Wednesday. March 19 2008

Little news this morning. US market will likely end the day higher as FED rate cut sinks in and yesterday's rally brings investors back. Commodities soften over night as oil falls. We expect to see a continuation of this pattern through out the day.

Our open positions this morning for the most part are in the red. I had mentioned in Sunday's email to our membership that this week could very likely be bumpy as so far this has been the case. It is possible that we are beginning a shift from hard assets (commodities) to financial assets (stocks) that may develop into a significant trend over the coming weeks. It is too early to confirm, the next 5-10 trading days will tell the tale. Stock prices are very low and in tandem withthe weak US Dollar it is only a matter of time before foreign investors snap up real bargains with their high valued currencies. In the meantime we remain on plan.

Tuesday, March 18 2008

Data and more data, plus an interest statement by the FED. Markets are likely to be chaotic. A rate cut today could very likely create a counter move in the currency markets, especially if it is larger than expected. It may be seen as an ideal place for profit taking and viewed as the "last move" by the FED resulting in an upswing in the US$. Risk adverse traders may be well advised to just window shop today.

Thursday 6:00 AM Morning Market Review

US$ sets new lows against the Euro overnight. Gold ran higher, flirting with $1,000 but fell back on what appeared to be profit taking while crude oil is trading near 105 on the back of yesterday's unexpected decrease in reserves. Grain markets are higher but commodity markets are edgy as fears of a commodity crash are growing. Housing data is released today in the Us and Canada. Numbers are expected to be poor once again signaling a deepening slump .

Wednesday 7:15 AM EST Market Review

A full slate of economic news this morning. ISM Non-Manufacturing data will likely carry the most weight today. Forecasts are for an improvement over last months number however a surprise to the downside is my expectation. As the economy has slowed, service sector jobs are likely in decline. Any number lower than the expected 47.6 could send stock markets down again today. Over night yesterday's commodity correction slowed. Oil climbed back over $100 and gold stabalized around $965 and grains rallied.

Tuesday 7:20 AM EST Market Review

Oil reacts to OPEC's reluctance to increase oil production and moves closer to $103 (it is highly unlikely they can increase production due to world wide peaking oil). Profit taking hits Soybeans, Corn and Bean Oil overnight but they remain in bullish patterns. Cotton, for the second day in a row is locked at limit move up. Yesterday limits on cotton were raised to 4 cents. Our long (12:00 Feb 28) is now up over $5000 per contract. The US$ gained a little strength early last evening but is eroding again this morning as the Yen and Euro move higher. Rates in Australia were raised last night to 7.5% but the Aussie fell in response to Central Bank comments that rate increases were nearing an end. Today Canada will release its interest statement and BOC Governor Carney is likely to cut interest rates. Expect some volatile action on the Loonie today.

Market indexes remain weak this morning as the trend to lower equity numbers continues today. Fed chairman Bernake speaks in Orlando at 9:00 EST about mortgage foreclosures . His comments may set markets in motion.

Mid Day Market Report

Gold and silver are setting new highs today while the soft commodities, sugar, cocoa, and coffee are solidly higher. Oil is tagging new record highs - now over $103 a barrel. Our long cotton position (78.83) is on fire as cotton has moved limit up this morning to 84.86. At $500 per cent this position is now up $3000 in just 3 trading days. Market indexes are weak but they have bounced off lows this morning after better than expected ISM Manufacturing Index numbers. Currencies although generally higher on the day have pulled back mid morning after an early day bullish surge. We look for continued US$ weakness this afternoon.

Food Inflation: Concerns and Opportunities.

Rapidly expanding world population and climatic changes are clearly affecting the price of all foods. Wheat has more than doubled in price in the last 12 months. While much of the increase is attributed to record low yields in Australia over the last two years, we are also seeing a steep rise in demand. Pakistan has placed export restrictions on national wheat stocks due to dwindling supplies and high internal demand. Canada, once the largest exporter of wheat has reduced its crop in the last few years preferring to grow canola. Low wheat prices just two years ago motivated farmers to plant higher profit crops like canola. Compounding the problem is the high cost of crude oil. Traditional food crops such as soybeans, corn and sugar are competing with the energy market as the use of bio fuels increase. In fact the US corn crop, by far the largest commodity produced in the US will not be able to meet demand by ethanol producers within 5 years. There will not be any corn available for feed if the corn-ethanol program attains its projected goal. Planting more is simply not an option. There is a finite amount of land available for growing crops like corn, soybeans and wheat. In fact the competition for crop acreage is now so severe that prices are rising rapidly for cotton, a commodity that is currently not in short supply. It is hoped that by moving prices higher now farmers will avoid converting their cotton fields into corn or soybean fields next year.

Sugar, a commodity that is grown all around the world, has traditionally been priced between 8-12 cents a pound and supplies have been more than adequate for many years. Currently sugar is trading near 15 cents a pound and is set to move above the 20 cent mark within the next few months. It is by far the most efficient agro-product for ethanol production. In fact Brazil is now energy self sufficient because of ethanol production from sugar cane. What was once a cheap commodity is rapidly becoming an important source of energy and we all know the high value our society puts on energy.

As feed costs have increased dramatically this year cattle producers found them selves between a rock and a hard place. Their immediate reaction was to reduce the size of their herds by sending more cattle to slaughter houses. Of course this only served to dampen the price of beef in the short term but by this time next year we can expect meat prices to rise significantly. Demand remains; in fact it is growing rapidly in developing nations like China where incomes are rising. This is happening as cattle stocks are falling. It takes two years for a heifer to mature for slaughter so we can expect demand to far exceed supply soon. Several slaughter houses in the US are shutting down. They are well aware of the small herds and the certainty of slowing business in the meat packing industry.

As consumers we will have no choice but to pay more for the basic foods we need and enjoy. At the same time opportunity exists to profit from the increasing prices. Investors should be allocating more of their portfolio towards commodities. As always it is best to consult with an investment advisor or a commodities specialist before committing funds.

Michael Hayes is an active Futures/FOREX trader. He publishes a weekly trade plan for Futures and FOREX traders. His trading tools for TradeStation users and weekly Trade Plans are available at CTGFutures Learn more about Michael at LinkedIn

Week of March 3 2008

Expect a busy trading week. Our Weekly Trade Plans for Futures and FOREX trading has several open positions to manage and several new positions we expect to take on as the week progresses. Check out our web site to download our Weekly Trade Plans - they are absolutely free!

Our forecast this week is for higher commodity prices - watch for Gold to test $1000 an ounce. Market indexes are likely to move lower while the YEN heads to new highs against a stumbling US$. Bonds are expected to push to the highs of earlier this year as investors head for safety.