2011 April | The Hightower Report

Archive | April, 2011

Bonds: Softer Than Expected Economic Data Need to Push Bonds to New Highs

by Dave Hightower on April 29, 2011

Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

Apparently the Treasury market took the US initial claims rise yesterday to heart as Treasury prices rebounded aggressively in the wake of that report. With the last trading day of April today, the bonds and notes are set to leave with some very impressive upside action for the month. Apparently the trade bought into the idea that the truly Fed intends to hold rates down and the talk of high unemployment rates was also given added significance in the wake of the surprise rise in the US initial claims readings on Thursday. The market was also given a lift in the wake of the US GDP release yesterday as the pace of the US economy slowed more than expected in that report.

The market seemed to stall in the wake of the last auction leg of the week yesterday, as US Treasuries came off their best levels of the day yesterday following what some described as a sub-par 7-Year Note auction. The final yield was nearly 3.2 basis points above expectations (tail) at 2.712%. The auction was accompanied by a below average bid-to-cover ratio of 2.63 to 1, which was the weakest since November. Once again the US Fed might have gotten some help in battling inflation from afar, as the Bank of Russia raised interest rates unexpectedly overnight. In looking ahead to the US data flow today, the US will see an Employment Cost index and a PCE Deflator, but the trade will probably take the most direction from the Personal Spending and Personal Income readings. The market will also see a Michigan Sentiment reading and a Chicago PMI reading and given the bias in prices this week, the market might be poised to embrace slow readings and discount positive readings.

Fed Chairman Bernanke will give another speech today but after the wave of Fed speak this week, the trade isn’t expecting anything fresh from the Fed today. It is also possible that Treasuries might be influenced by action in the Dollar, as the Dollar sits within striking distance of fresh lows and a US Senator is reportedly pushing legislation to compel the Chinese to raise the value of their currency even further and therefore that issue could solicit some dialogue from the Chinese that could adversely impact US Treasury prices.

At least into the opening this morning, Treasury prices look to remain just under this week’s highs, but it could take a distinctly softer than expected US economic reading to propel prices into another upside breakout on the charts.

Stocks: Embracing the Postives and Shrugging Off the Negatives

by Dave Hightower on April 29, 2011

The final trading day of April presents rather flat equity markets, with a low volume trade as markets in Japan were closed for the May Day holiday and London markets closed for the royal wedding. European shares were under modest pressure after a 6 day winning streak that has likely fostered a round of profit taking. While many companies in the country in the Euro area have posted better than expected earnings, there is some concern after others lowered their future outlooks, which suggests a more challenging environment to come. This view was also highlighted by this morning’s economic data that showed Euro zone inflation coming in above target levels and sentiment falling below estimates. Retail sales data in Germany showed an unexpected decline, indicating that consumers there are beginning to feel the effects of higher inflation. Meanwhile, world equity markets key in on a plunging US dollar that weakened further after US GDP data showed slower than expected 1st quarter growth. While sentiment for the greenback has turned decisively negative, there is a sense that the US will maintain accommodative policy for the foreseeable future, and that continues to foster movement of funds into alternative assets. This morning’s flow of US economic data will present a couple of sentiment metrics, including the Chicago Purchasing Manager’s report and April Consumer Sentiment. Equities will also get the latest results this morning from Caterpillar, Chevron and Merck.

S&P 500: The June S&P 500 has experienced an upside breakout from recent congestion that has gone on to register new contract highs. Some technicians note that the breakout has come on a 72,000 contract jump in open interest during the first 3-days of this week, which is viewed as supportive. The upside gains have been supported by better than expected earnings and upwardly revised forward outlooks. Overnight earnings from French energy giant Total showed a surge in quarterly profits that topped estimates, and that coupled with their bid for US Sun Power could be a factor that supports energy shares this morning. Meanwhile, there appears to be some concerns that the June S&P 500 has become short-term overbought during the push higher and maybe in need of a short term pullback. There is short term support below at 1347.00.

DOW: The June E-mini Dow spent most of the overnight and early morning trade around unchanged levels after making new contract highs late Thursday. Shares of the Dow Transports closed at a new all time record high and were helped by solid gains in rail stocks. Perhaps the lack of upside follow through comes ahead of this morning’s earnings results from Caterpillar. While the company is expected to report a surge in 1st quarter profits, the market could be looking for even better results and an optimistic earnings outlook. Additionally, Chevron and Merck are expected to release their latest results before the Wall Street opening, and that could be a force that dictates the early tone. The June E-mini Dow has closed higher during 6 of the last 7 sessions and prices are up over 5.5% since last week’s low, and that might indicate a market vulnerable for a near term set back. The short term trend continues to favor the bull camp, with key support below at 12,609.

