Archive | February, 2010

Stock Market Commentary – 2010.02.25

by on February 25, 2010

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With US economic numbers disappointing the trade, the Greece situation remaining unsettled and the Obama Administration setting the stage for yet another assault on Health care reform, there are clearly more bearish influences than bullish influences in the marketplace. With Washington aiming its blame gun at health insurers and Congress moving to repeal a Federal Antitrust exemption for health insurers, it would appear that another industry is about to be ransacked. Typically seeing the US Federal Reserve Chairman promise lingering low rates is seen as a positive and at times the stock market yesterday even seemed to rally off the idea that soft US numbers would insure lingering low rates. In other words, the market tried to shift back into a position where soft numbers serves to temper the fear of higher rate. However, the market doesn’t even seem to be able to consistently embrace the soft number/higher equities theme, perhaps because some don’t believe the Fed, while others are just afraid of further anti growth measures coming from Washington. Mix in what could be a deteriorating Greece situation and there appears to be more risk than reward in the current market.

S&P 500: Critical up trend channel support is seen at 1094.80 today, but we have to think that support levels could be violated, given the docket of political and economic events scheduled for today. In fact, to alter the down trend pattern in the S&P would probably require a rally back above 1105.20. If the durable goods report disappoints early today, we suspect that bearish sentiment will dominate.

DOW: With a pattern of lower highs in the March Mini Dow this week, it would seem like the bear camp has the technical edge. In fact, the market was unable to benefit from potentially supportive corporate headline news and clearly the scheduled macro economic news this week has been discouraging. Today the markets probably won’t have as much support off Fed testimony (because it is the second day of testimony) and that could make the mid day auction results a bit of a negative for equity market sentiment. Critical support in the March Mini Dow looks weak at 10,299, with the market potentially unable to avoid a slide down to and below 10,250.

NASDAQ: Like the Mini Dow, the Nasdaq has a pattern of lower highs on the charts and it is likely that the March Nasdaq will see a slide below the even number 1800 level today. With a lower early US trade this morning being seen despite a series of favorable corporate earnings news items from the European markets it is clear that the trade is still looking at the glass as half empty. Critical up trend channel support is seen today at 1797.65, but we can’t argue against a return to the February 23rd low of 1785.

TODAY’S MARKET IDEAS: Too little reward seen today in the face of rising political and economic uncertainty.

Bond Market Commentary – 2010.02.25

by on February 25, 2010

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The Treasury market had the benefit of Bernanke comments in the prior trading session, as slack auction results could have sunk prices, but apparently the promise of holding US rates down ruled the trade. With Bernanke pointing to a stubborn job market and low inflation as justification for the Fed’s on-hold strategy, the market was able to reach up to the highest level since February 10th. Treasury prices have remained just below the prior session’s highs through the overnight action, with residual Greece concerns and marginally lower global equity prices providing the bulls with the edge. With a Greek official lashing out against the German people and questioning the intelligence of EU leadership, one gets the impression that the negotiations between the two entities is on the rocks again. With protests continuing in Greece, a major ratings agency has suggested that a downgrade could be forth coming. Therefore, Treasuries are poised to get some residual flight to quality support, which comes on top of a very disappointing US new home sales report on Wednesday morning. In short, the outlook for the US recovery is suspect again and support from flight to quality angles is expected to continue to surface. However, the market will be presented with the last round of Treasury auctions later today, with $32 billion in 7 Year notes to be floated and that could take away some of the early gains in prices. Ultimately, we suspect that ongoing concern for the slow pace of the recovery is capable of offsetting what is expected to be slack demand for the longest maturity in the current auction cycle. With residual slowing fears seen from international economic readings, ongoing Chinese tightening fears and the recent flow of slack US numbers, it is possible that the fear of supply will simply be glossed over today. In fact, the Durable Goods report might be discounted this morning, especially if the report shows an as expected modest gain of only +1% to +1.5%. In other words, it will take a definitively stronger than expected US Durable Goods report or something favorable from the claims data just to alter the upward tilt in Treasury prices. We suspect that Bernanke testimony today will carry less weight because his views were presented in the prior trading session. However, one should not expect to see aggressive gains in US Treasuries unless that action is prompted by a severe breakdown in the Greece situation or by a very hard slide in US equities. In the end, one has to concede to a slow grinding rise in Treasury prices in the early action today, with the gains tempered into and through the mid day auction results. Given the economic setup today, June bonds might see little in the way of resistance until the 117-00 level, with similar resistance in June Notes not seen until 117-10. For the time being, close-in support looks to present itself at 116-20 in June bonds and at 116-27 in June Notes. In general, expect slow grinding gains on the charts ahead.

