This week we begin with rising tensions with Iran. This situation will surely keep the bid in energy and metals until it gets sorted. We have seen commodities as a whole move back towards multi year highs and that has many people rushing to invest in our markets. These new investors usually have a very low tolerance for risk so they are likely to increase the overall volatility in the entire sector. This means that as traders we will be presented with more and more opportunities to trade, but it also puts an even greater premium on risk management.

The cable exceeded our 1.96 target this past week but then did begin to pull back. Early this week we expect the market to continue to consolidate the gains made last week. We are building a bull flag that should point the way to a test of the old highs above 1.99. That test will likely come at the end of this week or early next week. Over all the sentiment is bullish so use pullbacks as buying opportunities.

Technical analysis will never give you the why behind the move. That is where fundamental analysis comes in. While I don’t know for certain if the reason below is what may propel soybean prices higher it’s surely food for thought at the very least.

In the past few months or so a potential freighting series of events has taken place which has received very little “main stream” coverage.

May soybean futures at the Chicago Board of Trade are still in a solid price uptrend from the autumn 2006 low. Prices have backed off recently on some profit-taking pressure, but the bulls still have the overall near-term and longer-term technical advantage. On Wednesday May soybeans did hit a fresh three-week high of $7.73 a bushel and then did back off to close nearer the session low. Now, a close above Wednesday's high would be technically bullish to suggest a challenge of strong overhead resistance at the contract high of $8.07 1/2 in the coming weeks. Bears can correctly point out there are some downside price gaps on the daily chart for May soybeans that do need to be filled on the upside before the bulls can get too giddy.

Both the stock and Bond markets have been anticipating this weeks FOMC meeting for months now. Both markets have been foolishly hoping for a rate cut. Only a catastrophic event like the stock market dropping 25% or something similar would result in the Fed. lowering rates. Frankly we believe that if the Fed. does anything this year it will be to raise rates again not lower them. Inflation is a greater threat at this time than the housing bubble.

June live cattle futures at the Chicago Mercantile Exchange have seen a steep sell off from the recent contract high of $99.82. Prices last Friday gapped lower on the daily bar chart, hit a fresh three-week low of $94.20, and closed at the weekly low close to produce some fresh near-term technical damage. Key for the cattle market bulls now is to defend solid chart support at the $94.00 area. A close below $94.00 would produce more significant chart damage to begin to suggest that a near-term market top is in place.

The cable has put in a strong bottom at 1.92. We could easily see a move to 1.96 this week. This market is in a wide trading range between 1.92 and 1.98 and until it moves out of that range we will be trading the chop. That means we do the opposite of what we do in a trending market. In a trending market you buy new highs and sell new lows. In a choppy market you sell highs and buy lows. For now the path of least resistance remains up. Continue to trail your stops with the market.

I have just a few thoughts on the market today. The market has been acting quite suspiciously and I am not too comfortable with this. Some of the activity may well be due to today’s expiration and the typical bullish bias during expiration week, but I believe investors (the market) have ignored some pretty stern “warnings” over the past few days.

May corn futures at the Chicago Board of Trade are trapped in a down-trending channel as seen on the chart. Bears do have downside near-term technical momentum on their side. Technical odds are decent that a near-term market top is in place. Bulls would gain better downside technical momentum by pushing prices below solid technical support at this week's low of $3.96 1/2. For the corn market bulls to regain some fresh upside technical momentum, they will have to push May futures prices back above the solid trend-line resistance level of $4.15 a bushel.

This is a catastrophe unfolding in slow motion right before our eyes. The tealeaves are in place and the consequences can be readily deduced. We all understand our dependence on fossil fuels and its suppliers require we do everything to ameliorate future problems before they emerge. But Corn based ethanol is not a solution, and because of the billions of dollars already expended (and in the pipeline) and the political constituency set to benefit from this government inspired solution, the price toll and mis allocation of investment will not be stopped now, but will be allowed to mushroom into a far far larger problem.

The Euro has been stuck in a trading range since December of 2006. The European Central Bank (ECB) just raised rates and all but stated that they intend to raise again at future meetings. This should be the catalyst that the market has been waiting for to break it out of this trading range, a move above 132.75 would be a channel break out and a close above 133.72 would further confirm that. This trade is a way to put a minimum of capital at risk while positioning for the breakout.

