2012 February | The Hightower Report

Archive | February, 2012

Cocoa Special Report: World Production Deficit Ahead!

by Terry Roggensack on February 28, 2012

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The cocoa market saw some extreme price movement during 2011, first reaching multi-decade highs in March and then losing nearly half of its value by year’s end. The main catalyst for the price volatility was the political situation in the Ivory Coast, where a civil war triggered by a disputed Presidential election resulted in an export ban for cocoa and other key commodities. Once opposition forces were able to gain control of the Ivory Coast, the resulting build-up of cocoa supplies was able to once again reach markets in Europe and North America. In addition, the 2011/12 season resulted in all-time record high cocoa crops for several major West African producers. Ivory Coast cocoa port arrivals were over 1.5 million tonnes, while official cocoa purchases in Ghana reached the 1 million tonne level for the first time ever. This resulting supply “glut” was matched by sluggish global demand levels late in the year and kept prices under considerable pressure. A turning point may have been reached early in 2012 that may provide cocoa prices with an opportunity to post solid gains during the next few months.

The Ivory Coast remains the focal point of the cocoa market, and it may be that this season’s crop will provide the cornerstone for an extended rally. Excessively dry conditions over the past few months, due in large part to a severe edition of the “Harmattan” winds, has caused a severe decline in recently harvested cocoa levels. The full impact of these negative crop conditions may not be fully seen until the upcoming mid-crop is harvested later on this year. As of mid- February, this season’s Ivory Coast cocoa port arrivals were running around 80,000 tonnes behind last season’s pace, and they are likely to lose further ground as the season goes on. Many analysts are cutting back on their forecasts for the Ivory Coast this season, as the crop could see a much larger decline than the 10% that the International Cocoa Organization (ICCO) is currently projecting.

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Corn: Tight Ending-Stocks and Possible Big Acreage Increase

by Terry Roggensack on February 27, 2012

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The extremely tight old crop ending stocks outlook continues to provide underlying support to the corn market, and the outlook for a surge in production and ending stocks for the 2012/13 season continues to keep a lid on advances. News from the baseline USDA data released a few weeks ago was viewed as a mixed bag. China import demand is expected to grow significantly in the next ten years. However, the baseline data also shows that US corn planted area for the 2012/13 season would be at the highest level since 1944, with a record production this season. It also showed ending stocks more than doubling from 801 million bushels for the 2011/12 season. Yield was pegged at 164 bushels per acre for the 2012/13 season, and trendline yield advances to 182 by 2021/22.

The USDA Outlook Forum supply/demand conference (February 23-24), which is the first real look at the new crop season, is to be released after this writing. If the USDA raises their planted acreage estimate 94.5 million acres (from the 94 million in the baseline projections worked up in November) and also leave trendline yield at 164 bushels per acre, production could hit a record high 14.202 billion bushels. Even if one assumes an increase in usage of 500 million bushels for the new crop season, ending stocks would jump to 1.813 billion bushels. A 166 yield would push ending stocks towards 2 billion bushels. If we assume that usage will increase by 500 million for the season, it will take a yield down at 154.6 bushels per acre to end up with fewer than 1 billion bushels. A yield which is 9.4 bushels per acre under trend has occurred in just 4 years of the past 21, and to expect below-trend yield for a third year in a row is a bit of a stretch.

Weather is still a factor in South America, as Brazil’s second crop season is just beginning, with the crop about 30% planted. Weather is already a concern in the Midwest with dry conditions reported in the western Corn Belt and parts of the northern plains. If the early spring weather is dry, bulls will point to yield concerns in the US and dry soil conditions in the grain belt in China, but bears will likely win out as corn plantings will jump to a fast start. This may increase the odds of planted area coming in even higher than expected.

The Commitments of Traders reports as of February 14th showed non-commercial traders were net long 228,687 contracts, a decrease of 4,626 contracts for the week. The selling trend is seen as a negative force. Non-commercial and nonreportable traders combined held a net long position of 95,430 contracts, down 11,820 for the week. Open interest is up 103,456 contracts over the past month, but the market has mostly traded in a choppy and sideways pattern since January 24th. The chart pattern for new crop corn is negative with a series of lower highs since the August 31 contract highs on November 9, January 3 and February 6. Considering the hefty net long position from the fund traders, higher open interest and the weak pattern, don’t rule out a continued downtrend into the planting season.