Currency Market Commentary – 2010.02.25

by on February 25, 2010

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DOLLAR: The Dollar Index continues to maintain a bullish tilt on the charts, despite lingering concerns for the pace of the US recovery. However, ongoing concerns toward the Greece situation has provided the Dollar with a bid in the overnight action. While a sloppy or slack US Durable goods report might restrict the upside in the Dollar today and the Dollar might also be undermined as a result of a marathon televised Washington political debacle, the bias looks to remain up in the Greenback. In other words, the economic and political outlook inside the US isn’t overly impressive, but apparently the outlook and condition in the Euro zone is even worse. In fact, overnight the Euro zone saw economic sentiment decline for the first time in 11 months and S&P has warned of a possible downgrade of the Greece debt rating. Some sources are suggesting that a downgrade of the Greek credit rating will cancel out the budget slashing efforts that are already causing violent protests. With a Greek official reportedly lashing out against the Germans and also maligning the EU leadership, it is clear that tensions are running pretty hot. Therefore, the Dollar looks to continue to get the benefit of the doubt on its economy, because of a more powerful flight to quality influence. Critical up trend channel support is seen at 80.36 but a closer in support level is also seen at 80.86.

EURO: As suggested already, the situation in Greece continues to undermine the Euro at the same time that Euro zone economic readings depicted a lack of internal confidence. With the EU overnight, releasing a series of growth forecasts on its members, it is clear that investors aren’t going to rush to invest in the Euro zone for high rates of return. We think the lashing out from a lower level Greek official is an indication that the bailout package being offered from the Euro zone is a paltry offering. Therefore we see a series of lower lows ahead in the Euro, with the next critical chart support level not seen until the 1.3420 level on the weekly Euro chart.

YEN: The Yen continues to benefit from the turmoil in the Euro zone and also because of the confusing situation in the US. Therefore a certain amount of flight to quality uncertainty is expected to flow toward the Yen. In fact, with a “ratings agency” giving the Japanese a left handed compliment, by suggesting that the Japanese situation was not at all like the Greek situation, it would seem like the bulls in the Yen are getting help from the headline spin. Near term upside targeting is seen up at 112.61 and the bull camp looks to remain in control.

SWISS: Once again the Swiss remains vulnerable to spillover pressure from the Euro. While the trade continues to talk about the threat of intervention from the SNB, there doesn’t appear to be a need to intervene as the down trend in the Swiss looks to be entrenched. Down trend channel resistance is seen up at 92.93, with the odds looking really good for the lowest trade in the March Swiss since June of 2009.

POUND: A definitive range down extension in the Pound overnight highlights a deteriorating global recovery view and perhaps even renewed concerns toward the debt situation in the UK. The UK debt situation was temporarily forgotten in the face of generally upbeat economic views but now that the recovery view is tempered somewhat the debt fears have returned. Apparently BOE dialogue continues to add to the selling pressure in the Pound, as the trade sees the need to extend quant easing, as a sign that the UK economy remains in a pickle. One has to go to the weekly charts in the Pound to find the next support level down at 1.5113.

