We have begun to see the Treasury department act to defend the Dollar. Last week we saw one of the largest infusions of capital by the Treasury in 21 years. While this did not yet turn the tide for the Dollar it is an initial sign that they are beginning to back up there “strong Dollar policy” with actual action. We are far from out of the woods yet, but look for more data as well as this weeks ECB meeting to continue to support the Dollar. The trade in the Dollar has become extremely lopsided and that lopsidedness has lead to at least a short term countertrend in the past.
Energy Complex (NYMEX)
Crude Oil:
Oil ship
Crude oil continues to trade above $90.00 and the prospect of hitting $100 per barrel has gone from krazy talk to now a question of only when not if it will happen. We have seen a continued increase in volatility along with price. Near term we expect the $100 level to be tested by Thanksgiving. That being said we do see a substantial shake out coming in the weeks as this trade has also become very lopsided on the bull side.
Natural gas:
Natural gas started breaking out last week but has since pulled back into the channel. We view this as a false start and would buy again under 8.00 on the Dec. contract.
Equities
SP500, DJIA, NASDAQ:
Stocks
Stocks did push lower after the FOMC as mounting write downs weighed on the market. There is still more unknown ahead of us than know behind us so we expect the market to continue lower. We see the S&P breaking below 1500 and working its way back to 1450 by months end. We must again say that unless you intend to hold your position for many many years, do not buy this dip.
Financials
U.S Bonds:
Bond pit
For now the fundamentals in this market will not matter. The bottom line here is when stocks fall the first place money runs to is Bonds. Since we are expecting the stock market to stumble further this week, we see bonds moving higher even though we do not expect the FOMC to cut rates again this year.
Metals
Gold, Silver, Copper:
Gold Bars
In January of 1980 Gold hit its all time high at $873.00 per ounce. In terms of today’s dollars, gold reached $2,176 in 1980. So even if we test the old “Hunt Brother” highs we are still light years away from the inflation adjusted high. Near term the trend remains strong and we see little standing in the way of this rally. The only thing that could turn this market around is the Dollar. Until the Dollar finds support gold will continue to rally. Silver will follow on the heels of gold and should test at least $15.00 this week. Copper continues to move lower on fears of a global slowdown. We will become buyers on a move back below 325.
Grain Complex
Corn, Soybeans, Wheat:
Soybeans
Dec. Wheat is still trending lower and we are still holding shorts with a target back below 7.00. We will look to buy puts again in wheat if it trades above $8.00 this week. Corn remains range bound and is expected to remain so for the time being. Beans are still consolidating the move above 10.00 but should see more upside this week and next. We see the Jan. Contract trading above 10.50 within the next 8 trading days.
Softs (NYBOT)
O.J, Cocoa, Coffee, Sugar, & Cotton:
Orange Grove
OJ is still trending lower and we are still in our put spreads targeting a move to at least 1.30 by months end. With hurricane season all but behind us and the threat of frost still many months ahead, OJ should continue to trend lower until we find support which we believe lies near 1.25. Cocoa should see a pullback below 1900 this week and then more or less sideways drift after that. Coffee filled our long entry last week at 119. We have stops below 115 and are targeting a move back up to 125. Sugar is still drifting sideways and we expect that trend to continue with a slight downside bias. Cotton is forming a coil that should lead to an upside breakout later this month.
Meats
Lean Hogs,
Live/Feeder Cattle, Bellies:
Meat
Live cattle bounced off of the strong support level we mentioned last week. We see 94.00 as a bottom on that contract and would advise traders to go long with stops below that point. Feeder Cattle has yet to turn around but that day is near. We do not see this market penetrating the 106 support level. We expect the Dec. Lean hog contract to find support above the 50 level and stage a dead cat bounce into next week. Bellies are still trying to get a rally together but until we see a close above 86.00 on the Feb. contract.
Derek Frey
Odom & Frey Futures & Forex
toll free: 866.636.6378
international 904-247-0232
www.odomandfrey.com
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