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10-Year Note: World Economy Showing Improvement Pressures Interest Rates

by Dave Hightower on February 27, 2012

The US Treasury market is showing signs that the next move outside of the 2012 congestion zone is down. The June 10-Year Note contract has spent the first two months of 2012 inside of a tight three point trading range, from 129-16 to a contract high of 132-05. The latest round of US economic data has shown continued improvement in the labor market, expanding US manufacturing activity and modest signs of inflation. With the European debt situation appearing to be on the mend, there is an increasing chance that the Treasury market will shift its focus towards improving growth expectations and higher levels of inflation.

The favorable trend to US economic data readings have continued in 2012 and has at times pressured prices on 10-Year Notes. While the June contract registered a new contract high on February 5th, much of the gains were fueled by flight-to-quality buying, as Greek and European leaders hammered out an arrangement for a second bailout. But with that out of the way and US economic data continuing to improve, the prospect for lower US Treasury prices is a growing probability. A recent example of this came following US initial jobless claims data on February 16th that showed new claims falling to a new four year low. Inflation pressures also appear to be cropping up, highlighted by the yield differential between 10-Year Notes and 10-Year TIPS. This spread relationship has climbed to its highest level since mid-August of 2.27%, and that shows the presence of inflationary expectations rising in the Treasury market. The January Consumer Price Index showed a monthly gain of 0.21%, largely attributed to a 0.9% gain in gasoline prices. Estimates provided by the EIA show US retail gasoline prices increasing by more than 10% in the first two months of the year.

A number of US Fed officials have talked recently about the risks of an artificially low US interest rate environment. Comments by St. Louis Fed President James Bullard in early February highlighted his concerns over the period of extremely low interest rates, suggesting that it could hurt the US economy in the long run. Dallas Fed President Richard Fisher adopted a similar tone, telling Wall Street not to expect QE3 or any further central bank participation. Fisher also noted that the US economy had improved since the Fed’s vow to keep US interest rates low out to 2014.

In one sense, the European debt debacle has helped the US Treasury with its active 2012 auction calendar. But there is a possibility that the market will demand higher interest rates for US debt as the global economic backdrop improves, and this could apply greater downside pressure on June 10-Year Notes. The market has struggled to gain any upside recently, despite concerns over European debt and the potential for a hard economic landing in China. While there is a chance for additional safe-haven support coming into the US Treasury market, we suggest looking to May options to position for a breakdown in prices.

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Energy: Early Morning Bias Favors the Bear Camp, but Losses Appear Limited

by Dave Hightower on February 22, 2012

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CRUDE OIL MARKET FUNDAMENTALS: April crude oil prices rallied during the early morning hours but fell short of a test of yesterday’s high ($106.48). Since then, a dose of disappointing economic data and mounting concerns whether Greece can execute new reforms and austerity measures has tempered the outside market tone. February Chinese Purchasing Managers’ data showed the fourth straight month of contraction and European service sector data unexpectedly shrank in January, and that has injected a level of doubt over global recovery prospects. Probably more concerning to the crude oil market was the rather sharp drop in Chinese export orders in the wake of the Euro zone debt crisis. Meanwhile, it appears that the crude oil market continues to sport a level of support from supply disruptions fears out of the Middle East. While estimates for OPEC spare capacity are in the range of 2.8 million barrels per day and offset Iran’s 2.2 million barrels per day of production, ideas of improving global oil demand and reduced North Sea output might have fostered the fear premium in the market. So far this morning, April crude oil prices have shrugged off disappointment by the IAEA and their talks in Tehran and over Iran’s nuclear program. Perhaps that is already priced in. The spread differential between April Brent and WTI crude oil remains under $16 a barrel premium to Brent this morning, off $2.00 from last week’s high. It is possible that this spread comes under added pressure as Enterprise Products has begun the process of reversing the flow of crude oil through the Seaway pipeline. The Presidents’ Day holiday delayed the release of weekly inventory data by one day. Expectations for this week’s inventory report are mixed, with the market leaning toward a slight draw of around 250,000 to 500,000 barrels. US inventory levels broke a four week streak of builds last week, supported by an increase in imports. Price action in April crude oil favors the bull camp, with swing low support at $104.61. This also corresponds with yesterday’s breakaway gap, which leaves support at $104.61 down to $104.50. Meanwhile, prices have reached into overbought territory after an impressive February rally into yesterday’s high of 11.1%, and that leaves the market susceptible to a downside correction. The early morning bias favors the bear camp, but losses appear limited until prices break $104.90 uptrend channel support.

