The S&P

The economy is still sliding downward, yet the United States and members of the IMF believe that the worst is over. Somehow this does not impress me or make me feel confident. As we dissect retail, unemployment, and consumer confidence numbers from week to week we do see an improvement in these numbers. What does “improvement” mean? This means the numbers are less “bad” than previous months, and that the shock and awe has been relieved from the market. This has been the main reason for the surge in the market. Don't forget, we still could see a steady rise in the swine flu, which is a factor out of our control. This eventually could be the shock or awe that the market is unprepared for.

The S&P has been slow moving the past few days, trading between 930-950 with no real direction. What can we expect? With tension in Iran and North Korea resuming we would normally expect a spike in the market, but the IMF mentioned that the world is slumping and could still see pockets of calamity. Generally speaking, oil falls and the dollar and stock market rise when dictators start wagging their tongues. As the week moves on and the Iranian and North Korean leaders start pounding on their chests we may see small rises in the market.

Tuesday we have PPI, housing starts, and building permit numbers that will be announced. Building permits are expected to be around 500k, in which I believe may be down a bit due to lack of mortgage applications and higher rates. PPI is expected to be around 0.4% and should be accurate due to the government telling our country that inflation is not an issue. The question I have for the government is: what if they are wrong? What if inflation does rear its head? As traders we need to be able to react to either side and find an area to produce money. On Thursday, we have initial claims and leading indicators. These shouldn't shock the world but are some things that we need to closely watch. Initial jobless claims are supposed to be around 595k, and have been steadily going downward. Remember, on Wall Street nothing is steady and changes will always occur. This is why we should be prepared for small bursts of negative numbers in jobless claims. Sometimes it gets worse before it gets better. Overall, this should not have a big impact on the market. Leading indicators is a predictable number and equates the news we already know, such as: unemployment, money supply, and permits. This number is expected to be 0.9% and should be accurate.

Bonds

The 30 yr continues to fall, showing that confidence in long term rates is slumping. The consumer is not happy with short term rates and may take more money out of treasuries at play the commodity or dollar trade. The 30 yr is slowly creeping down to a price of 94.40 with yield rising to 4.64. Some argue that as the yield grows so too does inflation and that our government is placing us in a bad situation in the near future.

Currencies

The U.S. dollar index has been hovering around 80.00 and shows promise as commodities and our treasury market have been slipping. As the government calms fears about inflation investors and traders feel safe buying the dollar. I, on the other hand, believe we need to tread cautiously and not jump into the hype. The Canadian dollar has been moving as well and is something we should be watching. Dipping oil and raw material prices might weigh on the Canadian currency since their economy tends to be linked to exports and commodities.


Energies had their winning streak continue at 4 weeks as Crude traded above $71 for the first time since mid-October ‘08. Oil settled at $72.04/barrel on the New York Mercantile Exchange, good for a +5.2% gain. Heating Oil climbed 3.8% to $1.8735 and Gasoline added 4.5% to close out at $2.0431 for the week. Lagging behind again we have Natural Gas, which was actually negative on the week down .02% to $3.857 on another bearish inventory report. Supplies of natural gas rose 106 billion cubic feet in the week ended June 5 to 2.443 trillion cubic feet. Analysts forecast an increase of 110 billion. The five-year average gain for the week is 91 billion.

A key report today coming out in the US (the world’s largest oil consumer) may show that manufacturing in New York State contracted for a 14th month. This, along with 9.4% unemployment, could hamper Crude's rally as I believe we are in for some sort of pullback in the market soon. We are down .75 cents on the night session already to $71.30 and look to test the $71 mark. I believe prices can break this and try to target $70/barrel. The USD is stronger by more than a penny against the Euro helping to support this case. The Euro/USD is now trading below $1.39 looking to test $1.3750. We will look to the inventory report coming out Wednesday as this will be key to this week’s movement. I believe the one bullish point here is the "golden cross" starting to form on the chart. The "golden cross" is when the 50 day MA crosses to the upside on the 200 day MA, and right now we are seeing $58 for the 50 day MA and $60 and change in the 200 day MA; but again, we may have come too far, too fast. With that being said, we obviously need a close below $70 to confirm any serious downside move. WTI spreads still remain in "contango" and we have not seen any new highs in the front end spreads the past two weeks. Let's see what the USD and economic data bring us today.


Price action this past week hinged on the influence of the day by day direction of the dollar and the rolling of positions out of July. As a result of the rolling, several key contango spreads widened in favor of the next active month. The July/Dec cotton spread moved out to over 500 points and the July/Sep cocoa to 38 points. Look to see more play occur in spreads, especially as the front months yield their dominance in liquidity. As for direction this coming week, expect sideways to lower prices as outside market influences pressure prices in the soft complex with few exceptions. Look also for volatility in soft options to trend lower.

Cotton: December gained a couple of cents on the week; July only about a penny and a half. Since Friday was the last scheduled day for the GSCI roll (and with values in that spread now beyond full carry), it will certainly be worth watching to see where N/Z moves this coming week. I predict that things could easily become crazy and extremely volatile, and the July and Dec contracts might be better viewed and approached as though two separate commodities. As for outright direction, that will continue to be determined by specs. I'm encouraged by export numbers and feel the crop size and focus on Texas will give rise to upward price movement eventually, but for the near term expect a range of 58 to 63 in Dec.

