Hogs have seen a very steep decline in the past few weeks, but we are now approaching a strong support level and expect to see this market turn back up in the near term. Many indicators like stochastics and RSI are about to issue buy signals and our proprietary model is showing a high probability of a reversal in trend in the coming days. This trade offers a very attractive risk to reward ratio as well as a low absolute dollar figure to risk. Hogs can trade any where between 56 and 64 for us to profit so we have a huge 8.00 point range in which we can profit.
This is a trade on tomorrow's FOMC meeting. The overall market expects the Fed. to cut rates by .25 basis points tomorrow at 2:15 EST. Stocks and bonds have already priced this in. The key will be the guidance they give on future rate decisions. Frankly we expect that they will be forced to make some mention of a concern about inflation and if they do we should see Bonds pullback.
This past week we thought we would see upside follow through on the Dollar. The Dollar did start the week pushing higher but then turned and hit new lows. Our trailing stops took us out at breakeven so it was no harm no foul. This week we have a deluge of data. We have the all important FOMC meeting on Wednesday and then we end the week with the monthly NFP report, and we have many other smaller reports coming out every day this week. The markets have already priced in a cut of .25 by the FOMC so the direction hinges on the "guidance" they give in their statement about future cuts.
Most gurus and financial experts expect to see another rate cut this
coming Wednesday, when the FOMC releases its interest rate decision and
statement. While 25 basis points seem to be baked into the market cake
already, the possibility of a 50 basis point cut is certainly within
the realm of possibilities. That, along with the end of the month
portfolio dressing and undressing, should make for a very interesting
Wednesday afternoon. Our concern is that this august group of FOMC attendees might forget
that a weak US dollar can have a very negative effect in the long-run.
December corn futures saw a rally during the first half of October that pushed prices well up from what is now strong technical support at the early-October low of $3.35 a bushel. However, prices have backed off just recently and are now right in the middle of a well-defined trading range between $3.35 and strong overhead technical resistance and near the September high, at the $3.90 area. My bias is that December corn will stay within this well-defined trading range until the contract expires. However, the weakening technical picture in the wheat futures market is likely to limit the upside price potential in corn, in the near term.
CME Group and the Brazilian Mercantile & Futures Exchange Agree to Cross-Equity Stakes and Exclusive Order Routing Deal
Long-term partnership may be expanded to joint product development, off-shore collateral management services and clearing access arrangements.
December gold futures last Friday hit a fresh 17-month high of $776.90 an ounce. Trading has recently become a bit more volatile at higher price levels, but the steep uptrend line on the daily bar chart remains intact and the bulls still have the solid near-term technical advantage. The gold market bears would gain a bit of fresh downside near-term technical momentum by pushing and closing December futures prices below solid support at this week's low of $749.00. Gold traders will continue to monitor the value of the U.S. dollar against the other major currencies very closely.
Cotton prices added another 25 points on the up side Friday, with December closing near its high at 6540. While this closing strength gives rise to a short term low now being in place I do not trust the long side. Why, because of the drop in the Dow.
Hedge Funds Return +3.27% in September 2007 and +9.40% Year-to-Date
Early estimates show the HFN Hedge Fund Aggregate Average, an equal weighted average of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net database, was +3.27% in September 2007. The increase was the largest in over four years, and the second largest month for hedge funds in eight years. The HedgeFund.net database consists of over 7,700 current hedge fund, fund of
funds, and CTA products.
This is a trade on tomorrow's G7 meeting. The European Union has publicly stated that the appreciation of the Euro against the Dollar is becoming an ever increasing problem for its exports. Part of the discussion at the G7 meeting will be how to deal with this issue and our sources tell us to expect the Europeans to push hard for stabilization of the Dollar. Today we saw the Dollar index hit new 40 year lows, so with this trade we are obviously bottom fishing but by keeping risks below $300 we feel the potential reward far out weighs the risk. If the Dollar does in fact stage a bounce we are targeting a move back up to at least 80.
December U.S. Treasury bond futures on Wednesday rallied two a fresh two-week high as the bulls regained some fresh upside technical momentum. Price action Wednesday also challenged a downtrend line drawn off the September and October highs. A push and close solidly above that down-trend line, to negate it, would provide the bulls with better upside technical momentum. There is some solid technical resistance also located at the October high of 112 10/32.
During the past two months the price of Gold has traded from $652.00 on August 16th to $765.50 on October 15th. This has truly become a "Bull" traders dream. Most of this tremendous upside, in my opinion, can be attributed to a very weak U.S. Dollar caused primarily to the credit crunch in the housing sector.
We continue to patiently wait for more strength in the dollar. As I have mentioned in past issues we are not looking for a macro change in trend but really just a dead cat bounce. We have seen the Dollar bounce already but it has so far been unable to follow through. We expect follow through this week off of either the CPI data to be released on Wednesday or Friday's G7 meeting.
The OJ market has seen a sharp move higher today and we are reading this as a short squeeze. We could see it go a bit higher but with the 2007 hurricane season ending with no hurricanes in sight. the fear that has kept this market up should begin to come out. Our Proprietary models are also issuing sell signals today as are slow stochastics as you can see in the chart below.
Unless you have been hiding in a Kush mountain range cave like Osama Bin Laden (if he's still even around), then you have been hearing about U.S. and global equity markets reaching new record highs. If I'm not mistaken, I heard on CNBC this morning that the DJIA has hit a record high some 40+ times in 2007 whlie the Chinese Shanghai index has closed at a record high more than 70 days this year, including yesterday. So where do we go from these record highs.
The theme this week will be continued strength in the Dollar. This short term strength will stall many of the rallies we have seen in commodities including but not limited to the Grains, Energy, and Metals. You will see an overall contraction of the CRB index. We see this as healthy and in fact necessary to sustain these longer term up trends. Be patient if you are attempting to buy these dips.
December gold futures on Tuesday saw a steep sell off on profit-taking pressure from recent strong gains and on a solid rebound in the value of the U.S. dollar versus the other major currencies. A steep uptrend line on the daily chart for December gold was penetrated on the downside and negated Tuesday, but no serious chart damage has yet occurred. However, strong follow-through selling pressure on Wednesday would likely begin to inflict some near-term technical damage to begin to suggest that a near-term market top is in place.
The major theme for this week is a dead cat bounce in the dollar. While we are in no way bullish the dollar we do see it staging a dead cat bounce in the not too distant future.
Europe
Euro, Pound, Swiss Franc
The Euro has seen a very strong run up past the 142. Last week we had expected this pair to stall and form a bull flag pattern. We were clearly early in that call. We do expect the stall to come by the end of this week. Continue to trail stops on long trades but I would not chase this market if you are not already in.
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