GASOLINE: April RBOB prices have taken a slightly lower track this morning, as they consolidated yesterday’s surge into a new contract high. It appears that a somewhat weaker outside market tone this morning, with weakness in Brent crude oil and a rally in the US dollar are factors weighing on RBOB prices. Yesterday’s gains in gasoline futures were fueled in part by a surge in West Coast cash prices, up nearly $0.18, fueled in part by the idling of a 225,000 barrel per day BP refinery. The gasoline market also seemed to draft a level of support from European inventory data for January that showed a 3.5% drop in supplies on the month. Recent gains in US gasoline prices have sparked concerns that they could begin to chip away at economic growth by reducing consumers spending. Higher gasoline prices have sparked comments from the Obama administration, which plans to address the issue on Thursday. The latest data from the EIA pegged US gasoline prices up nearly $0.07 a gallon last week to $3.59. The short-term trend in April RBOB points in favor of the bull camp. New record speculative net-long positioning is seen as a positive until support levels at $3.1922 are violated.

HEATING OIL: April heating oil prices had a gap lower open Tuesday evening but have since pared those early losses. April heating oil rallied to its best levels since May 2011 in yesterday’s trade, which confirmed a breakout out of the February congestion zone. Prices are up nearly 3.7% from last week’s low, and price momentum indicators are flashing a bearish divergence. It is possible that some of the support in heating oil comes on expectations for this week’s distillate inventory report to show a draw in the range of 1.25 million barrels. The uptrend pattern in April heating oil remains intact as long as prices hold above $3.1795 swing low support. Overbought technical conditions, speculative selling interest and bearish momentum divergences warrant caution for the bull camp.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex came under a measure pressure this morning in the wake of disappointing economic data out of China and Europe that sparked concerns over the strength of the global recovery. The uptrend pattern in April crude oil remains intact, with swing low support coming in at $104.61. There is a similar price formation setting up in April RBOB, with support at $3.1922. The US economic calendar turns to the housing market this morning, with the latest report on January existing home sales expected to show a slight gain on the month. Disappointment with the report could offer the crude oil complex a reason to pullback from technically overbought conditions.

Metals: Gold Might be Facing Adverse Currency Action Choppy Global Equities

by Dave Hightower on February 22, 2012

OUTSIDE MARKET DEVELOPMENTS: Asian equity markets were generally higher overnight, as Chinese developers continued to garner some lift from the recent change in policy at the PBOC. However, European equity markets were weaker off some soft PMI data and renewed talk of slowing/recession in the Euro zone. The US equity markets are showing a mixed early track today, as those markets brace from a corporate tax reform plan and a National Association of Realtors home sales reading.

GOLD MARKET FUNDAMENTALS: From last week’s lows to the highs this morning, April gold forged a rather impressive $54 an ounce rally and that in turn might have left the market short term overbought. While concern toward the Euro zone economy was fostered again overnight in the wake of news of a softening of the Euro zone service sector, fears of a full blown financial contagion have generally remained in check. Clearly the gold market was lifted in part by news of fresh easing from the Chinese yesterday and it is also possible that gold saw some minor support this morning from news that the BOE might have eased even further, but the BOE feared aggressive action might foster anxiety toward the economy. Gold probably saw some minor support from favorable longer term gold import dialogue from Indian officials overnight and gold might also have benefited from favorable gold price forecasts from a major US investment banking firm. However, at the start of the Wednesday US trade, the gold market might be facing slightly adverse currency market action and a choppy track in global equities and that in turn might prompt some gold longs to bank profits from the recent surge in gold prices. On the other hand, gold might see some support from a US home sales report and gold might also see some lift off the unveiling of a US corporate tax reform plan. Comex Gold Stocks were 11.432 million ounces up 460 ounces. Stocks have declined 12 of the last 20 days.

