MB Wealth Corp. Weekly Commentary
For June 25th - June 29th 2007 By: Matthew Bradbard
As mentioned last week the two impending events this week are a USDA acreage and quarterly stocks report and an FOMC meeting where the Fed is largely expected to keep interest rates unchanged. We agree that rates will remain at 5.25%, but the verbiage or any indication of future rate direction is as important now as it has been in the last three years. With the markets this volatile you have two options; stay on the sidelines or if you are brave enough to grit your teeth and weather the storm expect bigger swings and fluctuation in your positions. Using stops is not a perfect science especially in choppy markets; however it is paramount to de disciplined in this environment. Remember it is better to be out wishing you were in than in and wishing you were out. Contact us today at 1-888-920-9997 to learn how we are positioning ourselves in the markets. ___________________________________________________________________ Talk about volatility! Energies were extremely choppy this past week; Crude oil had a 1.50 trading range almost every session. If the market fails and breaks support we could easily see a technical collapse down to 65.00. This is a critical week to see a move to and through $70 for the bulls, otherwise this market could drop precipitously. A correction may want to be used as a buying opportunity, September Crude oil futures have increased in value 15 times (78.9%) during the 19 year period from 1987-2005. Natural gas has collapsed this past week and is approaching its lows for the year. However, natural gas still remains a strong value buy for a hurricane play and we are starting to price out Bull spreads. ____________________________________________________________________ Officials from Japan and the U.S. will meet on Wednesday and Thursday in Tokyo to discuss the possibility of easing restrictions on U.S. beef exports to Japan. Currently, only beef that is 20 months or younger is allowed into Japan from the U.S. July stands out as the market anticipates decreasing slaughter rates at a time when retail beef demand is high (the height of the BBQ season). Hogs are testing price support at 72.50 and are a near term buy. We still suggest staying away from this market until it determines a more defined trend. Excessive summer breaks in hogs especially in June and August usually see strong rallies shortly afterwards. _____________________________________________________________________ Stocks: A strong stock market decline this past week across the board has indices heading for the bottom of a 2 ½ month trading range. Until this market closes below 1500 on the S&P it remains bullish. If the S&P gets through 1500 and the Dow 13360 we could see a significant correction so they continue to be important technical points to watch for. ____________________________________________________________________ Grains sold off this week as forecasts for much needed rain had the specs running for the exits. The eastern half of the Midwest received rain over the weekend and has more chances over the next few days. The latest 6 to 10 day forecast from the National Weather Service is calling for below average precipitation in the Midwest, also extending into the southeastern states. With the recent move down across the grains the market is assuming that we are going to avoid a major drought – it is still very early to discount weather. There is plenty of time for weather issues to affect the grains, and this volatility is just an indication of how sensitive the market is. The annual acreage and quarterly stocks report are due out on Friday, which will determine the trend for the next 2 months and most likely serve as a reminder to the market as to the true exposure this sector has to any issues between now and harvest. We will lightly step into corn longs ahead of the report under the impression that we will get at least one more sell signal this summer. Be wary of rallies in Soybeans in June and July that exceed the January-to-May highs of November Soybeans because supply weighs on prices. July is the worst month on record for beans; the market must grapple not only with US supply but that of South America as well. ______________________________________________________________________ The dollar is showing signs of weakness and will need to move above 83.00 to keep the bullish momentum we’ve experienced in the last 2 months. If the Fed gives the indication rates will move higher in Q3 or Q4 look for the dollar to move back to 83.25 and try to advance to 84.00 by mid July. The yen is still probing for a bottom and we feel we‘re getting close to a trend reversal. The carry-trade cannot be ignored and just as we are nervous about the sub-prime mess the yen weakness will not last forever. ______________________________________________________________________ Cotton spiked mid-week and could be establishing a major bull breakout, however this market is too far ahead of itself for me to establish new entries at this level. We still contend that a move to the 70’s is underway but will only buy on a pullback of 2.5 plus cents. Cocoa has seen strength from both a dip in the dollar and from supply issues in Nigeria but at 2000 seems a bit pricey. Coffee prices remain weak as a lack of weather issues out of South America is causing a pause in the market’s rally efforts. If you are playing the short side, be quick and vigilant in taking a profit because any weather issues will reverse this move in a New York minute. OJ is experiencing strong selling pressure as continued beneficial rainfall in Florida and a lack of a hurricane threat is ideal for supply. Late Friday, the USDA said that inventories of frozen orange juice concentrate were down 17% at the end of May from a year ago. We continue to recommend scaling into calls on the way down out to September and November. ______________________________________________________________________ Gold and silver remain choppy as the dollar and oil lack direction. Copper is weaker on concerns over rising inventories in China, which has become and will remain a major player on the demand side of copper. This is an early warning sign of a potential drop in this market, and buying some deep OTM puts is recommended here, but allow plenty of time as the trend remains up. Palladium is heading lower short term and should be considered a buy if you are patient enough to sit on it for an extended period, look for the low 360’s for an entry. Gold and platinum can and do function as alternative monetary investments, but they both have industrial applications as well as being used in jewelry. Perhaps because a large proportion of platinum consumption goes into catalytic converters for autos, prices have tended to continue rising into July/August.
____________________________________________________________________ |
