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June 20, 2007

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The 4th of July is approaching and the markets are providing a remarkable amount of fireworks this summer. Let’s take a look around the futures world and see what is going on and consider things to look for in the coming weeks.

Interest Rates: Like a ball falling off a table, the Bonds collapsed during the first two weeks of June. We have begun some type of recovery, and I am looking for the Bonds to establish a new range between 106 and 109 for the next six to eight weeks.

Stock Indices: Stocks broke along with the Bonds early in June, and I am looking for a stable to bullish stock market as long as the Bonds behave themselves in a consistent manner. If this scenario plays out, I am looking for the NASDQ Index to be the better performer here.

Currencies: Oh Canada! The dollar from the Great White North has been the superstar currency since taking off in March. While it has pulled back a touch in June, I could see at least a test of the old highs and quite possibly new highs being made. The Yen on the other hand has been sliding since March, and I am seeing some possible bottoming action going on there. The Euro has come off of recent lows over the past few days, but I am looking at a near term top forming and for the downturn to resume at least for a little while. The US Dollar Index has pulled back from its highs, but I am looking for its uptrend of the past several weeks to resume.

Metals: The Wild West show that is the copper market continues to have volatile swings. I am looking for the 320-350 range to stay intact for the next few weeks, but a break below 320 could set the stage for further selling. Gold continues with a fits and starts type bear market as new lows are followed by weaker and weaker recoveries. I am looking for this pattern to continue in general, as I have seen very few signs of substantial bottoming action yet. Look for Silver to follow the Gold.

Energies: The gasoline, as we all know is at very high levels, but just looking at the chart I can see the case for some topping action on the August contract. However, before we get too excited about that, Crude Oil has pushed back to the top of the range. Barring any political or weather events we could see a moderate pullback on both of these.

Coffee, Sugar and Cocoa: Coffee tried to get something brewing in May, but it seems to be wavering a touch after recovering from the lows. The bulls here are going need to get some help to get things moving again to the upside. Sugar has recovered off the lows early this week, and thus far has managed to at least hold it gains for the last couple of sessions, which is about the best this bear of a market has been able to do in quite a while. I am not convinced that a bottom is in just yet, but for the first time in quite a while this market’s bulls do have something to look at. Cocoa has been a real rollercoaster ride of late, and I am just standing aside in there waiting for better long term ideas to form.

Orange Juice: One of my personal favorites has taken a major swan dive for most of 2007. Funds liquidated a massive number of long contracts and sent prices sailing lower. I do however see a case for bottoming and there could be more than a few things that could allow for a substantial rally in prices.

Livestock: Live Cattle prices remain at very high levels, and Feeder Cattle prices have come back some. Grain prices are going to be the wild card here, but some recent action in the Feeders may give rise to some bottoming action. August Lean Hogs have been range bound between 73.00 and 78.00 and for the most part I am looking for this action to continue. Bellies however, do look a little heavy here, and if they do skid we could see that put pressure on hog prices.

Grains and Cotton: This is one wild place...it rains...down we go, it gets warm and we turn on a dime. Weather markets are widely known for their difficulty under regular conditions, when you add in all the changes in the current grain markets, ethanol, and biodiesel you just add fuel to the volatility fire. In general, I am bullish towards grains, but this is a classic pick your spots game, and traders should have some coverage on to protect their downside situation. Cotton has rallied sharply with the grains, and I am probably the most bullish towards this market. I would look to be a buyer on dips.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT ASSURED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS AN INDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKE POSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE.

This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way assured. No assurance of any kind is implied or possible where projections of future conditions are attempted.

Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, assurance or implication by or from FuturesOne or Sterling J Smith that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.

This week's author is Sterling Smith. FuturesOne Vice President and CTA, Sterling Smith, creator and publisher of the FuturesOne Power Index, is a veteran broker and widely quoted market analyst. Beginning in the futures industry as a risk manager for a large FCM, he moved to a major clearing firm and learned from some legendary traders. He incorporates the benefits of these insights to help every client construct better trading plans and to enhance their understanding of the marketplace.

Sign up for you complimentary CD-ROM "Trading Commodity Futures". Brought to you by FuturesOne

Sign up and get your complimentary educational seminar. This interactive CD-ROM introduces you to the fundamentals of futures trading. It lays out easy to follow trading examples along with additional resources to help today's commodity trader. This comprehensive educational CD-ROM was developed by the Chicago Mercantile Exchange and brought to you by FuturesOne. To get your complimentary personal CD and learn more about this great offer go here.