appear to begrudgingly be following the Notes higher. In the current environment, we aren't sure if the Conference Board leaders report today is going to be given that much credence, especially because the report is likely to show only minimal improvement. The markets will also be confronted with some key US financial sector earnings before the opening today and we also doubt those figures will have the potential to markedly alter the bearish economic/bullish Treasury market mentality that remains in place from last week. Just to keep the Goldman situation in the markets mind, both US and UK officials made stern comments on the need to punish any perpetrators of the sub prime mortgage crisis and that seems to give that story a longer shelf life. The path of least resistance isn't aggressively higher, but weak equities and ongoing uncertainty leave the bull camp in control for at least another trading session.
The major trend could be turning up with the close back above the 60-day moving average. The upside crossover (9 above 18) of the moving averages suggests a developing short-term uptrend. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside objective is 117-180. The next area of resistance is around 117-090 and 117-180, while 1st support hits today at 116-140 and below there at 115-270.
US Dollar:
The Dollar has been able to extend Friday's rally, but with a small number of US economic numbers early in the week, the action in the Dollar might remain under control on events beyond the economic number front. In spite of what has been a negative impact on US equity markets, the Dollar itself probably received a net benefit from the Goldman Sachs lawsuit, with a flight-to-quality mentality also leading to a flight out of riskier assets and toward the Dollar. If there are more lawsuits in the US, it could start to produce a Dollar negative reaction, but it would also be hard to believe that Friday's legal activity wouldn't attract the attention of authorities in Europe and Asia. If this morning's Leading Indicators falls short of expectations, the Dollar could see some additional buying as the Dollar looks to remain well supported against the European currencies through the rest of today's trading. In fact, wide Greek debt spreads, weak global equity markets and lingering Ash cloud negatives would seem to leave the Dollar with a number of positive themes this morning. The Commitments of Traders Futures and Options report as of April 13th for US Dollar showed Non-Commercial traders were net long 27,647 contracts, a decrease of 2,601 contracts. The Commercial traders were net short 30,398 contracts, a decrease of 2,908 contracts. Non-reportable traders were net long 2,751 contracts, a decrease of 307 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 30,398 contracts, which represents a decrease of 2,908 contracts in the net long position held by these traders.
Euro:
While the Greeks are close to reaching a decision on whether to tap into an EU/IMF aid package, there also have been indications that other nations in that region could be next in line for help. The EU is expected to discuss that situation on either Tuesday or Wednesday and that is a delay of sorts and that in turn would seem to undermine the Euro because that extends the uncertainty. All things considered, the headlines appear to be capable of applying ongoing pressure to the Euro. Near term downside targeting in the Euro is seen at 1.3342 and perhaps even back to the March lows of 1.3266. The June Euro may be able to hold its ground, if the headlines from Greece quiet down or the market is distracted from that situation, but as long as the issue remains unsolved, that will likely continue to pressure the Euro towards the 1.34 level. The Commitments of Traders Futures and Options report as of April 13th for Euro showed Non-Commercial traders were net short 51,392 contracts, a decrease of 12,625 contracts. The Commercial traders were net long 64,261 contracts, a decrease of 9,552 contracts. Non-reportable traders were net short 12,869 contracts, which is an increase of 3,073 contracts and is a new record net short level. Non-Commercial and Non-reportable combined traders held a net short position of 64,261 contracts, which represents a decrease of 9,552 contracts in the net short position held by these traders.
Yen:
Oddly enough, the June Yen seem to be receiving more benefit from a flight to quality condition than it is seeing selling pressure from a deflationary economy in Japan, as renewed talk of a Yuan revaluation continues to drive prices to the upside. While support from risk-aversion may also be a factor, it is difficult to see that much in assets heading back to Japan consistently this early in their fiscal year. Given both the ruling Party in Japan as well as the Bank of Japan are leaning towards a weaker Yen ahead, this current rally could easily be derailed by any hint of a Japanese interest rate cut. While the June Yen may see additional near-term benefit from the weakness in Europe and the potential for a renewed global financial crisis, caution should be used if you approach this market from the long side, as prices could fall away very quickly after a spike up rally runs it course.