CANADIAN DOLLAR: Like the Pound, the Canadian is being undermined by sagging macro economic views. If the US economy remains slow, Greece remains a threat and the Chinese are still thought to be on the cusp of more tightening, a recovery currency/commodity currency like the Canadian, is probably going to remain out of favor. There should not be a lot of pressure on the Canadian, but the Canadian should work consistently lower on the charts.

TODAY’S MARKET IDEAS: The Dollar and Yen look to continue to win by default.

Energy Market Commentary – 2010.02.24

by on February 24, 2010

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy but mostly lower trade in the early overnight action on lingering concerns tied to yesterday’s bearish reading on consumer sentiment and a report showing a higher than expected jump in fuel stocks. Oil market sentiment has been undermined this week by an unexpected drop in US consumer sentiment which has lowered the prospect for a recovery in fuel demand this year. Indications that German growth may have contracted in the 1st quarter, the possible need for more quantitative easing in the UK and China telling banks to limit loans to local governments has also dented optimism for a global recovery in oil demand. In fact, a weak demand outlook has been further supported by news that Japan’s January crude oil imports fell 3% compared to year ago and confirmation that China’s oil imports fell nearly 20% on the month in January. Crude oil is under pressure despite the API report showing a much larger than expected decline in oil stocks as the market seems to be centered instead on the large build in gasoline supplies which is becoming a key focus as traders start to look beyond the winter season into spring. A portion of the price gains last week were tied to supply side concerns connected to the French refinery strike. So part of the weakness this morning is likely due to news that a resolution of the strike looks to be close at hand. Trading has also turned cautious ahead of today’s EIA inventory report which is expected to show a nearly 2 million build in crude oil stocks and a build in gasoline stocks. The market is also jittery ahead of Fed Chairman Bernanke’s testimony on monetary policy and the state of the economy. Oil markets are concerned that a recovery in fuel demand could be threatened as the Fed starts to tighten liquidity and remove the extra monetary stimulus applied during the financial crisis. Crude oil at this week’s highs certainly seemed expensive considering US fuel supplies remain ample. Now that the fuel demand outlook has started to sour, it will likely take a combination of good news from the EIA report, a strong read on new home sales and markets taking a bullish view of Bernanke’s comments for April crude oil to strongly reverse course to the upside. But we suspect it may be difficult for Bernanke to convince markets that tightening liquidity is just a technical adjustment and therefore, we still see downside price risk in place. We suspect the oil markets may more closely follow the equity market’s move off of Bernanke’s comments perhaps even more than the dollar since the connection between the dollar and oil shows signs of breaking down a bit. But unless the oil demand outlook can make another 180 degree shift back to the bull side, we suspect April crude oil will correct back towards $76.58.

GASOLINE: April gasoline has also made a push lower after an earlier rally attempt overnight failed to hold. Gasoline remains on the defensive amid lingering concerns over the outlook for fuel demand after yesterday’s bearish consumer confidence reading and after API reported a much larger than expected jump in gasoline stocks. It is clear that fuel demand remains weak since a marginal rise in refinery operations and higher fuel imports were enough to raise gasoline supplies three times more than the estimate. The latest pump survey also reported that gasoline consumption over the last four weeks was only.5% higher than a year ago. Gasoline is also giving back a portion of last week’s gains as the French refinery strike looks close to ending. With a lot of impacting news flow this session, gasoline prices could be pushed in both directions. But with the market showing signs of becoming technically overbought at this week’s highs, we suspect there is a good chance for April gasoline to fall back and test retracement support near $2.1249 before making a run at the highs again. Unless Bernanke can shift sentiment back to the bull camp and revive a positive outlook for fuel demand, we just don’t think the fundamentals can sustain a move in gasoline prices above $2.20 level right now.