SILVER MARKET FUNDAMENTALS: March silver was unable to definitively charge into a distinct upside breakout yesterday and that might have been the result of softer than expected Chinese silver import data or that might have been the result of gold maintaining the lion’s share of overall investment demand for metals. In fact, the silver market could have seen higher Indian silver import expectations as an offset to softer Chinese silver import news but silver in general doesn’t seem to be tightly tracking classic supply side fundamentals. The bull camp is probably fortunate that silver seems to be discounting classic physical supply side developments, as Comex Silver Stocks yesterday afternoon were put up to 129.282 million ounces, for another noted gain of 472,832 ounces. Silver stocks have now increased in 11 of the last 20 days.

PLATINUM: The platinum market continues to garner some support from fears of tightening supply off an ongoing strike at an Impala mine. In fact, the platinum market is starting to see forecasts of tightness developing later this year and that is lending some fresh support to platinum prices which recently have mostly been dominated by big picture macro economic issues. The bear camp might suggest that platinum is partially overbought technically, after the four day run up in prices of roughly $107 an ounce. At least in the near term, fears of more lost supply at the Impala mine could help platinum ignore a developing overbought technical condition on the charts. Initial support in April platinum is seen at $1,692.00 and then again down at $1,684.90. Resistance is seen up at $1,711.90.

Energy: Complex Vulnerable to Disappointing US Data and Change in Greek Situation

by Research on February 17, 2012

April crude oil prices traded higher throughout the overnight and early morning hours and have closed in on their January 12th high of $103.40. The crude oil market benefits from a positive outside market tone that has lifted global equity markets higher and a slightly negative track for the US dollar. It seems a good portion of that positive lift in the energy markets came in the wake of yesterday’s US economic data that showed initial jobless claims falling to their lowest level in four years. Risk-taking sentiment gained in added lift on reports that Greece was closer to a second bailout package that could come as early as Monday. The crude oil market also seems to be drafting from gains in Brent crude oil, which rallied in the wake of forecasts for reduced North Sea output in March. April crude oil continues to reap a fear-factor stemming from supply disruption concerns surrounding Iran and the potential block of export flows into a number of European countries. In the meantime, it appears that most of the upside has been driven by optimism that the Greek debt situation could be near a resolution and improving US economic data. April crude oil prices are up nearly 8% from the February low into this morning’s high. Additionally, there is stiff resistance on the weekly crude oil charts at $103.74. The bull camp gets the early edge this morning, with a chance of revisiting its January high of $104.03. Swing low support stands at $101.18.

GASOLINE: March RBOB prices traded slightly lower during the early morning hours, perhaps as it takes a pause after yesterday’s surge into new highs for the rally. While the Midwest gasoline market remains under pressure from abundant near-term supply, a rally in Brent crude oil above $120 a barrel is pulling feedstock prices higher for East and Gulf Coast refiners, thus pulling up RBOB prices. The short term uptrend pattern for March remains intact, with swing low support below at $2.9867. Given the gains in crude oil and positive risk-sentiment during the early morning hours, it might take more bullish data to continue to power prices higher.

HEATING OIL: March heating oil prices traded lower throughout the early morning hours but remained mostly in the upper portion of yesterday’s range. March heating oil prices continue to bounce around in a bullish wedge pattern, which offers a level of resistance above at $3.2224. March heating oil prices do not seem to have embraced the recent positive shift in US economic data and outside market optimism toward Greece. While the chart pattern projects higher prices, the key will be confirmation of the move above $3.2224. March heating oil has a shelf of support below at the $3.1760 to $3.1710 zone.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex had a mixed trade during the early morning hours, with the product markets failing to participate in a positive risk-on vibe in outside markets. Meanwhile, crude oil closes in on its January high of $104.00. It is possible that the crude oil complex has rallied too far too fast in the short term in pricing in supply disruption concerns and an improving economic backdrop. This leaves the complex vulnerable to disappointment on weaker US economic data this morning or changes regarding the Greek bailout arrangement.

