In his infinite wisdom I quote one of Rick Santelli’s comments from last week, “Instead of giving away fish we must teach the public how to fish.” Although I think he tweaked the original, this version is more suitable in its current context. The way I view it is that with more government involvement, their labors will not fix the ailing economy but only prolong the recovery. Whatever happened to the saying no pain no gain? Let banks fail, companies go out of business and overzealous speculators lose money. Why should everyone else who played by the rules have to sacrifice. I agree with Marc Faber, “The best policy response would be to do nothing and let the free market correct the excess brought about by unforgivable policy errors.”
Financials
Stocks: Is bank nationalization really a viable option? The Dow ended last week lower by 485 points losing over 6% to 7366, its lowest close since October 02′. The S&P 500 shed 57 points or nearly 7% to 770 making last week the sixth time in seven weeks this index has lost value. The NASDAQ fell 93 points or 6% to 1441. The severe pessimism is growing, so for that reason we are still expecting a rally. This will not be the ultimate low and we do expect to see lower levels but for now we anticipate a 10%+ rally. Even if we are right with our assessment, besides scalping and conceivably day trading, we will use this rally to get short from higher levels and perhaps to help navigate in other trades. This will not be a rally we want to be in as a position trade, only because we expect there to be another closet full of shoes that could drop.
Bonds: March 30-yr bonds were higher by 1’04 points, support is seen at 125’16 and resistance between 129’16-130’00. Selling has come in near the 20 day moving average as prices have failed to close above that level in the last 4 weeks; currently at 129’15. 10-yr notes for March were higher by 9.5 ticks and continue to lag the movement of bonds. Support is seen at 122’16 followed by 121’20 with resistance at 124’16. We continue to advise selling rallies in the March 10′ Euro-dollar and will stay the course until we see a trade above the double top at 98.74. Prices last week gained 7.5 points or $187.50 per contract which is a move against current shorts, but fairly insignificant. We would look to add to the position on a close below 98.20.
Currencies
Japan reported that real GDP was down 3.3% in Q4, the worst quarterly performance in 35 years. The BOJ also met and kept interest rates unchanged at 0.10%. The March yen lost 96 ticks last week, shedding value for 4 consecutive weeks now. We see solid support at 1.06 with resistance at the 9 day moving average at 1.0850. We bought March 110 calls on Friday and on our best fills were out in the same session at a 70% net profit, for others we are looking for an exit of 80-100 points on a move to 1.09 in the futures early this week for an 85-100% profit. The risk we run is that there are only 10 days in these options so we will be quick to take profits or losses.
The March Euro reversed off a 12 week low closing 259 ticks higher last week. We see support between 1.2700 and 1.2750 with resistance at 1.3025/1.3050. On a move above those levels the 38.2% Fibonacci level may come into play at 1.3325.
The March Aussie was higher by 111 ticks last week, although the 9 day moving average capped any further gains. Support comes in at .6325 and resistance at .6625. Buy a close over .6650.
The Swissie for March too was higher by 111 ticks last week. A bullish engulfing candle formed on Friday and the weekly chart to end the week, so consequently we say higher prices are to come. We advised a buy stop in last week’s commentary at .8700 so some may be positioned long already, we would trail stops and currently advise placement at .8500.
The March Loonie was higher by 10 ticks last week. Support is at .7875 with resistance at .8075. We still expect a move to .8200 and potentially .8400 if energies catch a bid.
We have client’s positioned long futures against a short call option.
The Cable moved higher by just under 2 cents last week exhibiting signs that a bounce is due. Support comes in at 1.4100 with resistance at 1.4500 followed by 1.4650.
The Kiwi dollar gained 62 ticks last week, closing higher 4 out of 5 days but we have yet to re-commit client funds. Support is seen at .4985 with resistance coming in at .5200.
The US dollar index lost 26 ticks last week, considerably off the highs; practically 2 full cents. Strong resistance comes in at 88.50 with the first support at the 100 day moving average at 85.75. The 100 day moving average has been the line in the sand since mid-January, on a penetration of that level look for next support at 85.00 followed by 83.75.
Metals
April gold gained $61.40 or 6.5% last week to close above $1000/ounce for the first time since mid-March 08′. We recommended clients to exit their long June 900/1000 call spreads last week at $5200-5500/per. On a pullback, which we have been anticipating, look for support to come in first at 950 followed by the 20 day moving average at 925. In addition to technical indicators screaming overbought, as equities bounce and some of the “flight to quality” money finds its way back into securities prices should back off. Our primary buy zone to re-establish longs is between 860/900. On futures we will still be active in April and would suggest on options to look at June and August.
May silver finished up 90 cents, the highest close in six months and has been positive for 5 consecutive weeks. In that time frame prices have advanced $3.23 or $16,150 on a 5,000 ounce contract. Quite a run and yes folks we did forecast this. Read our HI-HO silver report from November. Much like gold we have been calling for a retracement in prices and therefore haven been lightening up for clients as painful as that has been only to see prices make their way to higher ground. On a 50% Fibonacci retracement from Friday’s high and the low in October $11.60 is the ideal correction level. We will most likely start re-establishing longs on a move back close to $12 which would still be a 16% correction.
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_____________________________________________________________________________________Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions. Calculations of profit and loss have not factored in commissions and fees.