HEATING OIL: April heating oil has pulled back with the rest of the oil markets pressured by a disappointing API report and concerns that industrial fuel demand will be slow to recover since consumer confidence has weakened and with the Fed starting to tighten liquidity. API reported distillate stocks fell by less than 1 million barrels compared to a 2 million barrel decline expected by most traders. With the temperature expected to turn milder in early March, less heating demand as the season moves into spring could start to build up distillate supplies again since there is little indication that industrial fuel demand has started to recover. Technically, it looks as if April heating oil set a near-term top at the $2.10 key resistance level with daily indicators also showing the market had reached an overbought extreme. Therefore, we suspect today’s industry, economic and Bernanke news will need to shift the outlook back to the bull camp in order to prevent a slide in April heating oil back to test retracement support near the $2.00 price level. Overhead resistance is at $2.0586 which is the 100 day moving average while more chart based selling is likely on a move below $2.0279.

TODAY’S ENERGY MARKET GUIDANCE: With a variety of industry, economic and monetary news out today oil market trading could turn more volatile with prices being pushed in both directions. But unless today’s inventory report or Bernanke’s comments can somehow revive strong bullish oil demand sentiment, a less optimistic macro economic view that surfaced yesterday along with oil markets becoming technically overbought at this week’s highs will leave downside price risk in place.

Precious Metals Market Commentary – 2010.02.24

by on February 24, 2010

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OUTSIDE MARKET DEVELOPMENTS: While the US Dollar remains within striking distance of its recent highs, the Dollar action overnight does not appear to be the primary reason behind the slide in gold and silver prices. Apparently softer than expected US Consumer Confidence readings and the sharp downside push in global equities on Tuesday undermined global recovery views and that in turn has prompted selling in a host of physical commodity markets like gold and silver. It would also not seem like debt concerns in the Euro zone are behind the overnight weakness in the precious metals markets. With a US new home sales report due out later this morning and the outlook for the recovery seemingly downgraded recently the importance of regularly scheduled US data flows looks to have expanded. Some bulls might hope for some support off the US Fed Chairman testimony at mid morning, as the Chairman is expected to reiterate the need to leave US interest rates at low levels for an extended period of time. The markets will also see a second leg of US Treasury auctions around mid session with $42 billion in 5 Year notes being offered for sale.

GOLD MARKET FUNDAMENTALS: There appears to be a general macro economic let down being embraced in gold and other economically sensitive commodity markets. While the Consumer Confidence readings from the US aren’t typically seen as a top tier economic report, the market has apparently taken those readings to heart and it could take something very positive from the new home sales report this morning just to temper the fear of a long slow recovery process. After the early weakness in gold prices today, one could suggest that disappointment over potential Chinese interest for IMF gold supply added into the negative price tilt overnight, but the Chinese have already signaled that current gold price levels were unattractive to them. However, there are press reports overnight suggesting that India might be a buyer for the IMF gold supply and given the size of the IMF gold sale, it would not seem like the physical sale issues are a primary bear force for the gold trade. It would almost seem as if the gold trade is fearful of the US Fed Chairman testimony later today and therefore traders might expect to see some mid morning volatility in gold prices around that testimony. With gold and equities seemingly tightening their relationship recently, gold traders will probably continue to take a large measure of guidance from the US stock market.

SILVER MARKET FUNDAMENTALS: The silver market remains under pressure in the early going today with the silver trade suggesting that broad based physical commodity market weakness was behind the slide in prices yesterday. As in the gold market, silver was disappointed with slack US numbers and also with the sharp declines in US equities. With noted weakness in industrial commodities like copper, the silver market seems to be encountering financial and industrial based selling pressure. Given the drift back a toward classic physical commodity market fundamental focus in silver, that could make the new home sales report and the action in the US equity markets this morning even more critical to the silver trade. The bear camp might even play up a minor trend of builds in daily silver exchange stocks as a negative but in the short term, the concern of slackening demand seems to be more important than minor supply side issues.

