This week we have the monthly NFP (Non-Farm Payrolls) report out on Friday. This report is one of the more influential for the dollar and could set the tone for the months head. If the dollar continues to weaken, many commodities will have little choice but to move up in response to the weakening dollar. The Dollar itself sits at a critical point. If we break below 80 on the Dollar index we will be below 30 year lows, which is not good for those of us earning dollars.
With this falling dollar, international travel for us dollar holders is becoming very expensive. This is going to have a dramatic affect on the travel industry worldwide. One that mainstream media has yet to mention. Overall a weak dollar seems like a foregone conclusion. The question isn’t if we will break below 80 but rather when. The answer to the when could come as soon as Friday when we get the NFP data. If that report does not break the dollar down, then look for a prolonged dead cat bounce into the summer.
Stocks: The Dow did break out above 13,000 as we expected and in the near term we see more of the same. We expect the Dow to break records on an every other day basis for the next few weeks. There is danger of a downside correction but we feel that the correction is still a few weeks out. Overall the path of least resistance remains up. This week or next we expect that the S&P 500 will join the headline party by also achieving a new all time high.
Bonds: Bonds continue to consolidate between 111 and 112. This week we have the monthly NFP report on Friday. That report is likely to be the catalyst that breaks bonds out of this range and begins the next trend. We favor bonds moving to the downside but will wait until later in the week to make our next trade.
Crude oil is consolidating last week’s gains. We see the market continuing moving higher later this week. We see a move to and possibly through 67.50 by weeks end. Distillates should continue higher as well with gasoline leading the way above 2.50. Natural gas is also still bull and we expect to see this market trading above 8.00 by the end of this week.
After failing to push through $700, Gold is now consolidating. We see a strong Dollar this week and that should keep Gold from breaking out to the upside. Gold could retrace to about the 660 level and if it does it should be bought at that level with a 10 point stop. Silver corrected again this past week and then bounced off of 13.25. 13.50 is acting like a magnet for this market, pulling it back up when it falls below and pulling it back down when it tries to rally above. Look for a consolidation to continue this week with the boundaries being between 13.25 and 13.75. Copper is building a classic bull flag and that should lead to a move back above $400 in the not too distant future. I must again say that Palladium is one of the best long term buys of the year. We believe this market could rally above $500 later this year.
Wheat tried but then failed to push through $5.00. Near term we see this market continuing to sell off this week targeting 4.60. Corn continues to consolidate in a sideways channel but overall looks negative near term. Look for corn to sink back towards 340 this week. Soybeans are also consolidating but tried to break out late today. Wait for a move above 7.80 on the Nov. contract before buying into this rally. Oats continue to trend down but should find support before hitting 240.
OJ is trying to pull itself up by its boot straps but we feel this is still just a dead cat bounce. We should find overhead resistance near the 170 level. Cocoa did drift lower as we expected, support at 1800 is strong and could cause a bounce but we see this market just drifting in the week ahead. Coffee is still drifting lower but we should see a reversal this week off of the 100 support level. We continue to see more favorable opportunities in other markets at this time. Sugar continues to trend lower but much like coffee the pace is slow and downside is limited. We will wait for the market to turn back up before attempting to trade this market. Cotton much like coffee and sugar is drifting lower, but trading opportunities are limited at best.
Both live and feeder cattle drifted sideways last week but began this week trying to get a rally going. We see these rallies taking shape this week so look for so substantial moves up in cattle prices this week. Both lean hogs and pork bellies on the other hand pulled back last week and this week could see more of the same.
by Derek Frey
Odom & Frey
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