After a dramatic pullback off of new highs, the S&P 500 is now consolidating the gains made over the past few weeks. We continue to see signs of a pull back. We are not expecting an end of this rally just a normal correction within a larger bull market. We see a pullback of roughly 3-5% within the next two weeks. Buy at the money puts or short futures with stops above the all time highs.
Bonds sold off all the way to 109 which was a bit further than we had expected but see continue to see this market stabilizing and even bouncing from here. We are targeting a move back to or above 111 in the next few weeks.
Crude tried to push trough but failed and is now in another corrective phase. We see Crude oil holding support above $62.00 in the near term. Buy or spread calls on this pullback. Heating oil should also stay above 185 this week and should resume the rally in early June. Natural gas continues to trade between 700 and 800. 800 has been like a wall for this market but like most walls this one too will be broken. We see a rather large move coming in Natural gas this summer. We see this moving the market to at least 900 and most likely 1000 by mid summer.
We are still targeting a move below 650 in gold before the end of the week. Once there we will reassess. We could see a prolonged sell off if support does not hold so do not be too quick to buy this dip. It all hinges on the Dollar; if it remains strong then gold will weaken and if not then gold will resume the rally. Silver is trying to turn the corner back up but we are unconvinced as it too is very sensitive to the Dollar. We see silver falling below 13.00 this week and retesting support at 12.75. Copper is building a bear flag so look for this market to continue lower in the near term a close below 320 would signal that the downside momentum is back under way.
Wheat continues to be range bound between 5.00 and 4.75. We see weather issues pushing wheat through 5.00 later this summer. Soybeans continue to be in play but we are looking for a week or two long consolidation to take shape in the near term. Look for beans to trade between 7.75 – 8.25 for the next week or so, that should create a very attractive bull flag to buy long again but until the pattern shows itself we will remain patient. Corn is trying to get a rally going but we see this market chopping between 4.00 and 3.50 for some time.
OJ is consolidating and in doing so forming a bear flag. We should see at least one final push below 150 in the near term, then after that look for any weather (read hurricane) threats to push this market right back towards 1.75 – 2.00. I do not advise holding onto shorts through the hurricane season. Cocoa is struggling with resistance at 2000 and for now looks to continue to consolidate below that level. Coffee has stalled, but in doing so has formed what looks like a classic bull flag. Buy 115 calls and hold. Sugar is trying to turn but it is still too soon to say the sell off is over. We are still buying the March of 2008 10 cent calls. Cotton continues to try and stage a rally and this turn may turn out to be the real deal. Consider buying or spreading calls.
Live cattle is still drifting lower and should fall below 90 by Friday. Feeder did stall as we expected and is now on its way back below 110. Hogs continue to drift sideways but we are expecting an upside break out early next week. Pork bellies did hit our downside target of 100. Looking ahead we see this market turning back up early next week.
by Derek Frey
Odom & Frey
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