Currencies: Heading Into the Weekend On a Positive Will Help Canadian

by Dave Hightower on February 17, 2012

DOLLAR: The Dollar is under mild pressure this morning as prices appear to be consolidating near the middle of this week’s trading range. Thursday’s severe pullback from three-week highs was not triggered by overseas events but by a fairly good set of US economic data that went a long way towards soothing market anxiety. Positive developments from the Euro zone are also weighing on the Dollar of course but there have been too many “false dawns” with the Greek debt situation for safe-haven support to be fully taken out of the equation. If global equity markets head into the holiday weekend with some positive momentum, the Dollar will have some difficulty putting together any sustained recovery from yesterday’s slide. The Dollar may find support near the 79.20 level this morning but should avoid any sharp downside moves unless there is substantial progress with the Greek debt situation over the next few hours.

EURO: The March Euro has ground out a modest gain today as trading has quieted down from the choppy and volatile price action seen earlier in the week. There have been some clear signs of progress with resolving Greek’s debt problems but a final agreement remains as elusive as ever. A stronger than expected German PPI number may help to reinforce this morning’s early strength but upside momentum in the March Euro will only hold out as long as the market remains optimistic that Greek debt problems will be resolved fairly soon. Otherwise, prices may end up having a swift retest of Thursday’s lows. The March Euro may find resistance near the 131.90 level but will not come close to the early February highs until Greek debt concerns are in the market’s rear-view mirror.

YEN: The March Yen continues to tumble lower this morning and is coming close to the post-intervention lows of late October. The governor of the Bank of Japan stated that they will maintain a loose Japanese monetary policy, which along with positive vibes out of the Euro zone will likely keep the March Yen firmly in a downward trajectory. The March Yen may find support near the 126.10 level this morning, and has a good chance to go into the US holiday weekend at a fresh 7-month low.

SWISS: The March Swiss was able to extend yesterday’s rebound this morning but may lose further ground to the Euro if risk concerns continue to ease. Comments by the Swiss economic minister that that Swiss Franc continues to be overvalued may not bode well for any return towards the recent highs but for now, the March Swiss will continue to reflect the ebb and flow of Euro zone debt optimism. The March Swiss may find resistance near the 109.15 level and should stay well clear of the recent lows unless the Greek situation flares up yet again.

POUND: The March Pound has put together a sizable rally from yesterday’s lows as prices have found considerable support from strong UK Retail Sales numbers this morning. Recent UK economic data has not been consistently positive enough to avoid fresh quantitative easing measures being introduced earlier this month. However, a surge in broad-market sentiment may help to lift the March Pound up to a fresh 3-month high during the near future. The March Pound may find resistance near the 158.60 level later today and should hold onto early strength through the end of this week’s trading.

CANADIAN DOLLAR: The March Canadian made a quick return to the recent highs during yesterday’s session and has been a major beneficiary of renewed market optimism. Canadian economic data has mostly been a secondary factor during this recent upmove but today’s Canadian CPI number has the potential to underpin prices close to new high ground. The March Canadian may find resistance near the 100.50 level this morning and would not need much in the way of positive news from either side of the Atlantic to finish the week with a fresh 31/2 month high.

TODAY’S MARKET IDEAS: The Dollar will start out today’s session with a slightly negative tone but any sort of risk flare-up from the Euro zone would send prices heading back towards the recent highs. If global markets can head into this weekend with some sort of optimistic risk attitude, however, the March Canadian stands a good chance of reaching new highs during the near future.