Coffee: The lack of cold weather forecasts in combination with technical pressure and dollar price action prevailed. Look for more of the same in the coming week. Seasonal harvest pressure may contain additional weight as this "off year crop" is reportedly the largest ever. Technically, a key will be the response to 128-125 support. While I've been a long term bull and still lean towards the potential for this market to stage upward movement at some point, it needs a piece of news to encourage any real upside action. For the coming week I look for resistance to emerge and selling to become a bit more aggressive on any up moves. Option volatility has come in, reducing premiums and that trend ought to continue.

Cocoa: Prices backed off on Friday after the banner upward drive accomplished the past few weeks. That move up occurred too swiftly and without any sound fundamental reasons that would ordinarily apply. Sure, there are some political issues being touted and in the countries of origin; problems that sort of carry weight. While the currency markets have been a major force, speculative buying and fear of missing coverage have been the drivers. Sooner or later, what goes up might have to deal with gravity. Sup. 2760-2740, Res. 2860

Sugar: October spent the week in a range between 16.65 and 16.20, giving up ground for the week after being on the defensive. Anticipate potential technical pressure and speculative liquidation should support at 16 cents become jeopardized. The relationship between July and October will likely be the focus this coming week. July options expire on Monday. Since sources suggest current supplies are adequate, once short hedges get repositioned in October, the spread between Oct and March may gain. Defensive price action is apt to be on the horizon.

OJ: Increased rains caused speculative liquidation and even some put interest. The OJ market will remain vulnerable to further action of this type. While there may still be some long positioning by funds, bargain hunter interest that may surface; and unless bad weather is forecast, I see no urgency for any upside drama.


Precious metals lost some ground last week - especially on the Friday session - as the USD rallied against other major currencies. Gold was down 2.1$ this week to $940 but was actually pretty stable until the Dollar rally on Friday to send the yellow metal down $20. Silver lost 3.3% to $14.86 to follow Gold on the downward trend. Platinum lost 2.1% as investors took profits after a tremendous run up to $1,300/oz selling this market down to $1,258.7. Base metal Copper had another solid week rallying 3.7% and trading as high as $2.46 before falling back to $2.37/pound as traders locked in gains.

This fall in the precious metal markets looked all too familiar from last Friday as we saw the USD gain late in the day, over a penny against the Euro. Gold is now down about $5 from settlement and looks to test the support of $930. If we see more buying in the USD and take out the $1.3750 level on the downside in the Euro/USD, then Gold will no doubt break through that $930 level. Silver has been more volatile then than Gold, so if you are looking to possibly create some big profits then trade this market for right now – just remember that volatility can hurt you, too. Platinum is down $22 to $1,235 as we are seeing this market fall back from the recent rally. Copper down 6 and a half cents to $2.31/pound as the equity markets look to the downside today. Even in this remarkable run, Copper may have to take some time to consolidate as we have seen new highs almost daily for this base metal. A little pullback wouldn't be a bad thing.


The previous week saw the first stage of the market correction with bears gaining a firm hand hold following WASDE with nothing on the report to feed the bull. Outside markets, especially crude, are the driving force with the US dollar's weakness having added to recent bullishness. Technical pressure is adding to downside momentum with all daily and weekly charts finally rolling over in over bought territory. Lastly is weather with last week’s progress report showing all but fringe planting complete coupled with a shift back to a warm and dry forecast. Looking to the week ahead we have to continue looking at planting progress for changes with any corn yet planted sure to show up on the June 30th acreage report. Macro markets will continue to dictate momentum and direction with the Euro needing to exceed 142 versus the dollar to continue bullish momentum. Crude needs to get back above 72 to continue to garner money flow, with the escalating situation in Iran worth watching.

Technically, all charts are in trouble with continued downside momentum possible if not probable. Look for a 38% across the board before changing your directional bias. This refers to a near term bias, not long term. Looking at spreads we have had some wild rides. N/X has been unreal. The squeeze is on so who knows where this thing will go. As long as front end meal remains firmer than deferreds and old crop crush margins remain inflated there is a good chance N/X will remain strong. Lacking those two inputs look for a correction. I do not recommend playing this spread from a speculative standpoint. Wheat corn has been a butcher’s block with Friday’s activity hammering weak longs - myself included. The early down draft set off stops before the market corrected into the second half of the session closing 3-cents wider than Thursday. This remains very choppy lacking fundamental direction at current levels. Technicals state this will widen with 220 the target. New crop beans versus corn is hovering in the low 620's with logic stating this will widen over time, but the immediate future portends tighter with beans retaining much more downside potential from current levels.

Overall the market looks to start weak and continue like this until outside markets change momentum. Keep a close eye on equities with bank strength pointing to better capital availability which in turn is bullish for agricultural commodities. Keep your ears open for talk of inflation with this also a bullish factor. In closing, look lower but do not change your long term bias. This is a correction in a long term bull market with buying opportunities available in the coming weeks. Look to buy across the board with beans holding the best upside, corn second, and wheat bringing up the rear.

Frank LaMantia (S&P and Currency trader), Matthew Pierce (Grain Floor Trader), Daniel Cronin (Energy & Metals Broker) and Jurgens Bauer (Softs Floor Trader) are the Gurus for the Weekly Pit Review published on www.PitGuru.com by Futures Press, Inc. - hear their audio market commentary, learn more about them and sign-up for the Weekly Pit Review by visiting www.PitGuru.com

Disclaimer: Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.