Gold:
The gold market is seemingly facing a negative tilt for most physical commodity markets this morning and given residual weakness in equities and bearish action from the currency markets overnight, the bear camp seems to have a number of arguments in their court in the early action today. Some players have even suggested that lingering slowing concerns off the air travel shut down in Europe is adding into the negative tilt in the marketplace today. Apparently risk appetites are also being pared in the face of recent developments and that is thought to pressuring some physical commodity longs. The Commitments of Traders Futures and Options report as of April 13th for Gold showed Non-Commercial traders were net long 247,279 contracts, an increase of 23,427 contracts. The Commercial traders were net short 292,244 contracts, an increase of 24,396 contracts. The Non-reportable traders were net long 44,965 contracts, an increase of 969 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 292,244 contracts. This represents an increase of 24,396 contracts in the net long position held by these traders. Comex Gold Stocks were 10.092 million ounces down 2,028 ounces at the end of last week.
Silver:
The silver market in the early action today appears to be acting like a classic physical commodity facing a large wave of economic uncertainty. While the market was expected to face lingering concerns off the legal troubles on Wall Street, the market might not have expected that situation to be showing signs of extending to the international realm today but comments from UK officials overnight seem to have fostered those type of concerns. While the Volcanic ash situation continues to contribute to fears of European slowing, the silver trade is also taking note of rather wide spreads on Greek debt into the US early Monday trade action. While this market hasn't paid much attention to classic supply side supply stories lately, the threat of lost supply out of Peru from last week was moderated overnight with the news of a potential end of a labor situation in that country. With equities trading weaker, the Euro weak and the overall outlook for growth suspect in the current environment, the bear camp in silver is probably feeling confident. However, the bull camp in silver is hopeful that favorable US corporate earnings and a potentially positive Conference Board leaders report later this morning can effectively alter sentiment. Comex Silver Stocks were 115.599 million ounces up 12,733 ounces at the end of last week. The Commitments of Traders Futures and Options report as of April 13th for Silver showed Non-Commercial traders were net long 40,798 contracts, an increase of 2,415 contracts. The Commercial traders were net short 58,235 contracts, an increase of 4,141 contracts. The Non-reportable traders were net long 17,437 contracts, an increase of 1,726 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 58,235 contracts. This represents an increase of 4,141 contracts in the net long position held by these traders.
Crude Oil:
Energy prices continue to feel the effects of last Friday's activity, as the current wave of risk aversion has caused widespread liquidation of many physical commodity positions. With crude oil already well into overbought technical conditions last week, this action has now taken the market well below a series of key support levels on the charts and that increases the prospect of even more technically related selling ahead. Memories are fresh in the market that these sort of financial scandals often become the first step in protracted economic slowdowns, so it is understandable that we would see such a severe move lower, as the funds start evacuating any risky markets. The European air travel ban impacts not only fuel usage in that area, but it has also dampened business activity as well, therefore we see the possibility of weakened economies on both sides of the Atlantic and that leaves only Asia as the one area in which demand should continue to be strong. However even that view was called into question last night by ideas that credit conditions in China are likely to be tightened even further. With the Commitments of Traders Futures and Options report as of April 13th for Crude Oil showing the Non-Commercial and Non-reportable combined traders held a net long position of 242,210 contracts early last week, and the June crude oil market managing an additional rally of $2 per barrel beyond that report that could also leave the market even more vulnerable to a wholesale liquidation ahead. If the US equity market continues to ratchet downward and the US Dollar continues to rally that could set the stage for a return to the middle of last months consolidation trading range bound by $80.00 to $82.50. We see little resolve to stop a slide in June crude oil down to $81.92.
Natural Gas:
June natural gas has thus far avoided the huge sell off in the energy markets, primarily due to sentiment in this market being so negative to begin with. While prices have put in a base over the past few weeks, a strong move may be hard to come by as the market might be mired in a seasonal lull between the heating season and the air conditioning season. We also suspect that natural gas is seeing some support from liquidation of long crude and short natural gas spread plays. Furthermore, with the Commitments of Traders Futures and Options report as of April 13th for Natural Gas showing Non-Commercial and Non-reportable combined traders held a net short position of 74,084 contracts, that could mean the market is already moderately short to begin with. However, with the Greek debt crisis, Fears of Chinese tightening, fears of a return to a financial crisis status in the US financial markets and unfavorable currency market action, the bear camp in natural gas clearly retains an edge.