Interest Rates: Markets watching Philly Fed Speech & EU News

by Dave Hightower on February 14, 2012

The Treasury market enters the Tuesday US trade sitting just under the highs of the last four trading sessions. There appears to be a slight shift toward a risk-off vibe in the wake of news that Moody’s downgraded Italy, Spain and Portugal overnight and also because of talk they might also cut the credit ratings of France, Britain and Austria. Countervailing the fresh fears toward the Euro zone are results from a widely followed German ZEW survey, which reached the highest level since April of last year. Perhaps even more importantly, the ZEW suggested that the recent slowdown in German growth “wasn’t likely to last”. However, the markets are likely to have their tone set this morning by an Italian auction of 6 billion Euro worth of debt. It should be noted that other debt yields from the Euro zone this morning were also showing declines and that helped yields decline in the Italian auction this morning! In addition to the European debt auction influences, all eyes are likely to shift back toward the US in the wake of the US retail sales release, which is generally expected to show a modest rise of +0.7 to +0.8% over the prior month. Also due out during the session today, is a private small business index survey, Manufacturing Inventories, and Import & Export prices. The markets will also be presented with two Fed speeches and testimony from the US Treasury Secretary to a Senate Finance Committee on the 2013 US budget. While anxiety toward the Euro zone has generally remained in place, it would seem like the markets quickly discounted the ratings issues overnight and seeing a decline in Italian debt yields, in the Auction this morning, could further tamp down the flight to quality interest in US Treasuries. While the bid to cover ratio of the Italian auction wasn’t as strong as some might have hoped for, the yields did fall and that might be the main take away from the most recent Euro zone debt development. On the other hand, to fully kick up macro economic optimism in the Treasury market this morning, probably requires retail sales readings that meet or exceed expectations. It is also possible that Treasuries will take a portion of their direction from the action in the US equity markets today. Traders should not discount commentary from the Fed later today, as the last FOMC meeting apparently showed some dissent within the ranks of the Fed and therefore the market will probably take note of the early speech from the Philly Fed’s Plosser. So far, the release of the 2013 US Budget hasn’t had a definitive impact on Treasury prices, but that could change today if the Treasury Secretary foments severe bi-partisan fighting.

Stocks: While On Upward Track, Volume Needs to Improve

by Dave Hightower on February 14, 2012

Global equity markets rallied during the early morning hours, supported by more Japan quantitative easing and by better than expected German Sentiment readings. The market overcame a ratings downgrade overnight from Moody’s on Italy, Spain and Portuguese debt and warned of a potential downgrade for the UK. This pressured global indices during the Asian trade but that news was partially offset by the Bank of Japan increasing the size of their asset purchase program by another 10 trillion yen ($130 billion). The added QE boosted shares in export and real estate companies and pushed the Nikkei to a new 3-month closing high. Risk-sentiment received another boost following German ZEW sentiment readings that came in better than expected and climbed to their best level in 10-months. The data provided evidence that the German economy was showing a level of resilience in the face of the European debt crisis. Positive economic data and a favorable result with this morning’s Italian debt auctions injected added confidence into the market. The latest operations by the ECB appear to be working, and have helped reduce borrowing costs for Italy, with their 2-year government debt costs falling by 140 basis points from the January auction. US markets continue to work through President Obama’s 2013 budget proposal that boosts revenues by $1.3 trillion by raising taxes on the wealthy, such as taxing dividend proceeds as ordinary income. The US economic calendar picks up this morning, with January retail sales expected to show an increase on the month from a boost in small vehicle sales.

S&P 500: March S&P 500 continues to coil inside of a tight 10-point closing range over the last 7-sessions. The coiling action in the index suggests a near-term expansion in volatility which in turn may have an upward bias. The early morning tone in the March S&P 500 also supports the bull case following better than expected confidence readings in Germany and expectations for a boost in January US retail sales. Gains during Monday’s session came from strength in large-cap tech shares, such as Apple’s advance above $500.00 to a new record high. With a little more than 71.0% of S&P 500 companies reporting earnings this quarter, 64% of them have beaten estimates, which is slightly below the recent quarterly average. The price action in the March S&P 500 has stiff overhead resistance coming in at 1352.30 as that level limit recent upside tests last Thursday and again yesterday. Next resistance comes in at the July high of 1354.50.

DOW: The March E-mini Dow is on a higher track this morning, helped in part by better than expected German sentiment readings. Shares of Boeing were higher during the early morning hours and could get some added play in today’s session after it signed a $22 billion deal with Indonesia’s Lion Air. Additionally, shares of Cisco saw active call option activity (April 22 calls) during yesterday’s trade, and that reflects a level of optimism that the Dow component could make a push to its February 2011 high. The short-term trend in the March E-mini Dow turned negative during Friday’s decline. That bias remains intact until the index can overtake swing high resistance up at 12,894. Swing low support in the March E-mini Dow comes in at 12,704.