Stocks: The market bounced a bit further than we expected but is still very bearish. Friday’s high is just below the high on Feb. 28th and we continue to build a bear flag. This week I expect to retest the lows at about 12,000 and there is a chance that we could fall below that. We continue to advocate the buying of puts and or selling of calls on any rally.

Should Investors Be Worried?

When the Lilliputians came upon the sleeping Gulliver, they didn't know if he was friendly or hostile, but he was so big it seemed prudent to tie him down. Should the 9,000 hedge funds -- the secretive investment pools controlling $1.4 trillion in assets -- be treated the same way?

One powerful analytical tool I use is to look for market correlations regarding recent price action, and what future price action may hold. In the case of April gold futures, see on the daily bar chart that recent price action resembles that which took place from October through late December of last year. See that last fall prices were in a solid uptrend, but then in early December began to back off, and the uptrend on the daily chart for April gold was penetrated on the downside in early January. However, prices then pushed back higher to score a fresh for-the-move high in early February.

OJ has been trying unsuccessfully to break through resistance for some time now. We have already seen a substantial rally in the OJ market and just like the stock market a healthy correction is needed. Notice on the left side of the chart below all the gaps that this market left many months ago. Any seasoned trader has heard the saying that "gaps are always filled", and we believe that the filling of these gaps is coming.

The past week of trading has been a little erratic and wild. It’s not necessarily the “Equities Gone Wild” of 2000-2002 when the market was ferociously volatile, but this past week does have an aura of its own that has a comparable volatility. As I was thinking about the large swings in the market, I started to compare the average daily trading range in my head. When I got home, I decided to do a little more digging to see what I could come up with and here it is.

May cocoa futures on the New York Board of Trade were under strong selling pressure in busy early dealings Tuesday. Prices hit a low of $1,716 as of this writing and were trading near the session low and hit a fresh three-week low. Heavy stop-loss orders were triggered. Profit-taking pressure from recent gains was also featured, after May futures hit a fresh contract high of $1,815 a metric ton just last week. No serious chart damage had occurred Tuesday morning, but strong follow-through selling pressure on Wednesday would likely inflict serious near-term chart damage.

The pound has tried several times to push through 1.97 resistance in recent months, but has been unsuccessful as of yet. The recent break down was somewhat unexpected and has the pound trading near strong support @ 1.92. Look for a bounce off this level to near 1.9475.

EUR/USD

Unable to break through resistance near 1.3250, this pair is moving back towards 1.30 support. In the short term look for this market to pullback and consolidate, though long term strength should continue due to the underlying fundamentals.

The Options Queen, Jeanette Schwarz has just released her first book:

The Options Doctor: Option Strategies for Every Kind of Market (Wiley Trading)

When one looks as the major retreats of the past, similarities, suggestive of prior experience, are all but unavoidable. And, so it is with today's market news.

The housing market's impact on the entire economy can not be understated. As nearly two dozen sub-prime mortgage companies have gone under in the past few months, economists are beginning to worry that the real estate collapse may soon spill over in to other areas. Even Alan Greenspan, the perennial optimist, admitted today that the country is on the brink of a recession. To many, the timing of these bankruptcies were unpredictable. But for those who watch the copper market closely, much of this could have been predicted.

The Grain complex has been on a very good run for many months now. However, with all the pressure we are seeing on foreign markets, Asia in particular, there is an ever increasing possibility of a slow down in the dramatic growth they have seen in recent years. If growth in Asia slows, then many commodities could see a pullback as well. Oats tend be lead the rest of the grain complex and they have already seen a pull back off of recent multi-year highs. Looking at the long term monthly chart below you can clearly see that it looks like we have formed a spike.

The free fall in stocks Tuesday was something we have not seen in a long time. Many of the talking heads are trying to blame it on Asia and or technical problems at the exchange. Frankly that is bunch of bull, to put it nicely. The market fell for one reason, the same reason that any market falls, they simply ran out of buyers. After the run in the Dow we have had for the last year, traders should not be as surprised by this correction as they seem to be. The "easy" money in stocks is now over and we are entering into a period of much higher volatility.