by Scott Hoffman, Senior Broker & CTA
Last week's activity in the futures markets was exciting, as the CRB rose to 24-year highs. Because of a lack of economic releases last week, commodity prices proved to be a driver in the financial markets. On a "big picture" basis, commodities have enjoyed a resurgence as an investment class, as expectations of economic strength in the US and the Far East continue to bolster the demand side of the equation.
This week may see the markets refocus on economic releases, as we have a bigger slate - Retail Sales are due out Tuesday, Housing Starts on Wednesday, Industrial Production on Thursday, and the Philly Fed survey Friday. This week's economic numbers should show continued economic growth, but the backup in interest rates and strength in crude oil have been the big focus for the markets.
The sharp rise in interest rates hurt stocks last week, as did an inability to maintain prices above late December highs. S&Ps came into last week on a sell short day, as short-term momentum had made a lower peak, diverging with price action. An extreme low in momentum allowed a reprieve on Thursday, but the week ended with the wide range selloff on Friday. For this week, I expect last Friday's range to contain price action early in the week, as the market should continue to see support around 1200 and resistance around 1220. The MACD is showing a bearish crossover; oddly enough, the bearish crossover in mid-February led to a rally to the year's high. S&P 500 Futures Quotes + Charts
As with stocks, Treasury futures collapsed last week, as the capital inflow into commodities hurt Treasury prices. Last week's selloff was tipped off by the inability of the market to follow through on the employment report rally. Tepid auctions and the rise in the CRB greased the skids for the selloff. The steep decline in momentum allowed a recovery on Thursday, but coming into this week, a recovery in momentum will help keep Treasuries on the defensive. I'm looking for a continuation of the selloff early this week and a recovery late, as this down leg comes to an end. Treasury Note Futures Quotes + Charts
Last week's picture was ominous for the Dollar, as its inability to gain off higher interest rates and economic growth pointed to lower prices. Traders focused on the twin US deficits and investors' appetite for commodities to drive traders out of the Dollar. For the coming week, the ability of the Dollar to hold the lows of late 2004 will be key to the Dollar's direction. For the first half of this year, I believe we'll see the Dollar constrained by last year's range, and would view this selloff as a buying opportunity. Currency Futures Quotes + Charts
April Gold neared important resistance at $450 last Friday, aided by Dollar weakness and CRB strength. An inability to penetrate this level will most likely lead to another selloff, especially if the Dollar finds strength later this week. April Gold should see good support under $440 early this week - notice the uptrend line off the last two lows. Last week's new yearly high in the May Silver came on negative divergence with MACD; an inability to hold the mid-point of the recent channel (around $7.40/oz.) could lead to a selloff to $7.20. Metal Futures Quotes + Charts
After falling to 3-month lows early last week, sugar prices staged a good recovery as the trade expects a production deficit for 2005. This rally was confirmed by Monday's bullish crossover in MACD, and the ability of the market to close over the downtrend line off the recent highs forecasts continued strength. The next objective is the February high at 953. Sugar Futures Quotes + Charts
Crude Oil staged a good comeback off recent lows around $53 late last week. The $55 area remains good top-side resistance for the time being. MACD is at an upper extreme for the year, and a failure at the top of the channel should start a selloff. A break under the trendline should start the selloff, and a move under $53 will target old resistance (now support) at $50. Crude Oil Futures Quotes + Charts
Last week's chart for April Live Cattle is a great example of a breakout of a pennant. The consecutive inside and narrow range days of Monday and Tuesday of last week led to the big upside breakout on Wednesday, which tested the high from February. They were unable to follow through on the rally and are currently testing the breakout level around 8900. The MACD continues to point higher, indicating that the rally is likely to resume. Live Cattle Futures Quotes + Charts
Soybeans exploded to the upside last week, as traders anticipate a return to the "good old days" of 2004. Dry weather in Brazil and rust fears in both the Southern and Northern Hemispheres supported prices. Strong Chinese demand has kindled hopes of a repeat of the export boom of last year. Technically, a move over the yearly high of $6.35 led to the rally late last week, and the push over the psychologically important $6.50 level added fuel to the fire. The lack of farmer selling at these high price levels leads me to believe that it is unlikely we will break until we get to planting this spring. Even then, the wildcard of Asian rust may keep prices firm early in the season.Soybean Futures Quotes + Charts
Corn continues to be pulled in both directions. On the bullish side, commodity funds have shown a big "appetite" for establishing long positions in corn, as the rising tide of commodity prices is lifting many boats. On the bearish side, farmers are showing a propensity to sell into strength, as evidenced by the failure of May corn to penetrate the February highs. A big world supply of feed grain is likely to keep corn a range bound affair for the time being. However, I continue to advocate buying on dips toward $2.10 basis May.Corn Futures Quotes + Charts
I think Wheat has the weakest fundamentals of the grain markets, as the EU continues to sit on a large stockpile of wheat, and sales continue to be competitive amongst the world's producers. Worries about spring wheat seedings allowed the market to rally, but I think wheat is the grain closest to rolling over. A break below the psychologically important $3.50 area basis May Chicago will aid the selloff, and a move under the old high at 346.50 should allow a break back to $3.30.Wheat Futures Quotes + Charts
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