PLATINUM: There is no respect for the recovery and that leaves the door open for more liquidation selling in the platinum market. With an early failure back below the $1,500 level this morning, it is clear that some classic technical pressure is set to combine with a poor fundamental picture. However, we would not rule out a respect for support down at $1,489 in the face of Bernanke testimony this morning but only if the new home sales figures manage to stay in positive territory.

Copper Market Commentary – 2010.02.24

by on February 24, 2010

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With a slide below a series of key technical points on the charts overnight and a downshift in the global macro economic recovery view recently, we have to leave the bear camp in control of copper prices. With a decline in Chinese January refined copper imports seen overnight, the copper market would seem to be getting both internal and external bearish fundamental news. With a slide below the $3.20 level seen in March copper prices early this morning, we see little in the way of support on the charts until the $3.1490 level. In fact, unless the copper market can come away from the new home sales report this morning and the Bernanke testimony with a layer of fresh optimism, we can’t rule out a continued slide down to consolidation support down at the $3.10 level. Aggressive traders can be short, but one should probably tolerate any trade in March copper back above the $3.20 level.

Sugar Market Commentary – 2010.02.23

by on February 23, 2010

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The technical set-up remains bearish as high open interest, a very large net long position from fund traders and a long liquidation mode from trend-following funds helps drive prices lower. With the trend turning lower and trend-following funds net long 118,228 contracts, the selling intensified yesterday as last week’s lows were taken out. Ideas that the Brazil crop is coming along well and that the new crop supply will begin to ease the tightness on the world market helped to pressure. Traders see new crop hitting the market by late March and early April or sooner if the region turns dry. In addition, traders see the recent high prices as a reason to suspect declining global demand. May sugar closed sharply lower on the session with May futures driving down to the lowest level since December 22nd. The sharp drop in the open interest combined with a hefty net long position of funds has traders nervous over the potential for more long liquidation selling ahead. Last week’s indications of strong demand from India failed to support a resumption of the uptrend and the outside day down yesterday helped to spark more selling; especially when the market penetrated last week’s lows. The selling and the break stopped right on the 100-day moving average at 24.03 basis May futures. The market last closed under the 100-day moving average on December 9th. May sugar is now down as much as 18.1% off of the February 1st high. The key reversal on February 1st was confirmed as a top with a weekly key reversal for the week ending February 5th. A government panel on Friday indicated that India needs to urgently import 3-5 million tonnes. Lower than expected production from Mexico and increased demand from the US had traders looking for Mexico to import some sugar and export to the US. The International Sugar Organization revised their world production deficit forecast for the 2009/10 season to 9.4 million tonnes from 7.2 million previous. The deficit last year was 11.7 million tonnes.

TODAY’S GUIDANCE: The liquidation threat looks significant and the short-term trend looks down. Resistance for May sugar comes in at 24.40 and 25.03 with 23.07 as next objective.

Cocoa Market Commentary – 2010.02.23

by on February 23, 2010

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While May cocoa continues to trade within a well defined range, yesterday’s price action also shows a lack of strong speculative buying interest in this market. Cocoa fell despite a weaker trade in the dollar yesterday and it couldn’t attract strong enough buying interest to even lift the market back to resistance at $3,188. The latest COT report with options for cocoa shows speculators continuing to reduce their net long position, particularly managed money and trend following funds. May cocoa lacks upside traction even though there continues to be reports of more widespread and violent political protests in the Ivory Coast and that clearly shows the government upheaval isn’t thought to be a supply threat yet. Since the main harvest in the Ivory Coast is nearly complete and production continues to outpace last year’s levels, the political turmoil in the Ivory Coast has not become a bullish catalyst, especially since good growing conditions for the mid-crop leave the supply outlook favorable. It must have also been disappointing for the bull camp yesterday to see cocoa slump despite a major cash trading company predicting world cocoa demand to rise marginally this year. The London cocoa market is looking a bit shaky and overbought at these higher price levels following a sizable rally from the February low. If the London market starts to back peddle, it will likely end up being a factor that drags the NY cocoa market lower. ICE cocoa warehouse stocks stand at 4.227 million bags, up 84,887 bags.