NASDAQ: Shares of the NASDAQ 100 have been on a tear of late, with a 7.3% rally in the June NASDAQ from last week’s low to yesterday’s high. Despite the upside surge into new contract highs, prices showed some negative reversal action late in the session Thursday. While Microsoft beat consensus earnings estimates, sales of their key Windows product declined. The soft sales exerted downside pressure on its shares overnight. It is also possible that a surprise cut to Research in Motion’s 1st quarter outlook, on fewer BlackBerry shipments, could provide a minor negative headwind for the NASDAQ this morning. The chart action in the June NASDAQ has unfolded in a three wave advance from the March 17th low, and that provides the chance for more upside targeting 2422.50. Key swing support below stands at 2387.25.

TODAY’S MARKET IDEAS: US equity markets have embraced better than expected quarterly results, which have powered the major indexes to new contract highs. The market is clearly embracing the positives and managed to shrug off disappointing GDP data and Initial Jobless Claims Thursday. While some say that data is history and that the market is looking forward, it does raises questions to how profitability might be going forward. Views that the Fed will continue to support easy monetary policy, as well as expectations for ongoing active inflows coming into US equity markets would seem to suggest that the bulls have the wind at their backs. While it is possible for a near term setback after recent gains, the overall trend continues to support the bull case.

Demand Softening Concerns Influencing Some Markets; Russia Gas Export Ban?

by Dave Hightower on April 29, 2011

Mixed bag this morning. Lower dollar but not new lows. New high in gold overnight. Yesterday there was a broad based commodity liquidation by some fund managers and a noted investor. May be a bit premature to call a change in the weather pattern to allow corn to be fully planted and avoid further damage to the wheat crop. Many markets are being influenced by slowing demand concerns.

Special Update: Gold & Silver Closing in a Top?

by Dave Hightower on April 28, 2011

In our special report Gold: The Grand Finale (11/09/2010) that gold would trade in the $1,570 to $1,600 range and silver would trade above $50. While we still believe those levels will be hit longer term, the chances for a near-term set back in prices is likely. There are several signals traders should look for which may help spark a set back.

Below are some charts referenced in the video.

Gold & Silver Higher; Look for Volatile Energy Products Into Summer

by Dave Hightower on April 28, 2011

With gasoline stocks declining, a refinery outage combined with relatively low refinery operating rate, US exporting gasoline and Russia considering an export ban we can expect volatile crude product markets coming into summer. Weather is mixed for corn planting. There is plenty of US economic data coming out for the markets to digest with GDP being one that will receive much of the attention.

Sugar: Declining Open Interest and Technical Picture More Negative

by Terry Roggensack on April 28, 2011

The sugar market remains in a steady downtrend, and supportive outside influences have been more than offset by increasing supply on the world market and long liquidation by speculators. The combined spec net long position in the last COT report was still 122,158 contracts but was down from well over 200,000 just a few months ago. India approved 30,000 tonnes of unrestricted sugar exports, which is the first of a total of 500,000 which the government approved on April 19th. India’s production is expected to reach around 25 million tonnes this year, compared with usage of 22-23 million. Thailand’s premiums of cash to futures have slipped to their lowest levels in two months on sluggish demand and a much larger than expected supply from last year’s crop. Thailand officials now expect a record production of 9 million tonnes for the 2010/11 season, up 30% from last year. July sugar closed lower for the third session in a row yesterday, as the market continued to see little benefit from positive outside market forces. The focus is still on a higher supply outlook and sluggish short-term demand. A surge higher in gold and silver and another new low in the US dollar failed to provide support yesterday or overnight. Good weather in Brazil has traders inching up their estimates of Brazil’s sugar production for the coming year. The USDA attache in Brazil pegged the new cane crop at 631 million tonnes, up 2% from last year. Brazil’s weather looks favorable for active harvest over the near-term, with only scattered light storms expected through the weekend.

TODAY’S GUIDANCE: On April 14th, open interest was 636,290 contracts. This has dipped to 597,076, as spec long liquidation selling persists. The short-term technical picture turned more negative with the hook reversal on Monday, and the market looks poised for another move down.