Corn:
Traders see weather and speculator psychology as key forces this week. Ash from the volcano in Iceland is still a potential longer term weather threat, but for now the potential impact seems small when compared with the size of other eruptions that caused cooler than normal summers. Traders are also concerned with the weakness in financial markets and whether the selling in the stock market will spread to other commodity markets. On top of difficulties at one key US commodity trading bank, China's efforts to cool down their real estate market have helped drive Chinese stock prices sharply lower. Traders are bracing for the weekly crop progress reports this afternoon, which are expected to show a very fast start to the corn crop planting season. Conditions look dry for another 3-4 days before the rains start up again in the plains and Midwest, and this would appear to be nearly ideal for planting. Traders expect to see plantings at 15-30% complete, compared with the 10-year average of around 10% complete by this date and just 5% last year at this time. China is releasing more corn from its reserve stocks this week. Cash basis levels are well above the 5-year average at most locations, and the strong basis is beginning to impact the spreads as May corn is beginning to gain on July corn. The Commitments of Traders reports as of April 13th showed a still hefty net short position held by fund traders. It also showed a strong buying trend by index funds. Non-commercial traders were net short 62,386 contracts, a decline of just 2,412 contracts for the week. The CIT supplemental report showed commodity index traders held a net long position of 458,859 contracts, up 6,765 contracts for the week.
Trend-following fund traders hold a near-record net short position in corn, but this may be offset by a huge index fund net long position. The trend-followers' actions will probably have more direct impact this week, as financial uncertainties might cloud the short term direction of the market. However, we do not think this is a banking crises or even a commodity crisis. Weather has been nearly ideal to get the crop planted on time, but these factors have failed to pressure the market much. Basis levels are improving as higher quality corn supply appears to be tightening. July corn support comes in at 364 3/4 and 362 1/2, with 382 1/4 as near-term upside target.
Outside market forces are likely to die down and the market may begin to build a slight weather premium for the growing season ahead. Consider buying old and new crop corn on breaks. December corn support comes in at 385 and 382 1/2 with 402 1/4 as near-term upside target.
Cattle:
The market seems to be in a position to resume the uptrend, but outside market forces have turned negative, and this may keep the trade choppy over the short term. Non-commercial traders (funds) have built a record high net long position in the meat markets, and speculators may be a little uneasy holding long positions during a period of volatile financial markets. The short term cash fundamental news seems mostly positive, and we would think the market can see higher trade ahead. June cattle traded both sides of unchanged on Friday, as the negative macroeconomic sentiment due to the collapsing stock market brought about speculative long liquidation selling. Heavy rains in the forecast in the plains could cause some muddy conditions and limit weight gain performance over the short term. The decline in weights has helped keep production down in recent weeks, and the discount of the June futures to the cash market is a factor that could hold weights down as well. The estimated cattle slaughter came in at 114,000 head Friday and 19,000 head for Saturday. This brought the total for last week to 632,000 head, up from 616,000 the previous week at this time and up from 608,000 a year ago. While slaughter was up 3.9% for the week, beef production was up just 2.5% due to declining weights. Boxed beef cutout values were up 14 cents at mid-session Friday and closed 6 cents lower at $166.90. This was up from $165.27 the week before. The Commitments of Traders reports as of April 13th showed the market in an overbought condition, with non-commercial traders net long a new record high 132,076 contracts. This was up 5,976 contracts for the week. The buying trend of the fund trader is seen as a short term positive force, but the market remains historically overbought. The 'combined' spec and fund net long position also posted a new record. Cash cattle traded at $98.00 late last week, down $2.00 from earlier in the week but considerably higher than June futures.
ZC Stop Update
We are moving our stop on Dec Corn (ZCZ0) to breakeven @ 380.00
Guidance will be posted shortly.
Guidance will be posted shortly.
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