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.
Energy Complex (NYMEX)
Crude oil is reacting to the strong Dollar and should trade down below $78 this week. We could see it fall as far as $75 but we do not see this market staging an all out free fall at this time. Buy or spread calls on this dip. Heating oil continues to look weak and we continue to target a break back to 200 before this month is out.
Natural gas continues to trade in a more or less sideways fashion. We continue to see natural gas as being unable to penetrate the $8.00 level in the near term. This week we see this market pushing back towards $6.50.
SP500, DJIA, NASDAQ:
The S&P 500 is testing the previous highs early this week. We see this market staging a pullback off of these resistance levels this week. Longer term we do see the indices pushing through the old highs but not in the near term. Look for the S&P to move back towards the 1524 level this week.
U.S. Bonds: Bonds broke down big time on Friday’s NFP report. We expect this market to trade below the 110 handle this week. Looking longer term we see this market moving back towards the 108 level. Bottom line here is look for bonds to sell off as the likely hood of another FOMC rate cut decrease.
Gold, Silver, Copper:
This week we are seeing the Dollar strength that we have been forecasting and that is taking the wind out of the metal sails. Look for gold to trade back below 700 before this correction stops and Silver should also fall below $13.00 in that time as well. We expect this pullback to take the better part of this month to complete. Copper will see a lot of volatility this week as the industry has its big annual meeting. We hit our 375 objective last week and exited our longs. Look for copper to pull back below 350 this week.
Corn, Soybeans, Wheat:
Wheat has finally turned down and we expect to see multiple limit down days in the immediate future. Wheat could fall all the way back below $7.00 in the days ahead if the Dollar continues to rise (which we expect it will). Soybeans on the other hand should hold support above the $8.50 level. We will look to enter long beans once this correction turns back the other way. Soy meal continues to look negative in the near term. Corn should break below 3.25 later this month look for the sell off to be small relative to the other grains.
O.J, Cocoa, Coffee, Sugar, & Cotton:
OJ has stalled and we see it turning back down this week and beyond with a target at the 115 level on the March contract. Cocoa had a huge breakdown and we luckily exited our butterfly spreads last week for over a 100% return on the original risk. We see this market consolidating the sell off later this week but for now will stand aside. Coffee continues to look strong and we continue to target 140 as mentioned in last week issue. Do not chase this market as we do expect a big break down after the 140 level is penetrated. Sugar is still struggling to hold onto a rally. We are still targeting a move below 9.50 in the near term. Cotton has stalled a formed a macro double top on the long term charts. Near term we see this top holding and expect to trade below 60 on the December contract this month.
Lean Hogs, Live/Feeder Cattle, Bellies:
Live cattle pushed towards the lower end of the range we expected. We now see this market pushing through 94 and testing 92 this week. Feeder cattle also hit our target from last week, and remains a sell this week. We see Feeder cattle testing the 112 level this week. We are still long hogs from last week and our stops remain below 55. We do expect hogs to turn up this week and when it does we will trail the stop by rightly 2.00 points. Pork Bellies traded sideways last week but we remain optimistic and see this market pushing back above 90 in the near term. Keep stops below 85 until the market pushes above 92.50 and then trail it by 3.50 points.
by Derek Frey
Odom & Frey
Call us at 1-866-636-6378