Coffee: Steady Uptrend, but All Is Not Perfect

by Terry Roggensack on April 28, 2011

While the coffee market could not return towards the recent highs yesterday, prices were able to avoid losing further ground during this week’s overall commodity weakness. July coffee was unable to take advantage of a weak Dollar and could only finish the session with a minimal gain. While trading was choppy and volatile, prices were able to remain close to last week’s highs for the move. Tight coffee stocks in Europe and North America continue to be the main supportive factors for the market, but coffee prices could not overcome broad-based pressure on commodities in front of the FOMC meeting. There are indications that recent heavy rains in Vietnam may have a negative impact on coffee production during the 2011/12 season. The CEO of major coffee retailer Starbucks said that the current rally in coffee prices was not sustainable. ICE exchange coffee stocks were up 5,300 bags to 1.581 million, with 53,614 bags pending review.

TODAY’S GUIDANCE: July coffee is making an early run at the highs for this rally but may need further support from the supply/demand side to reach new high ground this morning. Given that producers are still showing some reluctance to part with their supplies, this current rally may have plenty of upward momentum left.

TODAY’S MARKET IDEAS: The market remains in a steady uptrend, but there are a few factors which are less than ideal. The technical picture could improve if we begin to see a higher open interest trend. Declining open interest is not a good base of support for an extended bull trend. In addition, the RSI divergence is significant and suggests a loss of upside momentum. At the February peak, RSI was 83. At the March peak, RSI was 82 and at the April 20th peak, RSI was 75. Brazil faces an “off” cycle production year, and the world faces a potential production deficit for the coming season. Outside market factors are also bullish. Uptrend channel support for July coffee comes in at 291.15 today, with some light chart support at 297.00. A resumption of the uptrend leaves 308.45 and 313.95 as the next upside objectives.

Wheat: May Be Overbought; Other Grains Weigh

by Terry Roggensack on April 27, 2011

NEAR-TERM MARKET FUNDAMENTALS: With some rain and cooler weather for drier parts of Kansas and Oklahoma for the short-term, speculative long liquidation selling has been active and this helped drive the market lower overnight and yesterday. European wheat futures are down today as there are better chances for some rain for Germany and Poland for the next week and there is also talk of better rain next week for China. China wheat areas have turned hotter into a more sensitive time so the rains next week will be welcome and badly needed. Traders will begin monitoring Canadian weather a little closer as more cold and some wet weather in the near-term should keep progress slow. Canadian producers intend to plant 24.724 million acres which would be up 17.4% from last year and is up from trade expectations near 23.5 million. The market pushed sharply lower on the session yesterday with talk of better weather for the hard red winter wheat crop and profit-taking helping to pressure. Mid-day weather models confirmed some additional rain totals for the central and southern plains for the today and tomorrow which is expected to ease some of the stress. Ideas that interest rates in China might be adjusted higher again on the weekend to slow inflation helped pressure. July Minneapolis wheat was up 7 1/2 cents into the mid-session and pushed to the highest level since Mid-February before the moderately lower close. Concerns for the slow start to the planting season helped to support the early strength. The weekly update showed that just 6% of the crop has been planted compared to 39% last year. July KC wheat was up 5 3/4 cents into the mid-session to move to the highest level since February 15th before closing moderately lower on improving weather prospects. The early rally was supported by deteriorating crop conditions. The weekly Winter Wheat Conditions report showed 35% of the crop was rated good/excellent compared to 36% last week and 69% last year. Crops rated poor to very poor reached 40% from 6% last year. The Oklahoma crop is rated just 5% good to excellent from 75% last year and Kansas just 23% from 73% last year. There were indications from Morocco that they are done with imports this season and will shift to their own wheat crop for needs. Demand seems to be picking up with Iraq buying 300,000 tonnes this week, Saudi Arabia buying 275,000 tonnes and Jordon tendering for 100,000 tonnes, Syria tendering for 27,000 tonnes and Bahrain in for 30,000 tonnes.

TODAY’S GUIDANCE: The market may have become a bit too overbought this week as a minor shift in the weather has sparked a violent reaction. The Canadian production outlook will be burdensome if weather cooperates and profit-taking appears significant. July wheat support emerges at 820 3/4 and 790 1/4 with 851 1/2 as stiff resistance. July KC wheat support is back at 920 1/2.