NASDAQ: The March NASDAQ climbed into another new contract high this morning and extended its 2012 gain to 13.2%. In addition to expectations for a positive January retail sales report this morning, the index has also garnered support from a rally in the shares of Apple into new all-time highs and early morning gains in Google. However, there does seem to be some nonbelievers in Apple’s gains, highlighted by an active put option trade in weekly $500, $495, $490 and $485 strikes. European and US regulators approved Google’s $12.5 billion purchase of Motorola Mobility, and that lifted the company’s shares by 0.7% in early morning action. The trend in the March NASDAQ continues to support the bull camp, with support at 2551.75. Upside targeting today stands at 2578.00.

TODAY’S MARKET IDEAS: Global equity markets are on a higher track this morning, supported by more central bank intervention, favorable sentiment readings in Germany and hopes for a positive sweep in this morning’s US economic data. It is worth pointing out that trading volume on the New York Stock Exchange yesterday was the lowest for 2012. It is becoming more important that the volume improves as prices break out into new ground or face a downside correction from extremely overbought territory. A potential sticking point for the bull camp comes as EU leaders work on the Greek bailout and debt restructuring package ahead of Wednesday’s meeting. The short term trends in the March E-mini Dow and S&P 500 turned negative with Friday’s downdraft, with resistance coming in at last week’s high. Aggressive bears might consider fading early strength in the March S&P 500 to 1354.30, playing for a quick drop back to 1342.00. Risk 12 points from entry.

Commodity Outlook – 2012.02.13

by Dave Hightower on February 13, 2012

As of this writing the Dow Jones Industrial Average was clawing its way up to its highest levels since 2008. In addition to much better than expected US non-farm payroll figures for the month of January, the trade has continued to see consistent declines in weekly initial unemployment claims figures, and that in turn has added to the hope that job growth will continue. Progress in the US economy has at times become significant enough to temper expectations for additional quantitative measures. However, some Fed members (Evans in particular) have indicated that more easing is needed even if employment shows some signs of improvement. At times over the last month the Fed has seemingly alluded to the need for ongoing easing because of the potential knock-on slowing threat from Europe. We expect the direction of events in the Euro zone to continue to be very important to US Treasuries, US equities and a host of other commodity markets.

Unfortunately for the bull camp, many markets had already purchased a large portion of the expectations of a Greek debt deal, and now it could be time for the markets to turn their focus to the next biggest threat to the EU. However, we continue to think the ECB, IMF and other interested parties have already moved to significantly shore up the financial backstop and that an ongoing flow of growth from the US could serve to deflate negative speculation in the Euro zone. As we have indicated before, we think the Euro zone debt crisis will drift out of the spotlight instead of ending dramatically with a disorderly default or under some grand plan.

Over the last five weeks a number of physical commodities seem to have outperformed their fundamentals, and many of these markets are giving off the impression that they are rallying without clear evidence of renewed growth in China and the Euro zone. We do think that many markets have become short term overbought off the combination of a declining dollar and speculation that Greece is going to get a deal in place. Therefore, traders need to be on the lookout for corrective action. However, traders and investors should not discount the importance of consumer confidence and sentiment. Last year saw more than its share of adversity, and we could be entering a period when relative calm on the political and economic fronts could allow for continued gains in equities, precious metals and livestock.

In looking at the chart of Consumer Confidence since the beginning of 2009, it is clear that sentiment is climbing back from the very low levels registered in the wake of the sub-prime debacle. Without a repeat of a Fukushima-like natural disaster, the US deficit disaster and incendiary breakdowns in the Middle East in the weeks ahead, one should see economic prospects continue to improve. The magnitude of the decline in consumer confidence in 2011 probably served to hold back the economy more than anyone realized, and yet the US economy still clawed through with forward motion! In this day and age it is a tough call to predict social and economic calm, but recent gains in stocks would seem to confirm that clouds are dissipating.

If the markets manage to avoid a buy-the-rumor/sell-the-fact reaction off a Greek debt deal, we suspect that many physical commodity prices might be poised to run up into and peak shortly after an anticipated much-improved Consumer Confidence reading, due to be released on February 28th.

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