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June S&P500 (SPM07)

With a strong close at 1514.20, the SPM07 contract has been grinding steadily higher since the sudden drop on February 27/07 . Some cash market indicators such as the ratio of Public/NYSE Specialist Short Sales and the NYSE Short Interest Ratio are both indicating the potential for higher prices in the coming months. Long term, there is strong indications that prices will top out in 2007 and suffer massive declines afterward. I suggest taking short positions to catch a correction but don't risk more than a few points.

S&P500 Option Market

Many people have gotten spoiled earning good returns writing puts on the SP500. In my experience, people who constantly write puts at these high levels in the SP500 are just begging to lose all their money. When the market drops, it will drop fast and hard and those who are short Puts will lose more money than they may have dreamed possible. A better strategy is to Sell (write) the SP500 September 1600 call and use the proceeds to buy a SP500 September 1400 put. This allows plenty of room for a further rally but allows you to participate in a sudden drop.

Copper (HGN7)

Copper continues its strong rally from the February correction with prices closing at 375.85. Although production increases will eventually bring prices back down, for now the direction is up. Long-Only commodity Funds such as the Goldman Sachs Commodity Index, hold large numbers of Copper futures and never take profits regardless of how high the price goes. This means as short sellers are forced to buy to get out of their positions due to losses, there are very few sellers to take the other side of the trade and prices continue to move higher. Wait for a long term market top to form, then attempt to short the market.

Euro Currency (ECM7)

The Euro has consolidated for the last few weeks near all time high levels closing Friday at 136.16. Although a correction back to 132.00 is possible, the market is in a very strong position and will likely continue to move higher in the months ahead. Play the Euro from the long side and look for corrections to add to your position.

Wheat (WN7)

April began with a sudden drop in the price of Wheat followed by a quick recovery. The price decline stopped at the highs of the 1998-2005 period, which indicates a normal bull market correction. Prices could continue to advance to substantially higher levels. Adding to this is the fact that Wheat is a major holding of most Long-Only Commodity funds. As we observed with Gold, Crude Oil and Copper, when the Long-Only Commodity funds have a large position in a market, the prices often rally far beyond our expectations. Stay long and add to your position on corrections.

Interest Rates

A Eurodollar is the interest rate on the American Dollar deposited in European banks. This market generally moves with the Bond market. May 9th is a Fed Meeting. What is the Fed going to do with Interest Rates? In my opinion, they will leave Interest Rates unchanged. Although we might see some money put into this market as a safe haven in case the Stock Market corrects. Seasonally this is a bullish time for Bonds and a bearish time for the Stock Market. I am thinking of buying the September Eurodollar (EDU7) around 9475. I would also buy the EDU7 9475/put for approximately $225 for protection. Your risk is about $225 per strategy and the potential is unlimited. I see resistance at 9484.5.

Dow Jones

This strategy is bucking the trend. It has limited risk and unlimited potential. This is a credit spread. Sell the September Dow Jones 134/138 call spread for a credit of about $1800. Also buy the June Dow Jones 132/put for $600. The credit received per strategy is about $1200, and the risk is $2800. If the September Dow Jones settles at 13800 or above at expiration the loss will be $2800. The potential is unlimited.

Soymeal

This market looks like it could be forming a bottom. Seasonally it tends to move higher. I see resistance above 205.60. I was thinking of placing a buy stop above this resistance point. I would be going long when the market tells me to. I would probably place a sell stop below support of 196.50, if filled on the buy stop. This would risk about $910 per contract. I see a gap around 214.00 that might get filled. The July Soymeal 210/calls are only about $400.

Corn

I see a New Crop/Old Crop Spread that looks interesting. I would be buying New crop, December Corn, and selling Old crop, July Corn. The spread is currently trading around even $. We would want this spread to widen to the December contract. I see resistance around 4 ½ premium to July Corn, so the risk would be about $250 per spread. I see support around 17 premium to December Corn. If we test support this would be about $850 per spread. This spread will most likely work if we have some weather issues in the growing season, which would affect New Crop, December Corn.

Cotton

This market is getting oversold with warmer temperatures on the horizon. What about buying the October Cotton 54/58 call spread for about $400? This would have potential for $2000 per Call Spread. A 5-to-1 Reward/Risk. This is obviously going against the trend. I've been following Cotton somewhat over the last few years and it is one of the few markets that hasn't had a bull run at all. I believe when this market gets a little momentum to the upside it could really move quite a bit higher, maybe to 70 cents!