O&F News & Views

This week we have a number of reports coming out as always. The key report will be the FOMC minutes from the March meeting. This report is likely to show a Fed. more concerned with inflation than the market wants to hear so look for this report to push the stock market back down. Bonds too are falling as traders realize that if the FOMC does anything it will be to raise rates not lower them. Overall our economy is teetering on the edge of what could be a major recession if the housing markets continue to come undone.

Stocks: The stock market remains strong even in the face of rising inflation. This week the market should struggle to hold on to last weeks gains. Look for 12,700 to be significant resistance this week. Medium term put trades are the best bet going forward.
Bonds: Bonds are working there way towards our target of 110. This market will bounce and then go into a sideways consolidation between 110 and 109 later this week. Sell the 110 call and the 109 puts and collect premium as market consolidates.
Crude oil is pulling back now that the Iran situation has been resolved peacefully. The market will likely drift lower but do not expect the entire premium that came into the market due to Iran to go back out. There continues to be cause for concern with regard to Iran’s nuclear intentions. The cold weather is also driving up demand for heating oil at a time when most refiners have switched to producing gasoline. Overall the energy sectors has more potential for up side surprises than downside risks.
Metals continue to run higher. With the Fed continuing to be biased to the hawkish side of the coin, the metals responded with a rally. Gold seems to be on its way to testing the $700 level again and silver looks like it will test 14.00 later this week. Look for a consolidation as we approach these levels but the trend is your friend and the trend is up for now. Copper is moving up almost every day with no pullback at all. This means that when the pullback comes it will be even more violent then usual. Continue to trail stops two days behind the market or less depending on your risk tolerance.
Grains have seen quite a bit of volatility in the past few weeks. This past weekend we saw unusually cold weather come in and drive the grains up early this week. We see this as a longer term turning the market and expect higher grain prices across the board. Soybeans have been the laggard at a time when the crop report shows farmers switching away from soy in droves. Long bean trades held for the next few weeks will likely be rewarded.
OJ continues to break down and we are expecting a test of support at the 182 handle this week. OJ has the potential to fall significantly farther if it can break support at 182. Cocoa has seen some wild volatility in recent weeks and looks to be getting ready for the next leg up which we believe will push this market through 2000. Coffee continues to struggle to get out of its own way. Near term we see this market continuing to consolidate but longer term this market remains bullish. Sugar is trying to turn back up but frankly we see it as a dead cat bounce and will not chase this market at all. Cotton plantings are down but so is the price. This market could see a significant rally but not until we can move above 55.
Live cattle recovered and is trying to make a run towards the old highs above 102 this week, look for that level to hold this market back this week. Feeder cattle continue to rally higher but look for that to slow this week as the grain markets rally due to weather. Lean hogs are building a bull flag that should point to a rally to about 68 later this week. Bellies continue to correct and could see 97.50 before the week is out.
Derek Frey
Odom & Frey
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