Corn: Hyper-Sensitive to Weather

by Terry Roggensack on April 27, 2011

NEAR-TERM MARKET FUNDAMENTALS: The market started higher in the overnight sessions but a steady flow of selling helped to pressure the market to moderate losses into the early morning. Ideas that Iowa corn producers could be actively planting next week helped to pressure the market. While the two-week outlook for western and northern corn belt areas is a little drier, traders see very slow progress for the central, eastern and southern Midwest with more rain today, another system on the weekend and more rain for later next week. It may be more than two weeks before producers in the Eastern Corn Belt are able to plant and this has traders nervous over a shift to soybeans in some areas or shorter-dated seed which could bring about talk of below-trend yield. Traders will monitor the weekly ethanol production report closely today as last week’s report showed a significant drop. Talk of a chance to get some corn planted in the western Corn Belt next week helped to pressure the new crop December contract yesterday but old crop supply tightness and a firm cash market plus active fund buying supported old crop contracts to a higher close. Taiwan is tendering for 23,000 tonnes of US corn and 12,000 tonnes of US soybeans. The market pushed moderately lower early based on concerns for continued tightening measures in China but the market rallied to above Monday’s highs into the mid-session as traders remain concerned that corn plantings may not be complete in the optimal window this year. Another 1-5 inches of rain is in the forecast for the southern Corn Belt for the next few days alone which could cause increased flooding and might force even more producers to replant corn which was flooded out with too much rain in recent days. The weekly Corn Planting report showed that only 9% of the crop was planted by Sunday. Traders are already talking about 15-18% for May 1st and this would compare with 65% planted last year. As of Sunday, South Dakota had not started yet as compared with 12% last year and Iowa was only 3% vs. 61% last year.

TODAY’S GUIDANCE: The market is hyper-sensitive to weather but the overnight weakness is also seen from fund traders who are nervous over the Fed policy meetings and any significant impact on the US dollar or inflation. Wheat weather is clearly improved but corn issues are still supportive. If we assume late plantings and we get all intended 92.2 million planted but yield slips to 160 from 161.7 trend, ending stocks drop to just 736 million bushels for the new crop season which is a 5.4% stocks/usage and another tight year ahead.

TODAY’S MARKET IDEAS: Support for July corn comes in at 756 1/2 with 808 3/4 as next upside objective. December corn support is at the 662 1/4 to 655 1/2 zone with 696 as next upside target. A cool forecast for the summer plus late plantings will not allow for enough early harvested corn to help ease supply tightness near September 1st.

Soybeans: Weak Short-Term Old Crop Demand

by Terry Roggensack on April 27, 2011

NEAR-TERM MARKET FUNDAMENTALS: Ideas that there will be some increased planting for Iowa and western Corn Belt producers into early May plus China demand concerns are factors which helped to pressure the market overnight. China crush margins are still weak and some plants have slowed or halted operations. Traders indicate that soybean stocks at China ports have reached 6.6 million tonnes due to recent slow demand and incoming cargoes. Domestic meal basis levels have improved in recent days but this does not appear to be enough to support. Soybean oil demand appears to be slow. The soybean market continues to experience some liquidation pressures due to China tightening concerns, slow import demand from China and increased flow of Argentina new crop soybeans. This helped pressure soybeans yesterday with talk that the recent three-day rally left the market in a slight overbought condition. Big planting expectations from Canada and weakness in the wheat market plus concerns of a shift in the US to more soybeans and less corn plantings helped to pressure the market. Taiwan is tendering for 23,000 tonnes of US corn and 12,000 tonnes of US soybeans. Palm oil was under some pressure overnight from increased supply estimates. Ideas that the rally early this week was overdone, talk of increasing supply from South America and ideas that the US will see more soybeans planted due to slow corn plantings added to the negative tone. Canadian producers intend to plant 19.225 million acres of canola which would be up 14.3% from last year and is up from trade expectations near 18.5 million. This would be a record high if weather allows producers to get the crop planted. Meal basis levels have improved recently and has helped provide some support but not enough to offset weakness in wheat and fund selling seen in soybeans. Keep in mind; the last COT report showed that trend-following fund traders (non-commercial without index funds) were holding a net long position of near 64,000 contracts. The data was as of April 19th when July soybeans closed at 1354. Open interest has declined on the rally since this date and this suggests short-covering, not new buying, is the foundation for the recent recovery bounce.

TODAY’S GUIDANCE: There does not appear to be enough short-term demand news to offset speculative selling and the market looks vulnerable to more losses. Eventually, the market may be in a position where November soybeans are undervalued; especially if there is no major shift in acres from corn.

TODAY’S MARKET IDEAS: Old crop soybeans may continue to struggle with weak demand and sharp corrective breaks for November soybeans still look like buying opportunities. July soybean short-term selling resistance comes in at 1389 and 1398 3/4 with 1353 as support. Aggressive short-term traders can sell at 1376 1/2 with 1353 objective.

← Older posts

Free Trial

The Hightower Report