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May 1, 2007

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Its spring and the Cubs are losing, but the Bulls did sweep the Miami Heat. Let’s take a look around the markets and see what is going on here in the first of May.

Interest rates: The good news here is that the charts look better…much better than they have in a long time. With last week’s low GDP number, we should see the bonds trade higher and interest rates work lower in a gentle manner.

Currencies: The monthly US Dollar Index chart looks more like an abstract mountain painting than a chart one would expect for a major currency. My proprietary COT studies along with market behavior the last few days indicate that some sort of bottom is at least trying to form. Currencies can be some of the best trending markets, but it does take some time to turn, and this looks like a likely area.

S&P/Dow/Nasdaq: In this very space back in February I warned everyone to be wary of the ides of March, and we did see a significant market sell off, which was followed by a very solid near term bounce. We are beginning to look heavy again at these levels, and while I don’t think the sky is falling, three closes under 1500 on the S&P 500 could bring about a bit of a pullback.

The metals: We look don’t look so great here. In fact, we really look rather dreadful. Two major recent attempts at 700 in gold, both of which were failures are leaving the daily chart looking very problematic. A stronger dollar would tend to stoke the fires even more in here. As write this gold is at 679.5, key numbers for the next few sessions are 678, 674 and 661.

Copper also is beginning to look rather heavy up here at these levels and last years highs were put in May. This market is a very wild place, so do handle with care.

Energies: The gasoline is amazing, until you pull up to the pump to pay for it. Unleaded has lead higher in here, dragging the crude kicking and screaming the whole way. Keep this big reality in mind: The tail can only wag the dog for so long, and our crude supplies are more than adequate, so I am looking for energy prices to pullback some, has the gasoline is simply too far out of control right now.

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Cocoa: We have some bullish fundamentals here, as the mid year crop is in trouble, but by the same token we seem to have done a good job overpricing it. Too many funds being too long could result in a rather abrupt sell off.

Sugar: There is a lot of desire out in the commodity trading world be long sugar. I am not sure why. Consider these two ideas. 1) We have ample supplies of this stuff. 2) Every chart of this stuff looks rather dreadful. I really don’t see a bottom in sight. So if you have a feeling to buy sugar, lay down until the feeling goes away. I am looking for a test of the 800 level before any ideas of bottoming should be seriously considered, let alone acted upon.

Coffee: Much like the sugar I hear a lot of talk about how this market is going to explode to the upside. Again, I don’t see it has the market seems to imploding upon itself. Look for KCN around 100.00 before doing anything much, assuming we can hold that level we may see some degree of a bounce.

Orange Juice: This market is a fine example of the power of commodity funds. The funds liquidation pushed prices down more than 20 percent. The good news on this is that this market is fundamentally bullish, and any weather trouble in orange country could cause some rather severe price spikes.  Let’s let it settle down a little bit, but we are probably close to a value level.

Cotton: Everybody knows that we are losing plenty of cotton acres to corn and soybeans.  That is in no way shape or form a secret. That would lead you to believe that price should be going up. However, amazingly enough not only is the price going down, it is going straight down, at warp speed. Some where underneath this there is a bull market, but for right now I think patience and prudence is the proper course for the time being.

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Hogs: Near term I think we are a little heavy and should see some weakness continue in the July and August contracts. High grain prices however may pressure supplies as time marches on, and we could see much higher prices down the road.

Cattle: Talk about a bull market, the cattle has been on the rampage since 1996. Consumers strong demand everywhere beef product will continue to support prices so I would be inclined to buy dips, but being clever and trying to short rallies could result in less than desirable results.

Grains: A heavy demand market coupled with weather leads to heavy volatility, and if we throw some wild currencies moves into the mix we could be looking at some very wild rides here. The best advice I can offer is to pick your direction, pick your spots and do some things to help reign in some of the volatility.

We have some of the very best markets we have seen in years.

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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.