TODAY’S GUIDANCE: The weaker trade in the Dollar overnight seems to be providing cocoa with some early price support. But so far the currency action hasn’t been enough of an influence to push May cocoa out of the $2,988 to $3,200 price range. Unless the political situation in the Ivory Coast begins to impact cocoa business, May cocoa appears to lack a bullish catalyst to support a significant move higher.

Coffee Market Commentary – 2010.02.23

by on February 23, 2010

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The technical action is bearish and the market acts like it wants to make another leg down. However, the short-term cash fundamentals do not seem to point to lower prices until there is more certainty that there will be a bumper crop from Brazil this summer. Ideas that the sugar and coffee crops from Brazil for the 2010 season are doing well and that this will help ease any tightness in the world market helped to pressure. The Colombia National Federation of Coffee Growers indicated at production in the first half of the year should reach 5.156 million bags, up 22% from last year. This outlook clashes with trader expectations that Colombia coffee production will struggle to exceed last year’s level. El Nino dryness has already impacted production in January which was 515,000 bags, down 41% from last year and the lowest January production from Colombia in 34 years. May coffee traded sharply lower on the session and experienced the lowest close since February 5th. The market saw choppy to lower trade early in the session but when the sugar market saw a significant sell-off, coffee pushed under Friday’s lows and this sparked sell-stops and further technical selling. Funds were noted sellers on the session in coffee and soft markets in general which helped to pressure. Robusta futures pushed to a new 8-month low which added to the bearish tone. Vietnam cash markets are weak and traders appear un-concerned with developing dryness in some of the key growing regions. Concerns that the strong dollar, weak Brazilian currency trend will continue has added to the bearish tone. Daily ICE certified deliverable coffee stocks were down 4,985 bags yesterday to a 7-year low of 2.818 million with 29,171 bags pending review. This is the 6th session in a row in which stocks fell moderately and the movement could begin to provide some underlying support.

TODAY’S GUIDANCE: May coffee support is at the 130.90-130.35 zone with 139.50 and 141.70 as next key resistance points. If support can not hold, 127.70 becomes next downside count.

TODAY’S MARKET IDEAS: For now, assume support will hold and that we will see an eventual test of the 140.00 level.

Cotton Market Commentary – 2010.02.23

by on February 23, 2010

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The market may finally be getting overbought after surging to new highs for the year yesterday. This took the weekly chart of the nearby cotton contract to the highest level since March 2008. Leadership has shifted more and more to the nearby contract. On the one hand, this tells us that this is a genuine fundamental bull move is underway in cotton led by old crop tightness and that strong demand may tighten stocks even further before the next US cotton crop is harvested. On the other hand, the concentration of strength in nearby contracts suggests that there will be pauses and corrections in the rally in more deferred contracts, including the May contract. Open interest remains in the same sideways pattern it has seen for the past two weeks although there may be a slight upward bias developing. Funds were strong buyers yesterday as the nearby March contract posted a gain that was more than 2 1/2 times higher than the gain in May cotton. However, the gain in the May contract was also substantial and the July contract was also substantially higher. The first deliveries against the March contract yesterday were 2009 contracts and traders report that they were stopped by strong hands. Stocks registered for delivery against the ICE No. 2 cotton contract rose again yesterday to 517,172 running bales from the previous total of 507,850 running bales.

TODAY’S GUIDANCE: Traders should be careful to avoid any temptation to try to pick a top in cotton. Even doing so in a deferred new crop contract could become a trap if spreads temporarily reverse which would tend to temporarily lift deferred contracts. Still, the market is overbought which means that traders should concentrate on taking profits from the long side and waiting to buy in May or July contracts on a setback. First support is at 77.83 in May cotton. The next significant support is at 75.34 to 75.50. Next resistance is still at 81.09.

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