Financials
The S&P500 has developed an interesting multi-pronged technical setup on a daily chart that indicates a strong decline to 1203, possibly as low as 1184 in the near term. I believe the stock market rallied based on the Obama extensions of the Bush tax cuts, but overall the market will find weakness in global economic concerns and a reversal in premature bond selling. As money migrates back into the U.S. dollar from a continued exodus in Europe it is more likely funds will pour into bonds than an overbought stock market. Expect a dollar run to 83, a 3-5% drop in stock prices, and a decent bond retracement to 126 over a relatively short time frame. The euro and pound remain sells with the Canadian and Aussie dollar worthy of long term shorts. The Japanese yen remains a bull bright spot amid a sea of bearish foreign currency plays, with money moving to Japan as it leaves Europe and investors lack alternatives. I continue to stand by my forecast that:
Grains
Corn, wheat and soybeans have all developed congestion patterns near the highs, not altogether a bearish indicator but rather a suggestion that momentum and upside volatility have subsided. My expectations for declines in the stock market and energy sector are likely to hit the grain sector as well, given the lack of fundamental influences in grains this time of year and the overall psychology that global economic weakness means declining grain demand. Put plays are recommended across the board.
Past performance is not indicative of future results.
**Chart courtesy of Gecko Software's TracknTrade
Meats
Cattle is testing key trend line support and should fail this week. Hogs remain choppy and avoidable for the time being.
Metals
Gold and silver remain near the highs with choppy intermittently volatile trade lacking clear near term direction. Get short heading into the last few weeks of 2010 as a liquidation event is expected in both markets in the near term. Copper offers a fundamental long term sell ahead of a China slowdown causing panic selling in that market.
Softs
A short covering rally in coffee appears underway, however this move (possibly to 230) is expected to be short-lived and worthy of a put play on a further move up. Cocoa has established a likely near term top and is a sell with straight long puts. Cotton is attempting to pull off the miraculous feat of new highs after such a dramatic collapse. This is unlikely to occur, mainly on a technical level as it is very rare to see epic highs followed by an extreme retracement followed by a rapid return to the highs. Instead, look at this as the market setting a secondary top for a less volatile selloff ahead. OJ is a short with puts. Sugar is a sell using bear put spreads. Lumber remains a cycle buy on dips.
